JDS Warns of Shortfalls but Sticks to Bounceback Scenario

Updated from 4:56 p.m. EST:

JDS Uniphase (JDSU) Tuesday warned of earnings shortfalls but insisted it would be able to ride out the industrywide slowdown in telecommunications spending.

JDS, which also completed its merger with optical components maker SDL (SDLI) Tuesday, forecast earnings of 17 cents a share for its third quarter ending in March, 4 cents shy of the estimate cited by First Call/Thomson Financial. The company also forecast earnings of 74 cents a share for its fiscal year ending in June, 8 cents shy of the consensus estimate. That implies a 4-cent shortfall for the fourth quarter ending in June as well.

JDS said sales for the periods would be in-line with to slightly above plan, with third-quarter sales forecast at $1 billion, even with estimates, and fourth-quarter revenue expectations of $1.18 billion, within the 7% to 10% sequential growth projected for the year. The company also boosted its fiscal 2002 sales target to $6 billion, up from the $5.66 billion analysts expected, and continued to stick with its forecast that its prospects will begin to turn up in the second half of calendar 2001.

It's Got to Be Real

JDS downplayed the reduced earnings estimates and the effects of the slowdown in telecom spending on its business. The change in business conditions was at the margin and didn't present a "fundamental change" for the company, said CFO Anthony Muller. Reaffirming its faith in the best-case scenario, JDS said it believes the prospect of a one-to-two quarter inventory adjustment among its customers is "real."

JDS shares were up slightly in after-hours trading on Island, recently quoted at $38.94 after a Tuesday regular-session close at $38.50, down $2.12.

JDS said the reduced earnings guidance "reflects continued uncertainty in carrier capital spending prospects and customer inventory adjustments, as well as a lower level of near-term sales visibility than the company has experienced in recent periods." On its conference call JDS conceded that it has little ability to forecast demand in coming periods, but the company stuck by its long-standing contention that demand for optical gear will continue to rise steeply.

Who's Who

JDS makes lasers, lightwave amplifiers and chips that are used as components inside larger networking equipment. These systems are used to carry Internet traffic on optical fiber networks. The company competes against Corning (GLW) and Lucent's (LU) component spinoff, Agere. Top customers include Nortel (NT), Lucent, Alcatel (ALA), Ciena (CIEN), Sycamore (SCMR) and a growing list of optical networking start-ups.

In recent months JDS has shown that it is vulnerable to the equipment spending slowdown that has stalled its once fast-growing customers, and Tuesday the company said it has seen spending pullbacks from big customers, such as Lucent, as well as from start-ups. The company warned Jan. 25 that revenue growth wouldn't meet estimates in coming quarters, citing the inventory problems across the telecom sector.

But during an interview session Tuesday at the Robertson Stephens Technology 2001 conference, Muller said long-term prospects for JDS look "very bright." The company also said it expects to announce 20 new amplification products in the near future.

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