10 May 2011

JDSU’s March-quarter revenue falls 4.6% to $455.4m

On a non-GAAP basis, for its fiscal third-quarter 2011 (ended 2 April) JDSU has reported net revenue of $455.4m, down 4.6% on $477.2m last quarter but up 36.8% on $332.9m a year ago (and at the high end of guidance of $440–460m). Of total net revenue, the Americas represented 46%, EMEA 28% and Asia-Pacific 26% (compared with 51%, 26% and 23%, respectively, last quarter).



Advanced Optical Technologies (AOT) revenue was $56.8m (12.5% of total revenue), down 3.1% on $58.6m a year ago but up 3.8% on $54.7m last quarter. Although down on 51.5% a year ago, AOT gross margin has risen from 48% last quarter to 48.3%. While down on $22.5m a year ago, operating income rose from $17.7m last quarter to $17.9m (although operating margin of 31.5% of revenue is down from 32.4% last quarter and 38.4% a year ago, and slightly below the targeted 32–35%).

Communications Test & Measurement (CommTest) revenue was $189.2m (41.5% of total revenue), down 18.2% on $231.4m last quarter (showing typical seasonality) but up 29.9% on $145.7m a year ago. CommTest gross margin has risen from 54.9% a year ago and 60.9% last quarter to 61.9% (exceeding the targeted 57–61%). Although double the $11.5m a year ago, operating income of $22.6m is just half of last quarter’s $44.8m (as operating margin has fallen from 19.4% to 11.9% of revenue, although still up on just 7.9% a year ago).

Communications & Commercial Optical Products (CCOP) revenue was $209.4m (46% of total revenue), up 9.6% on $191.1m (40% of revenue) last quarter and up 62.8% on $128.6m (38.6% of revenue) a year ago.

Within CCOP, Commercial Lasers revenue was $24.7m (up 31.9% on $18.7m a year ago and up 8.8% on $22.7m last quarter, due to demand for solid-state lasers used in semiconductor, LED and micro-machining applications).

However, Optical Communications revenue was $184.7m (up 9.7% on $168.4m last quarter and up 68.1% on $109.9m a year ago), with particular strength in ROADMs (growing more than 20% sequentially to 35% of optical revenue), circuit packs (with Super Transport Blade revenue growing more than 37%) and tunable XFPs (growing more than 35% to 13% of optical revenue). Products introduced within the last 2 years accounted for 65% of optical revenue and are driving market share growth, says JDSU. In addition, the quarterly decline in average selling price (ASP) was a lower-than-expected 3.9%.

CCOP gross margin has risen from just 28.2% a year ago and 34.4% last quarter to 34.6% (including Commercial Lasers rising from 41.3% through 45.5% to 46.8%, and Optical Communications level with last quarter’s 32.9% after rising from just 26% a year ago). CCOP operating income has risen from just $12.6m a year ago and $34m last quarter to $39.6m (with operating margin rising from just 9.8% through 17.8% to 18.9% of revenue). This is within CCOP’s target model of operating margin of 16–20% at quarterly revenue of $190m or more.

Overall company gross margin was 47.6%, down from 48.8% last quarter (due to segment mix) but still up on 44.1% a year ago (due to better margins in CCOP and CommTest). Operating expenses have risen from $124.6m a year ago and $159.8m last quarter to $161.9m (35.6% of revenue), due mainly to higher employer payroll taxes and the impact of the weaker dollar. Operating margin was 12.1%, down from 15.3% last quarter but up from 6.6% a year ago.

Net income was $51m, down from $67m last quarter but more than double the $23.2m a year ago. After generating $52.9m of cash from operations and following capital expenditure of $34.2m (up from $28.3m last quarter), during the quarter JDSU’s total cash and investments rose from $655.3m to $700.5m.

“In fiscal Q3 JDSU reported strong financial results with year-over-year operating income growth of nearly 150%, as our strategy to operate as a diversified technology company provides the ability to navigate fluctuations that may occur in any one business segment and continues to positively differentiate JDSU’s performance,” says president & CEO Tom Waechter. “We benefited again this quarter from the strong mix of new products as the result of our collaborative innovation initiative, evidenced by market share gains in our optical communications and test & measurement businesses,” he adds.

For fiscal fourth-quarter 2011 (ending 2 July), JDSU expects non-GAAP net revenue of $455–475m (up 4.4% sequentially). In particular, revenue is expected to grow 6–13% for CommTest but fall 2–4% for both AOT and CCOP. The firm is seeing a slowdown in Optical Communications demand as some customers reduce inventory levels. However, inventory adjustments are expected to have only a near-term impact, and end-market drivers remain strong.

Capital equipment expenditure should be 4–5% of revenue (as JDSU continues to invest in expanding manufacturing and test capacity for AOT and optical communications products). Operating expenses are expected to rise by $4–5m (mainly for increased investment in R&D and selling costs). Operating margin should be 11.5–13.5% (with Comm Test rising to 14–17% due to higher revenue, AOT falling to 28–30% due to lower revenue, and CCOP falling by about 1 percentage point due to increased R&D investment).

Assuming corporate gross margin of 49% or more, JDSU’s target operating model is for operating income of 14–17% at quarterly revenue of $460m or more (comprising operating income and quarterly revenue, respectively, of 16–20% and $190m for CCOP, 20–23% and $215m for CommTest, and 32–35% and $55m for AOT).

See related items:

JDSU reports record revenue and profit margins

JDSU grows revenue despite supply and capacity constraints

JDSU grows 20% in June quarter, despite supply and capacity constraints

JDSU grows 15% quarter-to-quarter in Optical Communications

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