16 August 2012

JDSU’s quarterly revenue rises 7.4%, driven by growth in North America

On a non-GAAP basis, for fiscal 2012 (to end-June), JDSU of Milpitas, CA, USA has reported net revenue of $1682.7m, down 7.4% on fiscal 2011’s $1816.2m. Fiscal fourth-quarter revenue was $439.3m, down 7% on $472.3m a year ago but up 7.4% on $409.2m last quarter (and above the expected $415-435m). The increase was driven by strength in Communications Test & Measurement (CommTest) and continuing growth and demand for Communications & Commercial Optical Products (CCOP), particularly in North America.

For fiscal Q4, Americas’ customers contributed $236.3m (54% of revenue), up from $191.2m (47% of revenue) last quarter, due to seasonally higher demand from service providers and higher demand from network equipment manufacturers. Europe, Middle-East and Africa (EMEA) contributed $98.8m (22% of revenue), down from $102.2m (25% of revenue) last quarter, as macroeconomic concerns continued to drive cautious spending behaviour. Asia-Pacific contributed $104.2m (24% of revenue), down from $115.8m (28% of revenue), due to reduced revenue from a CommTest customer and lower fiber-laser revenue (after a record March quarter).

By segment, Advanced Optical Technologies (AOT) revenue was $58.1m (13.2% of total revenue), roughly flat on last quarter and a year ago.

CommTest revenue was $196.2m (44.7% of total revenue), down 7.1% on $211.3m a year ago but up 10.3% on $177.8m last quarter due to strength in field test instruments (particularly for metro, Ethernet and cable applications).

CCOP revenue was $185m (42.1% of total revenue), down 8.6% on $202.3m a year ago but up 6.9% on $173.1m last quarter. Within CCOP, Commercial Lasers revenue was $29.6m, roughly flat on last quarter but up 6.5% on $27.8m a year ago. Optical Communications revenue was $155.4m, down 10.9% on $174.5m a year ago but up 8.5% on $143.2m last quarter. In particular, nine out of 12 Optical Communications product lines grew sequentially, with significant growth in pluggables and circuit packs. Tunable XFP modules fell from 16% to 11% of Optical Communications revenue, but revenue for reconfigurable optical add-drop multiplexers (ROADMs) grew by just over $2m from last quarter to 23% of Optical Communications revenue, while Super Transport Blade revenue also grew.

New products accounted for 58% of revenue in the firm’s core networks market, consisting of Optical Communications and CommTest (including a record high 62% for CommTest). “We are pleased with the progress we have made on disruptive new products, particularly those addressing next-generation networks and enterprise-class datacom markets,” says CEO & president Tom Waechter regarding Optical Communications.

“Revenue from 40G and 100G components is growing rapidly. We have multiple high-speed modulators and receivers and high-volume production, with many additional customer programs in the development pipeline,” notes Waechter.

“We also continue to make solid progress with our TrueFlex product suite designed for next-generation networks of 100G and faster. WSS [wavelength-selectable switch] samples have been delivered to customers, while TrueFlex and next-gen blade design activities is steadily progressing,” he adds.

“We have received orders for tunable SFP+, and shipment has started this quarter. As with our tunable XFP, we expect the introduction this quarter of tunable SFP+ to have a significant time-to-market advantage to our competitors,” Waechter asserts.

“We are increasing market share and penetration into key accounts with our broad range of client-side pluggable transceivers to address enterprise LAN/SAN needs and the cloud,” says Waechter. “Our focus on collaborative innovation continues to resonate with customers, resulting in sequential revenue growth at eight of our top ten Optical Communication accounts.”

For fiscal Q4, gross margin has fallen from 46.7% a year ago and 45.5% last quarter to 45%. In particular, CommTest gross margin has fallen from 61.6% last quarter to 60.3%, impacted mainly by inventory-related charges. CCOP gross margin fell slightly from 28.1% last quarter to 27.8%. Specifically, Optical Communications gross margin fell from 24.9% to 24.5% (due to lower overhead absorption as JDSU reduced inventory levels), counteracting Commercial Lasers’ gross margin rising from 43.2% to 45.1%. AOT gross margin rose from 47.8% last quarter to 48.3% (driven by product mix).

However, while still down on 12.3% a year ago, operating margin has risen from 7.3% last quarter to 8.7% (on the high end of the forecast 7.5-9%) due to the higher revenue, despite operating expenses rising by $3.4m from last quarter to $159.5m. In particular, CommTest operating margin grew from 11.3% to 13.3%, while operating margin grew slightly from 8.1% to 8.5% for CCOP and from 33.1% to 33.4% for AOT.

Full-year net income has fallen from $216.7m for fiscal 2011 to $137.3m for fiscal 2012. However, although down on $53.9m a year ago, fiscal Q4 net income was $35.3m, up on $25.3m last quarter on a non-GAAP basis (excluding a $23.7m impairment charge of certain long-lived assets and $10.5m of insurance proceeds associated with October’s flooding at contract manufacturer Fabrinet in Thailand).

“JDSU’s execution on its strategic priorities is leading to market share gains and financial leverage despite challenging economic conditions,” says Waechter. During fiscal Q4, JDSU generated $38m of cash from operations (almost tripling from $13.2m last quarter). Capital expenditure was $15.3m (down slightly from $16.1m). During the quarter, JDSU repurchased $14m of outstanding convertible debt. Overall, total cash and investments hence rose from $749.8m to $752.7m. In addition, after the end of the quarter, the firm retired an additional $50m of debt.

During fiscal Q4, Optical Communications order bookings grew for the fourth consecutive quarter to their highest level in six quarters. However, Waechter cautions: “Although demand drivers continue to increase significantly, we expect global carrier CapEx spending to be up only moderately as they continue to be cautious for the balance of calendar year 2012, driven by lingering economic concerns in Europe and other regions”.

For fiscal first-quarter 2013 (ending 29 September 2012) JDSU expects normal seasonality in CommTest demand, and that the current macroeconomic environment will continue to impact customers. CommTest revenue is hence expected to fall seasonally by 9-14% sequentially. CCOP revenue should rise by 3-7%. Taking into consideration the historical September-quarter segment revenue mix (which includes more CCOP and less CommTest as a percentage of total revenue), JDSU hence expects overall company revenue to fall to $415–435m. This includes the AOT segment, which has now been realigned by separating out the bank-card hologram and newly created Optical Security & Performance (OSP) business units. The firm expects revenue to be up 2-5% for OSP and flat for holograms.

Driven mainly by investments in R&D (given the current product investment cycle), operating expenses should rise by $1-2m. Operating margin is expected to fall to 6.5-8.5%. In particular, JDSU expects operating margins of 8-10.5% for CommTest, 9.5-11% for CCOP, about 36% for OSP, and breakeven for the hologram business.

• After more than eight years as a member of JDSU’s leadership team, Dave Vellequette is to step down as CFO at the end of August and leave the firm on 29 September. Effective 1 September, senior VP of business services Rex Jackson will assume the role of acting CFO. Since joining JDSU in January 2011, Jackson has been a member of the executive team in key roles, and recently served four years as CFO at public technology companies Symyx Technologies and Synopsys.

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