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1 May 2008


JDSU’s margins hit by supply and capacity constraints

For its fiscal third-quarter 2008 (ended 29 March), JDSU of Milpitas, CA, USA has reported revenue of $384.2m (44% Test & Measurement, 35% Optical Communications, 15% Advanced Optical Technologies and 6% Laser). This is down 3.8% on the prior quarter but up 6.2% on a year ago (driven by the Optical Communications and Advanced Optical Technologies segments). This has also contributed to year-to-date fiscal 2008 revenues of $1.14bn being up 9% year-on-year.

Quarterly revenue was at the low end of the guidance range, due mainly to several large customers (service providers in North American and European) postponing orders in the Test & Measurement segment, for which revenue was $169.3m, down 14.3% on the prior quarter’s $197.5m and up just 1.1% on a year ago.

In contrast, Optical Communications revenue was $136.1m, up 4.9% on the prior quarter's $129.7m and by 9.6% on $124.2m a year ago, due to strength in telecoms (compensating for some softness in enterprise and datacoms).

In addition, Advanced Optical Technologies segment revenue was $55.8m, up 12% on the prior quarter’s $49.8m (driven mainly by the ABNH acquisition, which closed in mid-February) and up 22.4% on $45.6m a year ago (of which organic growth was 11.6%). Commercial Laser segment revenue was $23m, up 3.6% on the prior quarter but down 6.5% on $24.6m a year ago.

The Americas represented 52% of total revenues, Europe 29% and Asia-Pacific 19%, showing “strong geographic diversity”.

Gross margin was 42.6%, down from 46.2% the prior quarter. In particular, Optical Communications gross margin was negatively affected by product mix due to: average selling prices (ASPs) declining by more than the historical range of 2-4% per quarter (although a rebound is expected in fiscal Q4); increased demand from customers inducing suffered supply constraints from several vendors as well as inhouse manufacturing capacity constraints; and a decrease in the mix of products manufactured inhouse.

On a non-GAAP basis, net income has risen from $12.3m a year ago to $31.2m. On a GAAP basis, net loss has been cut from $14.2m a year ago to $6.2m. JDSU was free cash flow positive for the fifth consecutive quarter, generating about $31m (aided by inventory reductions as a result of the firm’s lean manufacturing initiative).

“We continue to see favorable end-market indicators for broadband services and network build out and we believe broadband capacity will continue to expand as higher data rates are delivered to the access edge, accompanied by video applications and high-definition network requirement,” says president and CEO Kevin Kennedy.

Fiscal Q3 was the fourth consecutive quarter of increased bookings in Optical Communications. In particular, JDSU experienced continued strong order growth in the telecom segment, especially in reconfigurable optical add-drop multiplexers (ROADMs) and optical amplifiers in the transport sector, tunables and SFP-Plus and vertical-cavity surface-emitting lasers (VCSELs) in the transmission sector, and undersea communications in the photonics sector.

Overall, for its fiscal fourth-quarter 2008 (ending 28 June), JDSU expects revenue to be flat to slightly up, at $381-403m.

For the optical communications market, JDSU continues to believe that the annual long-term growth potential is 5-15%, fuelled by the transition of telecoms to DWDM meshed architectures, concludes Kennedy.

See related items:

JDSU exceeds growth forecast

JDSU’s profit margins boosted by agile products and cost cutting

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