JDSU conference call, January 26, 2000:
[See press release for full discussion of numbers] [Replay can be accessed at 800-475-6701, access # 487987]
Base business up 100% y/y, LU was 22%, up 27% sequentially; NT was 14%, up 24% sequentially; new optics companies "considerable activity."
$174 million in components;$94 milliion in modules, $14 million "other."
50.6% gross margins; 7.7% R&D; 12.0% SG&A; 31% OpX; International and other $10.7 million; tax 33%; shares outstanding 374.3 million; pro forma .18 versus concensus of .15 to .16
Cash $885 million, $62 million from operations, vs. 39 million a year ago; $42 million in capital spending, $110 million on acquisitions.
DSOs 56, inventory turns 4.3 annualized.
100% growth across all areas. Delighted with results.
Market is dominated by long haul. New companies are entering short haul, Metro, market. Forercasts for 2001 look to be spot on. Capacity complicated by material considerations --- all require different manufacturing and packaging and reliability. Testing --- task is not small. 2 to 3 X expansion across the board. Move is to higher speed devices. Few had 10 gigs --- that is changing. Even 40 gig is actively investigated.
Continued growth of modules.
1) Manufacturing: recently acquired 80,000 square feet in Plymouth England. Will enlarge Seafam. Included in this is 20,000 sq. ft packaging space. Will allow Fiber Bragg Grating products. Design is qualified, factory will be qualified in 3Q, with 50,000 devices per year capacity.
2) Shipping out of Zurich in April
3) Einhoven packaging will be complete in May and qualified. Will double capacity of source lasers. Initial output in region of 50000 devices per year. staffed with world class team from throughout industry.
Shortly begin shipping packages ups out of Zurich in April for telecom and before April for cable.
Einhoven complete and qual. in May and will immediately double prod. of qualified source lasers.
Product issues we see:
* number of divisions. Transmissions group deals with modulators and some of modules. Wavelocker prod in Conn. has 100% growth. 40 gig modu. prototypes with customers. 10 gig opt. transmitter subassemblers being made, going to new non-traditional telecoms players. CATV side have high-powered op. amplifier line, up to 2 watts, reduce number of head-ends needed; expect significant growth in this area as ind. moves from analog to digital. Epitaxx is part of this group. Have 10 gig transceivers. Trend is to higher speed modulation and devices.
* Fiber Optics fiber group; strong sales of instrumentations, started vol. delivery of optical switching modules, strong ramp here, factor of 2 in quarter, continue to ramp DWDM filter capacity.
* In R&D, looking at new switches and interleaver types. Significant growth in modules, volume ramp in optical amplifiers, have additional orders for optical amplifiers (besides LU); in process of dev. ultra-flat optical amplifiers for next generation systems.
* Semiconductor group. Packaging of 980 nm pump chips. First deployments of submarine chips in Tyco's PC1, Japan to Oregon line. Einhoven pkging coming on quickly. Qualified 10 gig electro absorption modulators, and shipping to major customers.
Message: we continue to extend mfg, ramp up mfg, and provide customers R&D of new product development.
Guidance for infrastructure ramp up: making major investments to strengthen infrastructure to support acquisitions and support infracture for much larger company. Several programs. Full suite of Oracle software across the company. KPMG is implementation consultant. Outsourced data to Qwest. Installing Oracle in US and Australia, and expect cutover in early May. Phase II will cover Canada and Europe with cuts in January. Ockley and ETEK experienced cutovers to world class software systems. Installing mft. and execution software. Now in major mfg. facilities first. Also engineering and desigtn software. Completed integration and financial reporting. Increased internal audit facilities. Will adopt 445 accounting.
Guidance: growth of 15% or better sequentially. This continues. Cont. growth from new companies. Must expand fast enough. For 3rd Q including closed acquisitions we expect sales to be 25% higher than second. Margins to be consistent. GMs 50%. Pro forma oper. profit 28-30%. Evaluating tax rate for rest of year. 34% for rest of year. 35.5% in 3Q. Shares 393M 3Q 443m in 4Q. RY2000 to 115% or better above pro forma.
New opportunities continue to emerge. Challenge is to expand capacity to meet demands of customers. Guidance is conservative.
Two other factors: expect to close OCLI on Feb. 4. ETEK no news. An exciting time to be alive. Bandwidth is the biggest societal shift in the next decade. Your company plays a considerable part in it. Market has significant opportunities for us.
Q&A
Q: [Kedersha] Congrats. . . 1) guidance on revenue side going to 25% sequentially. How does this happen? Early capacity coming on? 2) Can you get into any discussion on pricing in the industry --- how going forward?
A: Growth, underlying growth continues to be 15%. Other factors. We'll have seafam and Epitaxx in full quarter, which we didn't before. OCLI a factor, too.
A: Pricing continues to fall. Trend will continue, unabatted.
Q: [Nikos] 1) on guidance, on gross margins, would OCLI help GMs improve? 2) packaging of pump modules, where do we stand re: full Bellcore qualification on modules? Then what? Do customers give approval?
A: OCLI affect: we're providing conservative guidance b/c OCLI will be only part of quarter.
A: Design is fully Bellcore qualified. We need to qualify full product. CHip is already qualified. Don't anticipate full production till Q3. Customers will be receiving product for evaluation. Stuff out of Zurich is being evaluated. Chip done, pkg, deisgn is qualified, but actual device must be qualified.
