JDS Uniphase Corp. is fast becoming a shadow of its former self as once sizzling OEM demand for its optical components cools rapidly in the face of brutal capital expenditure cuts at tele- communications service providers.
Once a company that measured its revenue in the multibillions, JDS Uni-phase is now expected to close its fiscal year ending June 30, 2003, with sales of about $745 million, well below the respective $1.1 billion and $3.2 billion it posted in the previous two years.
With debt-laden service providers repeatedly cutting capex and other costs to stay afloat, demand for fiber optic components and equipment has been similarly scaled back, leaving the industry glutted and manufacturers either exiting the market or scrambling to ward off pricing pressures. As a result, analysts don't expect sales at JDS Uniphase to approach the fiscal 2001 level anytime soon.
"Is there any hope for JDS Uniphase and the fiber optics industry?" asked Dave Kang, an analyst at Roth Capital Partners LLC, Newport Beach, Calif. "We think so, but it will take some time. Because of today's economy, carriers are opting to scale up their existing systems rather than deploy money-saving next-generation systems."
The continuing cost-cutting at service providers, such as Sprint FON Group, which recently trimmed its 2002 capex to $2.4 billion from a prior estimate of $2.5 billion, has hurt companies like JDS Uniphase. The San Jose manufacturer generates about 70% of its sales from the telecommunications market and cited the sector's weakness as the primary reason behind its decision last week to lower its September-quarter revenue estimate. Sales in the fiscal first quarter ending Sept. 30 will now be between $190 million and $200 million, from a prior range of $200 million to $210 million, JDS Uniphase said in a statement.
"The anticipated revenue decline is due to continuing weakness in the company's telecommunications markets," JDS Uniphase said. "Consistent with earlier guidance, the company expects to report a pro forma net loss of 6 cents to 8 cents per share, excluding charges under the global realignment program."
Analysts said JDS Uniphase and its OEM customers should not expect the situation to improve soon. A recent survey by SG Cowen Securities Corp., New York, of 40 telecommunications service providers in Asia, Europe, and North America indicates a majority still plan to cut their capex in 2003 after scaling back deeply in 2002, according to analyst Tim Daubenspeck.
"We forecast the global [telecom] equipment market will decline about 17% in 2002 and 14% in 2003 due to continued operator resistance to spend in the face of investors' demands for cash flow and profitability," Daubenspeck said in the report.