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6 November 2008


CEO and 400 jobs to go as JDSU closes seven R&D centers & three plants

For its fiscal first-quarter 2009 (ended 27 September), JDSU of Milpitas, CA, USA has reported revenue of $380.7m, at the lower end of its guidance range and down 2.5% on $390.3m last quarter.

Of total revenue, Americas’ customers represented less than 45% (down from 50-54% the previous four quarters: despite strong growth in Latin America where greenfield build-outs are increasing, JDSU’s top five North American customers are down 12% on last quarter due to a push out of spending and longer approval cycles in telecom and cable). Europe was level at 31% of revenue, while Asia-Pacific revenue grew 38% quarter-over-quarter to 24% of total revenue due to strength in emerging markets such as China and India, as well as new broadband deployments in Korea.

Advanced Optical Technologies (AOT) revenue was $53.5m (14%), up 1.1% on last quarter. However, Communications Test & Measurement revenue was $165.3m (43% of total revenue), down 3% due to the slowdown in North America. Commercial Lasers revenue was $21.4m (6%), down 3.2% due to continuing lower demand from semiconductor equipment makers.

Optical Communications revenue was $140.6 (37% of total revenue), up 21.2% on $116m a year ago but down 3.1% on last quarter. Double-digit growth in tunables (to record revenues) plus continued growth in reconfigurable optical add-drop multiplexers (ROADMs) was counteracted by JDSU pruning its portfolio of less profitable legacy products, e.g. low-speed (2-4Gb/s) datacom pluggables.

On a non-GAAP basis, overall gross margin has risen from 40.9% last quarter to 43.3%. Net loss has been cut from $29.8m to $16.4m, although this was still the firm's third consecutive quarterly loss. “JDSU achieved growth in non-GAAP operating income and free cash flow during a period of economic uncertainty,” says president & CEO Kevin Kennedy.

Kennedy says that fiscal Q1’s results evidence the impact of lean and change management initiatives that began in part in fiscal Q4/2008 and should increasingly provide operating benefits throughout calendar 2009. “The recent upgrade in our systems infrastructure was a critical factor enabling this expanded activity, the benefits from which we anticipate will be realized over the next four quarters,” he adds.

The aim of JDSU’s financial model is to achieve quarterly revenue of $400m with sustainable operating margin of 10% and gross margin of 46%. For fiscal second-quarter 2009 (ending 27 December), the firm expects revenue to be steady at $360-390m and operating margin of 4-8.5%. “We are experiencing cautious spending from our customers, given the current economic conditions,” says Kennedy.

To expedite its lean and change management initiatives, JDSU is therefore making further organizational changes designed to simplify its structure and reduce costs.

The Optical Communications and Commercial Laser segments are being combined into a single Communications and Commercial Optical Product segment, with Alan Lowe as president and David Gudmundson (who has driven the strategy and positive change for Optical Communications) in an advisory role. “This combination will enable us to leverage technology, our manufacturing model, and people as we continue to improve our profitability,” says Kennedy.

JDSU believes that in Optical Communication it can improve gross margin and can increase operating margin by 3-5 percentage points over the next year through execution of its lean manufacturing initiatives, including pruning further products from the portfolio, transitioning products to contract manufacturers, increasing factory utilization, and improving the flow of materials from its suppliers.

In particular, the Optical Communication segment’s photonics business unit continues to focus on high-value components such as VCSELs, modulators, pump lasers, passives and highly integrated components such as the first photonic integrated amplifier (PIA) platform (launched at September’s ECOC 2008 event, replacing up to 50 discrete components with a single chip and up to 50% smaller than current solutions).

Regarding Commercial Lasers, JDSU is increasing its solid-state laser production volumes in concert with transitioning manufacturing to Asia (to both its plant in Shenzhen, China and to contract manufacturers) over the next three to four quarters. With sales to semiconductor manufacturers not expected to recover for several quarters, customers continue to transition from gas to solid-state lasers (now over 50% of laser revenue, and expected to grow to over two thirds during fiscal 2009). So, product development will continue to focus on advanced solid-state and fiber-laser platforms. In particular, introducing laser diode technology developed in the Optical Communications segment should increase the served market for Commercial Lasers by more than threefold. JDSU believes that it can improve Commercial Lasers gross margin and increase its operating profit by 4-6 percentage points over the next year.

Also, due to three consecutive quarters of falling sales from the CommTest division in North America, productivity improvements will include the elimination of seven R&D sites (consolidated from 19 to 12) and three or more factories in North America, outsourcing more to contract manufacturers, and product portfolio improvement, says Kennedy.

Altogether, JDSU says that the cost-reduction measures will involve cutting headcount by about 400 (out of a total of 6664).

Kennedy adds that he has resigned from JDSU and will leave at the end of December. However, he will remain on the board of directors in an active capacity as vice-chairman.

See related items:

JDSU growth driven by optical communications

JDSU’s margins hit by supply and capacity constraints

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