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JDS Uniphase Rebounds From 14 Years of Losses With New Products

JDSU sells equipment, software and services used by wireless service providers to test their LTE systems before they come online, and after to see if they’re working properly. 
Photographer: Noah Berger/Bloomberg
JDSU sells equipment, software and services used by wireless service providers to test their LTE systems before they come online, and after to see if they’re working properly. Photographer: Noah Berger/Bloomberg

JDS Uniphase Corp. Chief Executive Officer Thomas Waechter is poised to close the books on the company’s first annual profit since 1996, the fruit of moves into products as varied as 3-D glasses and currency pigments.

The last time JDS Uniphase was in the black for a full year, Bill Clinton was finishing up his first term as president, and Google Inc.’s Larry Page and Sergey Brin were Stanford graduate students working on a search engine called “BackRub.” Since then, the company has lost more than $68 billion.

JDS Uniphase, the biggest maker of fiber-optic testing equipment, has clawed its way back to profitability after digesting acquisitions and investing in new products. When Waechter became CEO in 2009, he stepped up research spending, even though the economy was mired in recession. Innovations developed during the slump now account for about two-thirds of revenue in the company’s optical-components business and 45 percent of its communications-test businesses, he said.

“We made some pretty large bets, and that’s paying off for us now,” Waechter said in an interview.

Now he aims to parlay its broader focus -- and improving bottom line -- into greater recognition. The company has expanded beyond its roots in optical components, which are used to build communications networks. To reflect that, the Milpitas, California-based company adopted a new slogan last July: “You know us because you depend on our technology every day.”

Currency Pigments

Its technology is used in the pigments on U.S. dollars, holograms on debit cards, optical coatings on 3-D movie glasses, cells in solar panels, and the lasers in motion-sensing video-game consoles. It also helps ensure the quality of video delivered over the Internet.

The expansion has helped fuel profit and sales. JDS Uniphase, better known as JDSU, posted net income of $62.3 million for the nine-month period ended April 2, compared with a loss of $63.3 million a year earlier. Analysts project profit of more than $50 million for the fiscal fourth quarter, which ends July 2.

“They’ve done an excellent job turning the ship,” said Nathan Johnsen, an analyst at Pacific Crest Securities in Portland, Oregon. “Over the last few years, they’ve made a concerted effort to exit out of the businesses that are lower margin and less interesting.”

Dot-Com Days

JDSU’s run of losses stemmed in part from its merger of JDS Fitel Inc. and Uniphase Corp. in 1999, which created the biggest maker of fiber-optic components. At the time, a flood of Internet startups was increasing the volume of data traffic. Companies such as Lucent Technologies Inc. also were buying parts from JDSU to boost network capacity. The stock peaked on March 6, 2000, closing at a record $1,172.25.

By the following July, the bubble had burst, and the company wrote down the value of the acquisition. On July 26, 2001, JDSU reported a full-year loss of $50.6 billion, then the largest in U.S. history.

To get back on track, the company cut thousands of jobs, while making more acquisitions in an attempt to boost sales and profit. By fiscal 2008, the company narrowed its loss to $21.7 million, the smallest amount since the merger. Then the deepest recession since the Great Depression pushed the loss up to $909.5 million the following year.

Waechter, who took over in January 2009, has continued to trim expenses while increasing spending on research and development. The company boosted R&D 4.7 percent to $174.9 million in 2010, after a decline of almost 10 percent the previous year.

Share Gains

The improving growth prospects sent the stock up 126 percent in 2009, 76 percent in 2010, and 15 percent so far this year. Of the analysts who follow JDSU, nine recommend buying the stock, while five others have a hold rating, according to Bloomberg data. There are no sell recommendations.

One trend benefiting the company: Wireless carriers are spending billions to create fourth-generation networks with a standard called long-term evolution, or LTE. JDSU sells equipment, software and services used by wireless service providers to test their LTE systems before they come online, and after to see if they’re working properly.

For Waechter, the company’s most exciting business is its smallest: advanced optical technologies. That division makes film coatings, authentication products and gesture-recognition technology. The products go into cars, pharmaceuticals, video-game consoles, movie theaters, sportswear and currency.

‘Black Diamond’

General Motors Co.’s Cadillac announced in February it would a release a “black diamond” version of its CTS-V line, working with JDSU on the paint to give the vehicles a chrome effect. The National Football League’s Jacksonville Jaguars collaborated with the company to create new helmets with a glitter and mirror-like look, introduced in 2009.

The U.S. Treasury Department also uses JDSU’s pigments on the new $100 bill, one of more than 125 currencies worldwide to do so. Drug and luxury-goods makers, as well as banks, use the company’s holograms as an anti-counterfeit measure. Dolby Laboratories Inc. relied on JDSU optical coatings in 3-D glasses for the release of “Avatar.”

Even so, the division’s growth has been slow. Waechter said during a May 4 earnings call that the company is looking for ways to accelerate the unit’s 5 percent to 6 percent annual growth rate, both by internal developments and acquisitions.

A failure to boost the expansion could be a concern over the long term, said Joel Achramowicz, an analyst at Blaylock Robert Van LLC in Oakland, California.

“It’s a very high-margin business,” said Achramowicz, who has a neutral rating on the shares. “The problem is it hasn’t been growing.”

Still, JDSU’s more diverse product lines have helped even out its results, Achramowicz said.

“It helps to basically reassure investors will get a little more consistency,” he said.

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