JDS Uniphase Remains Neutral

We reiterate our long-term Neutral recommendation on JDS Uniphase Corp. (JDSU - Analyst Report). The company posted mixed financial results for the first quarter of fiscal 2013. Although the revenue fell below the Zacks Consensus Estimate, net income topped the same. The company’s newly launched products accounted for 57% of its total revenue in core network market. However, overall book-to-bill ratio remained less than 1.0 throughout the quarter. We remain concerned regarding the delay in carrier order due to a volatile global macro-economy.

Consolidation trend in the optical gear manufacturing industry as well as in the telecom carrier industry may act as a spoiler for the optical component suppliers, such as JDS Uniphase. Nevertheless, its newly launched differentiated products, which are gaining encouraging market traction coupled with acquisitions of Dyaptive and GenComm may become long-term positives for the company.

Next-generation 4G Long-Term Evolution (LTE) networks became a major growth driver for JDS Uniphase. The company offers an innovative LTE test solution, which encompasses end-to-end, real-time tracing, data assurance, and OSS to derive the performance and revenue potential of LTE.

Meanwhile, the optical component industry is going through a downtrend. Major telecom carriers are making inventory correction and this scenario is expected to continue till the end of 2012. The company’s closest rivals, such as Ciena Corp. (CIEN - Analyst Report), Finisar Corp. (FNSR - Snapshot Report), and Oclaro Inc. (OCLR - Snapshot Report) are all suffering from industry headwinds. Several industry players estimated that demand from the largest emerging market of China will not meet expectations. JDS Uniphase is highly dependent on China since the developed western world is still reeling under economic headwinds.