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Technology Stocks : JDS Uniphase (JDSU) -- Ignore unavailable to you. Want to Upgrade?

To: David S. who wrote (12532)	9/9/2000 8:08:24 AM
From: John Carragher	Respond to of 24042

barrons parts of interview concerning jdsu/sdl Q: What are some of those points of entry? Landis: We like TriQuint Semiconductor quite a bit. And that's probably the only bulletproof one in the group. Although you could make a pretty strong case for a company called Anadigics. Our Tech Leaders fund also owns Texas Instruments, which is a nice DSP presence there. The thing that, of course, gives TriQuint a little bit more safety than the others is the fact that it is in several other high-growth, high-performance communications markets. So it is a little bit immunized. For the long term, this is where you want to be. These are good stocks. Wireless is a very strong trend. Fixed wireless and handsets both. You can move it over to the landline side, where the obvious trend that has everyone going nuts about right now is optics. We have a couple of interesting plays there. I think we are probably the only -- or at least it feels like we are -- the only money manager out there that doesn't own JDS Uniphase right now. Yet we are really big on the trend. We have a pretty sizable stake in Corning, and we also built up a nice big stake in Furukawa Electric. Actually, Furukawa is probably my favorite pick of the bunch. I bought some today. Q: You used to own JDS Uniphase. Why not now? Landis: Any time there is nothing but good things to be said about a company and everyone else owns that company, you should at least do a reality check and make sure you're not paying too much. It looked like Corning earlier this year was a much more reasonably priced proxy on that trend. And we added Furukawa because it owns 18% of JDS. It's the No. 3 component player. It has a market cap of about $19 billion. You net out the JDS Uniphase that Furukawa owns, and it takes about $1 billion to buy the No. 3 merchant optical component player. So we think that is kind of a no-brainer. Q: Is this last acquisition [of SDL] too big for them to digest? Landis: No. There is only one big issue right now for JDS Uniphase, and they know it, and everybody knows it. It is how fast they can ramp up their manufacturing. When you have a company that is definitely in the right place at the right time, and the stock is very expensive, the only issue is how fast can they grow and how much can they make of this? The dirty little secret about optical networking is that this is a technology that came out of the lab. It didn't come out with a mass-production mindset. So when they have cranked up manufacturing, they have just thrown bodies out and opened more factories. But it's hard to crank this up. They are attacking that problem very aggressively. But it should make you nervous if you own that stock. McNamee: I think he has the core point right, which is that this isn't the same as manufacturing silicon chips. It's much more complex. The great news is that these are very high-margin products. The only question -- as it is, I think, for so many of these stocks -- is: What's the right price to pay? Q: So what is it? McNamee: I don't know. But we don't own it today. Having owned it until very recently, we just decided it had been a great ride. We thought we would step to the sideline for a while. Q: Walt, I know you were in it as well. Price: We own it. Between SDL and JDS Uniphase, you have a $140 billion company. And there is a bit of a valuation issue with Nortel being the most valuable communications company in the optics space. It sells for $240 billion. So I think some of the emerging companies have to kind of hit their stride -- the Sycamores, the Junipers, the Redbacks and so forth, which incorporate JDS Uniphase components into their products. Once that happens, people will understand why JDS should be worth perhaps as much as Nortel. But it's going to take these small companies to demonstrate that they are viable leaders in their spaces for JDS Uniphase to have the next leg. Q: What's your take on their ability to integrate business processes and corporate culture? Price: They are very focused around their individual customers rather than around trying to integrate the different manufacturing businesses. There is no piece of that company that's more than 10% or 15% of the whole company. So they have lots of moderate-size pieces, all of which are trying to grow at 100%, all of which are focused on customer quality and customer penetration. So, it's a little bit like Hewlett-Packard in that way. They have lots of pieces, focused on satisfying customers from many different angles. And that's why they have been successful. That also means that they can focus on a lot of these smaller companies that are emerging. I don't know how many billions of dollars have been sunk into optical-systems startups. But if you are going to be in the optical-systems business, the first company you talk to is JDS. And you ask them how to translate a competitive advantage that you see into products. And you work with them. I think they are seeding all these optical-systems companies. McNamee: To the extent that they execute crisply, their future, as far as I can tell, is assured for as long as any of us is likely to be concerned. Again, the question you have to ask for many of these really well-positioned companies is: What do you pay for $1 of earnings? The enthusiasm for optical companies has reached a level of intensity previously reserved for categories that came and went relatively quickly. This is a category that is here to stay, but that doesn't mean that it isn't possible to temporarily get a few pockets of overvaluation. The fact that JDS has essentially no competition, and no threats now, has caused people to sort of suspend all rules of valuation in a business where execution is incredibly hard. And where some customers have very uncertain immediate business prospects. Q: So, you also have some expectations concerns as well?. McNamee: At JDS, that is the only concern I have. Landis: You are going to hear more and more about manufacturing in the optical business. Think of it this way: If you own JDS, here is a company that's as well-positioned as any has ever been -- seemingly. They can ship everything they can build. So the only question is: How much can they build? And it has a valuation that implies that it better keep growing pretty fast to justify that valuation. How fast can they ramp the company? And that just comes down to manufacturing. The nightmare scenario is that somebody else comes along and solves the mass-production problem early on and just simply outgrows them.