TOKYO --

Furukawa Electric

may have the reputation of a conservative, old-school Japanese company, but it has quietly morphed into a New Economy powerhouse.

The firm slimmed its decidedly unsexy aluminum and copper wires product line to make room for fiber-optic cable, as the market began demanding greater voice and data transmission capacity. Furukawa wanted more, however, and started buying bits and pieces of business partner

JDS Uniphase

(JDSU)

, a leading manufacturer of lasers used with fiber-optic cables with which Furukawa has a cross-supplying relationship. At one point the Tokyo-based company held nearly 20% of tech darling JDS.

And now, just as JDSU has announced it would like to strengthen its position by buying out rival

SDL

(SDLI)

, Furukawa has decided it wants to go toe-to-toe with its competitor and has begun shedding what has been seen as its most attractive asset.

"The

JDSU/SDL buyout is neutral to Furukawa since it doesn't really change the existing business relationship between the two at all," says Conny Jamieson, an analyst at

UBS Warburg

. Jamieson has a 12-month target of 3800 ($35.39) on Furukawa's share price, currently at 2500. She says the biggest decision Furukawa faces is whether it should follow JDSU's strategy of becoming a one-stop shop through acquisitions or remain a specialist within the industry.

So far, loving the potential enemy has proved a shrewd strategy. Over the past year, JDS Uniphase has risen more than 1350%, even though it has dropped about 35% from its March high. On Monday, JDSU shares shriveled 13% after SDL's $35.75 million price tag was unveiled. But Furukawa, which still holds about 16% of JDSU, wasn't hit nearly as hard; shares slid only about 4% in Tokyo following the news.

Furukawa is already a core holding of many Japan, tech and Asia-Pacific funds. Big funds, like

(GABOX) - Get Report

Gabelli Global Opportunity, up 44% over the past year, and

(MAPCX) - Get Report

Merrill Lynch Pacific A, up 32.3%, count the company among their top 10 holdings.

Recently, fund manager Brenda Reed said she increased Furukawa's weighting in

Fidelity's

(FJPNX) - Get Report

Japan Fund to 3% in April from 1.1% in October, according to a note to fund holders dated June 22. Indeed, Furukawa has had a good run, rising 361% over the past 12 months. That performance has helped Reed's fund jump 57.4% over the same period.

Furukawa, which didn't respond to repeated requests for comment, now finds itself hedged regardless of whether it succeeds in its assault on JDSU. If it fails, it will hold a big chunk of the company likely to be the industry leader. If it succeeds -- the outcome many of analysts are betting on -- it will be dominant in a growing market.

Toru Nagai, a

Morgan Stanley Dean Witter

analyst, maintained his outperform rating on Furukawa even after the JDSU-SDL news. He says Furukawa will continue to see a solid rise in earnings over the next few years as the company develops and rolls out more of its wave division multiplexing technology. Furukawa already has a 60% global share of all WDM-related products, which allow a single strand of fiber-optic cable to carry multiple signals.

WDM is a great development for the common Internet user, helping create a twenty-fold rise in data-carrying capacity in just four years, according to industry estimates.

Of course, there is plenty of competition to Furukawa's primacy.

Lucent Technologies

(LU)

,

Nortel Networks

(NT)

and four other firms are all fighting for a piece of Furukawa's pie. And new technology could come along that would render WDM obsolete.

Morgan Stanley's Nagai says that Furukawa's management is aware of these challenges and risks. The management's competency is one of the company's chief attractions, he says.

Even with technology and competition concerns, the earnings prospects for Furukawa are stellar. The firm almost tripled its parent net profit for the year ending March 31 to 14.66 billion yen, or $1.4 billion, from the previous year, and expects fiscal 2000 net profit to jump to 34 billion yen. Note that much of the profit for fiscal 1999 came courtesy of a capital gain on the sale of JDSU shares.

As the WDM market explodes, investors are betting Furukawa will one day be known as JDSU's rival, not just the silent owner it has been for a long time.