After Split, JDS Uniphase Head Seeks Opportunity in the Cloud

PETALUMA, Calif. ( The Deal) -- After spinning off his company's Communications and Commercial Optical Products, or CCOP, division, the CEO of the remaining operations of JDS Uniphase ( JDSU)  said Thursday he has plans for steady growth and possibly mergers that should add life to the company's moribund stock price.

The Milpitas, Calif., network testing and optical technology group announced the breakup Wednesday, which would split off JDSU's optical components and lasers business unit into a separate company led by CEO-designate Alan Lowe.

Tom Waechter, current CEO of JDSU, will run the two remaining divisions, the Network and Service Enablement, or NSE, that provides network testing and management, and the Optical Security and Performance Products, or OSP, that makes pigmented coatings used to prevent counterfeiting of bank notes, and filters that are incorporated into home theater systems and gaming systems.

Waechter said the idea of a split has been under review for the past three years.

"For shareholders there will be a cleaner business outlook," he said. "The portfolio model made it difficult to see the moving parts."

The stock has stalled in the midteens for years. Through Thursday afternoon, trading on the break-up news pushed JDS Uniphase shares up $1.25, or 10%, to $13.35.

The company's growth rate from fiscal year 2013 to fiscal year 2014, which ended in June, was 3% across the total business. "What we believe now is that we be able to grow the business in the high single digits by the end of the year," said Waechter.

CCOP, which will focus on telecommunications, is between $800 million and $900 million annually, Waechter said. The NSE-OSP side of the business is between $900 million and $1 billion.

The compound annual growth rate for the spun off CCOP unit is expected to be 10%, while for NSE-OSP it is expected to be around 8%.

"We will definitely be looking at acquisitions moving forward," he said. "We look for companies that have a technology but don't have the infrastructure, and will use our channels to build them out. Previously we have focused on small to medium-sized targets but now we will look at companies of all sizes. We will look to build out wireless."

He said they will look at more acquisitions that include software connecting to the cloud. "It's not easy when we are a pure hardware to go hardware and software at the same time."

He also said OSP and NSE may split eventually, but there is no timeline on that.

He said they will be moving aggressively and the strategy comes from the rapid change around the cloud. Connectivity, which is creating a lot of opportunity, is something the company needs to focus on. "We want to be agile, particularly with the cloud-based applications," said Waechter.

Waechter said the tax-free spinoff should be finished by the third calendar quarter of 2015. He said the company expects to incur a one-time charge of between $75 million and $100 million but will save approximately $50 million on an annual basis because of shared services.

In evaluating whether there was more value as a portfolio company or separate pure play companies, Waechter said he and his fellow management team decided they couldn't restructure the company as it was and needed to preserve cash flow.

He said the split was the right thing because the cloud is increasing connectivity and creating more need for management of fiber optic networks and for applications that can be offered by the service establishment business.

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