JDS Uniphase: Fiber Optics Reflect Consumer Credit Crunch

| About: Viavi Solutions (VIAV)

It’s not often a fiber optic company tells you a lot in a direct way about the health of consumer spending. However, I had a fascinating discussion last night with Kevin Kennedy, the CEO of JDS Uniphase (JDSU), the $2.4 billion (market cap) maker of lasers and other components used in communications equipment. Part of the company’s business, the “Advanced Optical Division,” consists of coatings used on credit cards. That business, which is 13% of sales, was down about 6% in its fiscal Q4, the company last night reported, contributing to the company missing sales and profit estimates. (See earnings call transcript.)

Kennedy noted that one of the three largest credit card issuers, a customer of JDSU’s, substantially reduced its issuance of new cards in the June quarter. JDSU has material share in the market for card coatings, so with card delinquencies and charge-offs on the rise, this is yet another meaningful indicator that credit card companies are pulling in their horns, lending less. Just one of the surprising economic tidbits you find from a tech company.

As for JDSU, Kennedy says the company is dealing with “belt-tightening” among manufacturers of communications equipment by making sure to pursue more aggressively every executive involved in signing off on a deal. Kennedy notes that in the down market, some clients have put more levels of bureaucracy in place, potentially slowing new business. “You’ve got to touch all the people involved in a customer account,” says Kennedy.

As for the disparity in last night’s results versus Street estimates, Kennedy points out the company met its own forecast, as it has for the last 20 quarters. He thinks analysts need to expect that in a down market, as we’re in now, JDSU is more likely to meet the bottom end of its forecast sales range, rather than the top end. JDSU reported $390.3 million, which is below the mid-point in the company’s forecast of $384.2 million to $403 million. Analysts, on the other hand, were looking for $395.8 million, above the midpoint.

JDSU shares this morning are down $1.47, or 12.4%, at $10.43.

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