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JDS Uniphase tumbles after warning

Shares of the fiber-optic component maker get rattled after the company issues a profit warning for the fourth quarter and analysts downgrade the stock.

Shares of fiber-optic component maker JDS Uniphase were rattled Friday after the company issued a profit warning for the fourth quarter and analysts downgraded the stock.

JDS Uniphase shares fell $1.37, or nearly 10 percent, to $12.44 by market close. The shares dropped as low as $10.81 earlier in the day.

The company counts Nortel Networks, which issued a profit warning Friday, as one of its main customers. Meanwhile, analysts said Thursday that JDS rival Corning would continue to struggle.

JDS makes equipment for fiber-optic telecommunications, signal processing and semiconductor wafer inspection. The company said Thursday that its revenue and losses will fall well short of expectations. It now expects revenue of $600 million in the June quarter, as opposed to earlier projections of $700 million. Weak spending from carrier companies and high inventory among customers and resellers were cited as the main reasons for the shortfall.

The company also said it would post a loss between 6 cents and 8 cents a share, excluding merger charges. The losses were attributed to inventory write-downs. According to First Call, JDS was expected to post a profit of 5 cents a share. For the company's first quarter ending Sept. 29, JDS predicted sales of $450 million, a sum that was also well below expectations.

"The business downturn has been rapid, steep and unprecedented, and the continuing lack of visibility from our customers suggests to us that a cautious outlook continues to be warranted for the short term," said CEO Jozef Straus.

Analysts were just as surprised as Straus by the shortfall.

Deutsche Banc Alex Brown analyst Raj Srikanth downgraded the stock to "market perform" from "buy" and came down hard on the stock.

"We lowered our estimates on JDS Uniphase last week believing that the benefits of the management's efforts to reposition the company would come through as the top line recovers, in the latter half of (fiscal year) 2002. We were wrong," wrote Srikanth. "We underestimated how large was the revenue hole that JDS Uniphase would have to climb out of."

For the September quarter, he expects revenue of $450 million compared with his previous estimate of $644 million. As for a recovery, Srikanth said investors aren't likely to see one until fiscal year 2003.

SG Cowen analyst John Butler downgraded the stock to "neutral" from "buy," and said the company's business prospects are "far worse than previously expected."

He also voiced concern about the company's long-haul business, which makes up about 60 percent of its revenue. "The stunning sequential decline projected for the first quarter of fiscal 2002 speaks volumes about the weakness in JDS Uniphase's long-haul business," Butler wrote.

ABN AMRO analyst Jung Ho Pak also downgraded the stock to "hold" from "add" Friday.

"Our main reason for the downgrade is that the recovery in the optical-component industry will occur later than previously anticipated," wrote Pak. The analyst added that the company's December quarter may be the bottom with only modest recovery after that.