Q: Growth in different market segments?
A: All growing at the same rate. Metro is still 2001. Terrestrial and Submarine in line with over-all growth.
Q: Sense of new start-ups and when they'll be big part of revenue stream?
A: Not until they have vol. installations themselves. Probably 2001.
Q: Revenues excl. new acquisitions?
A: We don't break those out. If you exclude acquisitions you get 100% yearly.
Q: Any divisions growing slower than corporate average?
A: OCLI non-telecoms is more slowly. Except for Flex. Everything in telecom growing at very very high rates.
Q: Hearing more about VCSEL applications, what's your view of importance to market?
A: Useful product as we move further out to the edge. We don't have them directly ourselves. Reviewing them. Issue re: reliability in Bellcore environment. We're still little nervous. We can get those capabilities in house.
Q: Gross margins?
A: 48 to 50 earlier, now saying 50 to 51%.
Q: Automation in Montreal plant?
A: Automation, have engineering teams working, . . . (couldn't hear)
Q: ETEK --- a lot of consolidation in sector, concerns on concentration and FCC review, have people wondering. Spread suggests concern. Since announcemt, have you had any indications regarding difficulty?
A: We did careful DD on all aspects before buying. We learned it's important to look at business according to true market environment. Others sell similar technologies. Large number of start-ups who keep. In-house divisions of customers hold 50% of industry. Benefits: Can increase capacity, we can reduce time to market, using automation we can afford more and improve pricing. No change since announcement.
Review begins with filing with Fed. trade commission. They call customers, and have 30 days in which to let issue pass or ask further information. Filing dates not filed.
Q: Operating magins from each business:
A: Components $66.9m 39%; modules $19.9m or 21%
Q: Components growth?
A: Pure ramp-up. Seafam and Epitaxx are both components suppliers.
Q: Shipments to Lucents on 10 gig module. Update on tunable laser business.
A: We didn't say we shipped 10 gig to Lucent. 10 gig was 5 or 10% in modulators last year; is 50% now, will be 80% by end of year. Assumes this is long haul. Out at edge you don't need high speed. Vol. shipping in 2.5 gig. And unit pricing is lower. Tunable lasers in qualification. Wait mode. Nothing we can do about 9 months. Number of customers? It's not customer. It's Bellcore qualification.
Q: Plain and waveguide products? New products?
A: It's a development technology for us. We have some av. from IOT in Germany. We look at other opportunities in this area. In terms of Next generation products. More optical power. All actives have to go up. Higher modulation speeds. Transition to 10 and 40 gig. Want greater modulatity in these. More subsystems. Speed, capability and implementation.
Q: Internally packaged 980nm pumps. What % internally?
A: Not certain what volume we'll need. It's a moving race. Obviously some significant percentage.
Q: 25% sequential, does it include OCLI to ETEX.
A:
Q: Packaging facility in UK, what is required to properly equip this sight? Will you utilize other capacity for chips?
A: 980 pgking is separate from source laser packaging in Einhoven. Technologies are different. Both in chips and packaging. Two separate sections.
Q: Head count? Rollout of 100 gig systems and 10 gig?
A: 9200 at end of quarter. Headed up. OCLI 1500. High hiring around globe. Don't have breakdown of products. Sign. movement to 100.
Q: Cable business? Grow in line or faster?
A: It grew in line with rest of company.
Q: When will cable accelerate?
A: Capacity is issue. Growing in excess of 100% is a stretch.
Q: Big picture. 10 gigs going to 40 and market acceptance. How can you help you customers? Get into full transceivers?
A: Important we consider customers as partners. Really important we engage in situation and consider system architecture. Must consider manufacturing ramp up. Not only in modulators but higher level of integration.
Q: Now giving guidance with OCLI. How will it impact SG&A?
A: SG&A and R&D rates at OCLI are above corporate average as is gross margin. End of day Op. margins will be consistent.
Q: R&D and how it breaks down regarding acquisitions.
A: We need to assess each company. Look at core technologies. CTOs meet with product line management.
Q: submarine vs. terrestrial?
A: Less than 25%
Q: RAMAN amplifiers over next 12 to 18 months?
A: We don't go into details. Rest assured RAMAN amplifiers and front-end amplifiers are being considered. Within next couple quarters we'll be bringing product to market. Much bigger demand for cheap amplifiers in metro market.
Q: Automation, especially in Ottawa. Outsourcing vs. in-house? Timing and how in increases capacity?
A: Major project for us. As demand is increasing within industry, we're always running short on bringing automation in. Always playing catch-up. Some of automation changes. We are going to bring in major machines a couple weeks from now --- a couple months to prove in --- then bring others forward. Issue is automation or ability to make in higher volume and repeatability and making it with quality. With OCLI we bring considerable automation with DWDM mfg, by consolidation of filter and handling of components. Must look at how we outsource. Task forces flying around globe to find sources where non-value added can be outsourced.
Q: Packaging of 980 pump laser chips, what % are packaged and how will it expand?
A: Answer must be infinite. Equal pressure on source lasers as we have 980. Need one source for each wave length. 980 is different. Run rate of 50000 per year by end of calendar year.
We've had an exciting time this quarter. The technology is not easy. The demand is significant. Management is really excited. . .
[Sorry about errors. . . too tired to edit. . .]
Pat |
