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

To: 16yearcycle who wrote (13528)	10/26/2000 7:04:30 PM
From: William T. Katz	Read Replies (5) \| Respond to of 24042

Here is a somewhat pessimistic take on the earnings from briefing.com -- JDS Uniphase (JDSU) 74 7/16 +3 7/16: Great report, but not great enough. Here's the good news. JDSU beat earnings by two cents, which is to say that they were pretty much in line, since analysts' estimates are typically low-balled by about that amount. Revenues of $786 mln were also above estimates, but here again, not by much more than is typical for JDSU. On the conference call, the company reportedly said that demand for optical components remains strong and that it doesn't see any inventory issues with its customers. Finally, it guided full year EPS estimates higher to $0.80 from the current consensus of $0.70. And now for the bad news: this is not enough to bring back the optical sector for two reasons. First, there has been a bubble in optical sector valuations, and when a bubble pops, valuations contract, even with occasional good news from companies in the sector. Note that JDSU's P/E for this year is at roughly 100, even using the new estimates. Is that rational? Maybe, but probably not. Even with estimates being guided higher, the valuation could contract. Second and just as important: the fact that JDSU doesn't see any demand issues does not mean that there are no demand issues. Just this morning, Worldcom (WCOM) reported that it will reduce its 2001 capital expenditures plan. Do you think that JDSU has seen this demand weakness yet? Absolutely not. Sometime next year, WCOM will be less aggressive with its purchases of optical systems. Then those optical systems companies will be less aggressive with their purchases of JDSU optical components. Being a components maker, JDSU is very much a lagging indicator. The key to the popping optical bubble is not the JDSUs of the world, it's the WCOMs. That's the end-user demand, and while still strong looking back, it's clear that there has been a change on the margin looking forward. While one can correctly argue that this change will hit some companies worse than others, excessive valuations were a factor for the entire sector, and all stocks in the sector will suffer as those excesses are wrung out. JDSU has tacked on 9 points to 83 7/16 after hours at the time of this writing, but we would caution against believing that the optical sector's woes have ended with this one report. - Greg Jones, Briefing.com