JDSU Posts Best Quarter in Five Years

JDSU (JDSU), the optical communications equipment supplier previously known as JDS Uniphase, reported revenue for the fiscal second quarter ended December 31 of $366.3 million, slightly ahead of the Street consensus of $362.8 million.

Pro forma EPS of 13 cents a share beat the Street forecast of 10 cents. The stock is sagging a bit after hours, though, perhaps due to slightly disappointing fiscal third quarter guidance: the company sees revenue of $333 million to $353 million, compared to Street expectations of $351.4 million.

In its release yesterday, the company noted that it had the strongest revenue, gross margin and net income results in more than five years. JDSU’s communications test and measurement business, JDSU’s single biggest segment by revenue (at least this quarter) grew 44% sequentially, to $168.2 million; but the optical communications unit, its other large unit, declined 4% from the third quarter, to $132.7 million. JDSU’s advanced optical technologies unit was up 3% sequentially.

In an interview with Barron’s Tech Trader Daily this afternoon, CEO Kevin Kennedy, said JDSU continues to be a story of “company reinvention.” Remember that JDSU, back in the bubble days, was a mammoth high-flier, riding the big telecom buildout; adjusted for various stock splits (including a 1-for-8 reverse split last year), the shares peaked at $1,120 a share back in early 2000 when the Nasdaq was flirting with 5,000. (The stock gained 49 cents to $17.78 in today’s regular session, but backed off 42 cents in after hours trading.)

Kennedy notes that the company over the last several years has been substantially reinvented; the biggest move was the May 2005 acquisition of Acterna, which turned into the current test and measurement business. He notes that, while that division substantially outgrew the traditional optical components segment in the latest quarter, thanks to year-end carrier budget flush, in the long run the two divisions tend to each generate about 40% of revenue, with other businesses accounting for the other 20%.

Kennedy says the big questions the Street had on the company’s conference call today involved the sustainability of the strong December quarter results. He says the company now has “the right constituent elements in place…we’ve shut down everything that needs to be shut down” and that the story is now about stabilizing and doing hard work and engineering. Kennedy didn’t provide much guidance to the Street beyond the current quarter revenue outlook; and he concedes that this quarter is “the one in which we have the least visibility,” with many carriers not spending much in January and early February.

As for the 2007 outlook for telecom, he says the company has not seen any change in the end demand either for optics or test and measurement; “I used the word favorable recently,” he says. He notes that telecom suppliers that have pre-announced in the last 30-60 days have had trouble with consolidation of the North American carriers, particularly in wireless, and often involving the edge of the network; JDSU’s gear is deeper in the network.

Kennedy says the company this quarter “hit some metrics sooner than expected,” in particular at the gross margin level. He says JDSU should be able to return to the same level on a sustainable basis “at some point in the calendar year.” (But not this quarter, is the implication.) He also notes that the revenue guidance for the current quarter, while perhaps a bit lower than some on the Street might have liked, still shows growth on a year-over-year basis of 5%-12%. And given what JDSU has gone through over the last several years, that’s not too shabby.

JDSU 1-yr chart