Another view from CNBC:
Focus on Long Term in JDS 4Q Report
By Eric C. Fleming
Stocks Reporter
Analysts expect JDS Uniphase Corp. {JDSU} to lay out some details about its long-term plans -- particularly in light of recent mergers -- when the company releases fiscal fourth-quarter and full-year 2000 results after the close Wednesday.
According to First Call Corp., the consensus estimate, based on a survey of 29 analysts, stands at 12 cents a share for the fiscal fourth quarter ended June 30. JDS Uniphase earned 6 cents in the year-earlier quarter.
JDS Uniphase could beat the Street, however, because [JDS management] was very clear that results in its businesses are ahead of plan, says James Kedersha, an SG Cowen Securities analyst, who rates the company's stock "strong buy." The analyst expects the company to post quarterly earnings of 13 cents.
U.S. Bancorp Piper Jaffray analyst Conrad Leifur expects JDS Uniphase to earn 12 cents on $485 million in revenue for the quarter. He rates the stock "strong buy."
Revenue for the quarter is seen climbing to $481.9 million, according to a consensus estimate of six analysts polled by I/B/E/S International Inc. In the year-ago period, the company brought in $87.1 million.
For the full fiscal year, JDS Uniphase is expected to earn 39 cents a share, according to First Call, up from 19 cents a share in 1999. Sales for fiscal 2000 are seen reaching $1.341 billion, I/B/E/S International says, compared with $282.8 million in fiscal 1999.
Looking beyond the June quarter numbers, the company has a fair bit of explaining to do, after buying E-TEK Dynamics Inc. {ETEK} and SDL Inc. {SDLI}, both bought at 50 percent premiums based on the closing price at the time of the announcements.
Melding these three businesses together "is one of the most-challenging integrations attempted in the communications industry," wrote Goldman Sachs analyst Mary Henry in a July 20 report. She initiated coverage of the stock by adding it to her firm's "recommended list."
However, last year's merger of JDS and Uniphase gives the company some experience to handle such a task, says Dave Kang, an analyst at ABN Amro. "With that track record, I expect the integration will go smoothly," he says.
In the near term, Wall Street is mixed on whether both acquisitions will immediately add to JDS Uniphase's bottom line.
"I think E-TEK will be [immediately accretive]," says Leifur, who is eager to hear details on how and when the optical company will be do this.
Not everyone sees JDS Uniphase hitting the ground running with its acquisitions. The JDS-SDL union is expected to be a drag on earnings until fiscal 2001, wrote PaineWebber analyst David Wong in a July 21 report.
However, Wong does expect the SDL purchase to modestly boost JDS Uniphase's gross profit margin in the short term.
To be sure, because both purchases are so recent, it doesn't make sense to fold in their results with JDS Uniphase's numbers just yet, Kedersha says.
"I wouldn't focus on the revenue numbers, because E-TEK is going to impact it," says Kedersha, who expects the company to post $480 million in revenue, which excludes E-TEK.
The demand for fiber-optics is voracious, according to Ryan Hankin Kent Inc. a San Francisco-based market-research firm. Sales for fiber-optic components, such as lasers and amplifiers, are seen growing this year to about $10 billion and to $23 billion by 2003, says John Lively, an analyst at the firm.
"Traffic growth in the Internet has created a bottleneck in long-distance networks," Lively says.
Meeting such robust demand is the trick, though. Using lasers to carry voice and data through glass threads is cutting-edge science, and making the devices is a tricky business. For example, JDS Uniphase has a gross margin of about 49 percent, meaning about half the devices it builds have to be thrown out.
That is where the mergers come in handy, analysts say. SDL has a slightly better gross margin of about 52 percent. Also, having a laser maker under its roof may help to improve its output, analysts say. JDS Uniphase itself has a goal to boost output fourfold in the next year and a half.
Aside from supply concerns, investors are concerned about the government stepping in because of antitrust concerns.
Of course, any time there is consolidation in an industry with a handful of rivals, there is concern that the government may intervene for the sake of competition. However, analysts remain sanguine that there are enough players in the optics market that JDS Uniphase's purchases will proceed with difficulty.
"There are several other worthy competitors out there," says Kang, counting Alcatel SA {ALA} and Nortel Networks Corp. {NT} as JDS Uniphase's' rivals, as well as Lucent Technologies Inc.'s {LU} soon-to-be spun off microelectronics unit.
The JDS-E-TEK merger has closed, taking it off the regulatory radar screen, leaving the SDL deal, which "will be scrutinized even further [than the E-TEK deal]," Kang says.
Both Kedersha and Leifur are considering boosting their price targets.
The company has a conference call set up for 4:30 p.m. EDT on Wednesday. |
