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JDS Uniphase earnings strong, forecasts growth

The maker of network optical equipment reports third-quarter earnings that slightly beat analysts' expectations as revenue surged.

JDS Uniphase reported third-quarter earnings that slightly beat analysts' expectations as revenue surged.

The San Jose, Calif.-based maker of network optical equipment posted earnings of 11 cents a share on $85.8 million in net income, excluding acquisition costs and amortization of intangible assets. According to a consensus of analysts surveyed by First Call, JDS was expected to earn 10 cents a share.

Including the extra charges, the company lost $240 million, or 32 cents per share. For the year-ago quarter, the company earned $33.2 million, or 5 cents per share.

Shares of the company jumped $13 to $93.31 in anticipation of today's earnings. The earnings report was released after the close of regular trading. In after-hours trading, the shares fell to $86.50.

"I think there's a misconception on the Street that the penny of upside wasn't very good for some reason," said Charles Willhoit, an analyst for J.P. Morgan.

Willhoit also pointed out that the number of shares outstanding increased 19 percent to 814.3 million from 683.2 million on a pro forma basis, which diluted the per-share earnings.

JDS generated $394.6 million in revenue for the third quarter, compared with $154.9 during the same period last year and $281.7 million during the previous second quarter.

"The top line was very strong," said Willhoit, who expected the company to post $352 million in revenue. "As their capacity increases, so goes their top line. They're basically shipping everything they can make at this point."

Today's rise in the shares was attributed to positive earnings news released by JDS customers and competitors. "If SDL, E-Tek and Corning are all up, that's an upside indication for JDS as well," said Jeff Lipton, an analyst at Chase H&Q. "It's also generally an up day on the Nasdaq."

JDS competitors, SDL and E-Tek, which is being acquired by JDS, recently reported positive earnings. Corning, another JDS competitor, also reported favorable earnings yesterday.

JDS' customers also turned in solid earnings numbers. Lucent Technologies posted strong earnings and Nortel Networks reported earnings tonight after the markets closed that also surpassed expectations.

But there are risks surrounding the stock, namely the E-Tek acquisition. Earlier this month, the U.S. Department of Justice asked JDS and E-Tek for additional information concerning their union. The inquiry "creates additional uncertainty about the merger," said Jim Liang, an analyst for W.R. Hambrecht. Laing believes merger concerns have already been factored into the share price.

The company generally refrained from commenting on the merger during its earnings conference call today but did say that it is working with the Justice Department.

The company's ability to keep up with demand also will remain an issue. "The industry in general is under capacity constraint," said analyst Jim Kedersha of SG Cowen. "Acquisitions are actually a way to increase capacity."

Willhoit agreed. "It's an execution game," he said. "They're growing so fast that they need to keep up with technology and the growth in demand."

JDS increased its revenue growth forecasts for the fourth quarter to 20 percent from 15 percent and said that revenue for fiscal year 2001 would grow 75 percent compared with 2000.

The company historically provides Wall Street with conservative guidance on revenues, Willhoit said. "If they say they say they can do this, they can do this."