JDS Uniphase Misses, Outlook Weak

Yesterday, after market close, JDS Uniphase Corp. (JDSU - Analyst Report) declared mixed financial results for the fourth quarter of fiscal 2011. The company, which manufactures broadband and optical networking components for the telecom industry, generated solid top-line growth but its bottom-line failed to meet our expectation.

Moreover, the ensuing first quarter of fiscal 2012 revenue projection was highly disappointing. As a result, in the after market trade on NASDAQ, stock price of JDS Uniphase was down by 25 cents (2.13%) to $11.45.

Quarterly net revenue was $471.8 million, up 20.7% year over year, surpassing the Zacks Consensus Estimate of $466 million. All the three reporting segments of JDS Uniphase generated year-over-year revenue growth.

On a GAAP basis, quarterly net income was $9.3 million or 4 cents per share compared with a net income of $1.5 million or 1 cent per share in the year-ago quarter. However, quarterly adjusted (excluding special items) EPS was 16 cents, well below the Zacks Consensus Estimate of 18 cents.

Gross margin in the reported quarter was 43.3% compared with 40.9% in the year-ago quarter. In the fourth quarter, operating expenses were $185.7 million, up 36% from the prior-year quarter. However, quarterly operating income was $18.4 million compared with an operating loss of $3.1 million in the prior-year quarter. EBITDA in the previous quarter was $57 million compared with $32.5 million in the prior-year quarter.

At the end of fiscal 2011, JDS Uniphase had $695.7 million of cash & marketable securities and $285.8 million of outstanding debt on its balance sheet compared with $572.7 million of cash & marketable securities and $267.3 million of outstanding debt on its balance sheet at the end of fiscal 2010.

At the end of fiscal 2011, debt-to-capitalization ratio was 0.21 compared with 0.23 at the end of fiscal 2010. JDS Uniphase generated $56 million of cash from operations in the reported quarter.

Revenue Segments

In the fourth quarter of fiscal 2011, Communications Test and Measurement segment accounted for $211.3 million of revenue, up 13.5% year over year. Communications and Commercial Optical Products segment accounted for $202.3 million, up 28.6% year over year. Within this segment, Optical Communications revenue was $174.5 million, up 29.5% from the prior-year quarter and Commercial Lasers business revenue was $27.8 million, up 23% from the prior-year quarter. Advanced Optical Technologies segment generated the remaining $58.7 million revenue, up 7.5% year over year.

Geographic Segments

In thefourth quarter of fiscal 2011, the Americas segment accounted for 49% of total revenue, the European segment came in at 26%, and the rest 25% was generated from the Asia-Pacific region.

Future Financial Outlook

For the first quarter of fiscal 2012, management expects the company’s non-GAAP revenue to be within the range of $400 million - $425 million. Excluding deferred revenue related to purchase accounting adjustment, its mid-point of $412 million is significantly below the current Zacks Consensus Estimate of $471 million.

JDS Uniphase cited three reasons for this weak outlook. These are: (1) ongoing global macro-economic fluctuations (2) short-term inventory glut on the part of its customers (3) weak seasonality.

Recommendation

Optical Networking component sector is highly competitive. The company competes fiercely with several players, such as Finisar Corp. (FNSR - Snapshot Report), Oplink Communications Inc. (OPLK - Snapshot Report), Opnext Inc. (), and Oclaro Inc. (OCLR - Snapshot Report), to name a few. We reaffirm our long-term Neutral recommendation on JDS Uniphase. Currently, it holds a short-term Zacks #3 Rank (Hold) on the stock.