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JDS Uniphase (JDSU) is trading for $5.76, down from $5.79, after announcing that 4Q came in near guidance and guiding up for 1Q10 (see conference call transcript here). 4Q sales were down 29% from 4Q08, and annual sales were down 15% from 2008.

JDSU's EPS and margins are basically meaningless because of restructuring, several unusual and one time expenses/incomes; take out the junk and they lost ~$0.29 a share 2009 (my numbers), far below what analysts were expecting for the year. 1Q10 revenue guidance is 283-300M with a 0% to +3% net margin.

JDSU sells optical switching and transport to ALU, ERIC, CSCO, Huawei, etc., lasers, advanced optical technology and testing equipment. ROADM sales were down this quarter, orders are up next quarter. Book to bill and orders are up 1Q10. Bookings are 6-8M for storage.

Asia has been down double digits sequentially the last two quarters because of the communications division; management said the market is down generally but I assume the worst after two straight reports, losing share.

JDSU bought Finisar's (FNSR) high margin testing division; industry estimates generally estimate 6-12% growth for testing over the next five years. Sales have been solid and margins high.

JDSU just introduced the first 100GbE testing suite. According to IDC, 100GbE service and applications sharing are more complex thus increase the need for testing, so this is a growth market-- JDSU is now tough to beat in optical testing, and testing is now JDSU's largest division by revenue.

JDSU has reduced their expenses to $275-280M break even per quarter; that is an impressive $75M reduction in expenses over the last year. Free cash flow was $9.7M for 4Q and $151M for 2009, and with $695M in cash JDSU management will continue to pursue consolidation.

JDSU quoted several statistics on video demand, check my old posts for details-- the point is that video and VoIP (voice over internet) are disrupting communications systems and carriers will be upgrading. Management modestly stated that JDSU will benefit from the NBBI (national broadband initiative) starting to roll out in August; cannot estimate how much, but probably material.

Most importantly, JDSU's advanced optics division (AOT) sales were down 1% sequentially, down 4% YoY, solid results given the optical sector bubble and macro conditions.

JDSU's break even is now ~$275M and all three divisions are poised for significant growth. Ignoring a one time boost from the NBBI, JDSU could easily double revenues over the next five years; if JDSU Q revenues return to $400M (equal to 2008), shares would sell for ~$11.80 at 16PEx; earnings and share price should start increasing next Q.

Asia is bad news and and the communications equipment sector is very competitive (ahem, understatement), and the professional analysts will probably focus on that news so I doubt JDSU's price will move; however, the numbers show that JDSU has weathered the storm, bottomed, and come back to the surface a stronger company. NBBI should inflate next quarter's earnings by several million dollars.

JDSU looks like one of the best bets to survive the optical bubble and double its share price over the next two years as earnings surprise.

Disclosure: I will buy JDSU on the way down

Source: Why I'm Optimistic on JDS Uniphase