MF: "Companies like JDS Uniphase, Cisco. They have sold off dramatically but these are going to be, whatever shape this internet and technology takes, these companies will be beneficiaries."
Beautiful. Thanks for posting the transcript.
I've spent some time this morning going over JDSU's SEC filings and re-reading both SDL's and JDS's conference call notes. Call it "Sunday Morning Musings. . ."
freeedgar.com
a module such as an Erbium Doped Fiber Amplifier (EDFA) is comprised of multiple passive and active components. According to Ryan Hankin Kent, Inc. or "RHK" (a market research company specializing in telecommunications), the market for EDFAs alone is expected to grow from $790 million in 1999 to $3.9 billion in 2003.
[In a nutshell, what carriers are facing:]
The current demand for increased capacity in fiberoptic telecommunications and cable television networks has caused the complexity and performance requirements of newly deployed fiberoptic networks to substantially increase while product life cycles for these network systems decrease. OEM system suppliers are under pressure from their customers to provide higher capacity and more complex, and at the same time more flexible, systems in shorter time periods and at reduced costs. These same pressures apply at all levels of their system products, including components and modules. These increasing performance requirements and associated development costs are making it more difficult for many OEM suppliers to compete effectively by vertically integrating their own components and modules. The growing complexity of these network systems also results in a substantial increase in the number of components that the OEM supplier must utilize to achieve desired system level performance. For example, next-generation systems are expected to reach transmission speeds of 40 Gbp/s with channel counts surpassing 160. There will need to be source lasers, modulators, and receivers for every channel, as well as more powerful amplifiers and additional components to combat spectral issues that develop in the signal at 40 Gbp/s. At the same time, the need for increased flexibility within a fiberoptic network, combined with cost reduction pressures, is driving demand for systems that reduce, and ultimately, eliminate altogether, the need for electronic switching and regeneration of optical signals. The goal of these so called "all optical" networks is to keep a signal entirely in the optical domain from beginning to end of the network. To accomplish this, optical components will need to perform every function in the network, many of which are currently accomplished by electronics. . . .
[For those who wonder why SDL and JDS merged:]
In lieu of qualifying a different vendor for each of these components, OEM system suppliers are seeking fewer vendors for a greater variety of components and integrated modules. A single vendor of multiple components or modules has the ability to design these products to interact more effectively within a network infrastructure and to optimize performance between them when installed in a single network system. Given these factors, there is an increasing trend by established OEMs to reduce the level of their vertical integration at the component and module level and to focus on the overall system design and architecture of their products, which has historically been the primary means by which those OEM system suppliers have differentiated themselves from their competitors. Coupled with the developing demand from emerging system suppliers, the merchant component manufacturers are facing unprecedented demand.
[Customers, including Tyco, listed for the first time (that I’ve seen)]
We market our telecommunications components to OEMs through our direct sales force in North America, Asia, Europe and Australia. In addition, we sell our products through distributors and manufacturers' representatives in North America, Europe, Asia, South America, the Middle East and Australia. Selected OEM customers for telecommunications components include:
Alcatel Juniper Networks ONI Systems Ciena Lucent Scientific Atlanta Cisco Marconi Siemens Corning Motorola Sycamore Corvis Nortel Tyco
[To the person wondering about construction in Nepean, Ontario:]
We manufacture passive components and modules, amplifiers, and instruments at our three owned facilities in Nepean, Ontario. These three facilities total approximately 600,000 square feet. We also lease approximately 539,000 square feet of various other facilities that expire on various dates through 2005. An additional 412,000 square feet of owned manufacturing and office space is under construction with occupancy estimated in November 2000 and September 2001.
[Cap-X]
We expect to continue to expand our worldwide manufacturing capacity, primarily for telecommunications products, by making approximately $ 750.0 million in capital expenditures for 2001. . . .
[And in response to the article on use of options, Options Outstanding:]
Balance at June 30, 2000 ...........
Shares available for grant: 35,321 [in thousands]
Number of shares: 141,408 [in thousands]
Weighted average exercise price: $ 26.62
. . .
A total of approximately 91,365,000 options, including options assumed through acquisitions, were granted during fiscal 2000 with exercise prices equal to the market price of the stock on the grant date. The weighted-average exercise price and weighted-average fair value of these options were $40.94 and $27.92, respectively. The weighted-average exercise price and weighted-average fair value of stock options granted during fiscal 1999 was $10.22 and $3.05 per share, respectively. The weighted average exercise price and weighted average fair value of stock options granted during fiscal 1998 was $4.62 and $2.92, respectively. The weighted average fair value of shares granted under the Employee Stock Purchase Plan during 2000, 1999, and 1998 was $7.93, $1.56 and $1.33, respectively.
>>>>>>>>>>>>>>>>>>>>>>
Now, turning to JDSU’s Q2 conference call, a couple comments seem more vivid in hindsight:
Q: Customer mix?
A: Small customers started from small base. Focusing on growth ops of start-ups as well as large customers and metro market. Growth rate of customer below top 3 was double rate of top three.
Q: As sales force gets bigger in small customer accounts, how can you assure who will succeed?
A: We do focus on the chance of success. Ciena, we sat around the table early. Some will be bought. We have to manage that. Growth rate has increased at large rate. Ciena, Marconi, Corvis, Siemens, ONI, JNPR, CSCO stand out.Well established with large customer basis.
The list is impressive not only in who’s included but who’s not. We knew Lucent wouldn’t be there, but I think NT’s exclusion was a surprise.
From SDL’s Q4 conference call:
We’re broadening our range of customers. This quarter 59% came from international, vs. 50% year ago. We saw 100% growth in Asia Pacific.
Diversifying our customer base. Shipments to “other than top five customers” were up 50% sequentially and 4X y/y.
Considering Europe and Asia are both growing faster than North America, it’s good to be reminded SDL’s following the trend. The same with growth among “other than top five” customers.
Q: 980 is long haul --- it would be a comfort if that part were only 30-50%, then other products would fill in.
A: Micro amplifier is not for long haul, but for switching in metro and add/drop markets. It’s a new market and we’re getting a lot of design wins. Undersea continues to show healthy signs. Really really pleased with high-speed circuits group --- sales will be significant --- also into WAN and enterprise/metro markets. Also PIRI has success in Metro market. We have a dozen or so players there.
Q: How much did the top 3 grow vs. the 2 that weren’t above $10M?
A: We won’t single anyone out. All were very good. One disappointment was LU, but that’s not new news. Highlight: all the rest grew extremely rapidly.
Q: How about growth among customers who weren’t in the top five?
A: Yes, great growth. The best Q in the year. . . . 50% sequential growth from some who weren’t top 5.
Q: What percent was Asia?
A: Asia was over 10% of revenue (a lot of upside there).
Again, confirming growth in metro market, Asia and among those who weren’t top five.
I don’t know the numbers, but I wonder when Ciena and Siemens will be among the top customers?
Okay, that’s it for now.
Pat |
