JDS Uniphase casts solemn mood on Street

The comments from management in its financial report are so melancholy that one analyst compares them to Jim Morrison's darkest lyrics.

3 min read
JDS Uniphase's fourth-quarter report incited laments from Wall Street analysts Friday. So depressing were comments from management that one analyst compared them to Jim Morrison's darkest lyrics.

The maker of fiber-optic components on Thursday evening reported sales of $601 million and earnings of 3 pennies a share, in line with First Call's estimates. JDS also announced it would lay off about 7,000 more employees; the company has cut its work force by 55 percent, or a total of 16,000 people since the beginning of the year. These cuts should make the company "incredibly lean" in the future, analysts said.

But what upset Wall Street was the company's slowing growth, inability to give projections for the rest of the year and statements that it sees no sign of a recovery on the horizon.

Sales were down 35 percent over last year's, and including charges and inventory write-downs, net loss was 36 cents a share. After all charges, net loss was a whopping $7.9 billion, or $5.99 a share. For the year, JDS reported a net loss of $50.6 billion or $46.30 per share for the year, the largest annual loss for a technology company ever.

Management also said it now expects September sales to be below the $450 million previously expected, wiping out hopes that the worst was over for the company.

Shares were down 92 cents, or 9.71 percent, to close at $8.55 Friday, well below their 52-week high of $128.

"Try to run, try to hide, break on through to other side," wrote CIBC Oppehheimer analyst Jim Jungjohann in a research note Friday. "Last night's conference call read like a melancholy Jim Morrison lyric," he added. Jungjohann maintained a "hold" rating.

The only thing analysts could praise the company for was its stringent restructuring. The job cuts are part of a plan under which JDS said it will break even at $350 million in quarterly sales. "This round of employee cuts should be deep enough," Jungjohann noted, and after the restructuring, the company "should have an unbelievably lean cost structure."

But the company is facing extremely tough times, which will keep its stock flat until other fundamental issues are resolved, said Goldman Sachs analyst Natarjan Subrahmanyan. "The stock is likely to trade off tomorrow, but will likely trade sideways going forward with limited downside and upside," Subrahmanyan wrote.

The analyst also noted that JDS' business has declined much more steeply than its overall market. While the market for optical networking as a whole has remained flat, JDS' sales for the year will likely be down 30 percent, he said. The disconnect can be partly attributed to the fact that JDS' main customers, Nortel Networks and Lucent Technologies, are "among the weakest in the optical systems space."

But the company's market is undeniably weak. "The downturn in the optical long-haul market is both deeper and longer than we had originally expected," said WR Hambrecht analyst Jim Liang, who reduced his rating on the stock to "buy" from "strong buy" Friday. "Future delays in product development may lead to slower earnings growth," he added.

Nevertheless, Liang, along with other analysts, maintained optimism for the stock's long-term prospects.

"We continue to believe that JDS Uniphase represents the best-positioned optical component company," Liang said.