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JDS beats estimates, reduces projections

JDS Uniphase, a maker of equipment for optical networks, reports strong earnings for its fiscal second quarter but reduces future sales predictions.

JDS Uniphase reported strong earnings for its fiscal second quarter after the markets closed Thursday, but reduced future sales predictions.

The maker of equipment for optical networks reported a pro forma net income of $208 million, or 21 cents a share, which compares with a pro forma income of $84 million, or 9 cents for the same quarter last year. Revenue grew to $925 million from $325 million last year on a pro forma basis.

Wall Street expected the San Jose, Calif.-based company to make 19 cents a share, the consensus estimate of 30 analysts surveyed by First Call. The consensus revenue estimate was $924.1 million from a survey of 24 analysts by First Call.

Mark Langley, an analyst at Epoch Partners, said the company posted a strong quarter overall despite not beating expectations by the wide margins of the past.

"That's not knocking the cover off the ball in terms of expectations, but it's still showing strong sequential revenue growth," he said.

JDS also expanded revenue by 18 percent from the second quarter revenue of $786 million.

The pro forma results exclude charges totaling $1.1 billion that relate to amortization of purchased intangibles, payroll taxes on stock option exercises, and noncash stock charges.

Including the charges, JDS reported a loss of $895 million, or 93 cents a share for the quarter.

Langley saw JDS's customer mix as a possible sign of concern, adding that JDS is becoming less clear on how large their large customers really are. "It would appear that their larger customers are buying a lower percentage of total sales," he said.

For the most recent quarter, company executives said the top two customers that comprised 10 percent or more of total sales for the quarter were Lucent Technologies and Nortel Networks, a change from past disclosure practices, which were more detailed.

That could mean that the company is relying more on emerging companies. Charles Abbe, the company's chief operating officer, highlighted the contributions JDS's smaller customers make to the top line. "Our smaller customers represent an enormous fraction of our total revenue," he said.

JDS also announced that it expects revenue for the third fiscal quarter to grow 7 percent to 10 percent from the second quarter. This guidance puts revenue in a range between $990 million and $1.02 billion, below consensus estimates of $1.03 billion according to First Call.

In a statement released after the markets closed, the company attributed the reduction to decreased customer spending on equipment and "a somewhat lower level of near-term sales" predictability than JDS has experienced in the recent past.

Customers are "selectively adjusting inventory levels...to move to a just-in-time business model," Abbe said. "We do not believe this is a long term trend or an across the board change."

JDS also said earnings per share would be equal or slightly above second-quarter earnings. Analysts surveyed by First Call predict the company to post earnings of 21 cents a share.

JDS has been on an acquisition spree for the past few months. The company announced it planned to buy SDL last July, which is now worth about $19 billion.

SDL reported solid earnings Wednesday, but the stock sank in after-hours trading because the two companies postponed the shareholder vote on their merger because the U.S. Justice Department has yet to approve the union on antitrust concerns.

In the conference call, company CFO Anthony Muller said that while most media reports consider Wednesday's news as just another cancellation, he advised investors to take the situation as a strong indication that approval of the merger is close at hand.