Zacks_Analysts' Blog : JDS Uniphase Remains Neutral - Analyst Blog

As a leading supplier of fiber optic components and modules used in advanced high-speed communications networks, JDS Uniphase Corp. (JDSU) is benefiting from rapidly growing Internet traffic and associated applications. The companygenerated solid top-line growth in the previous quarter. All the three reporting segments of JDS Uniphase witnessed year-over-year sells growth.

However, its bottom-line fell belowthe Zacks Consensus Estimate. Furthermore, management projected a highly disappointing revenue figure for the ensuing first quarter of fiscal 2012. The companycited three reasons for this weak outlook. These are: (1) ongoing global macro-economic fluctuations (2) short-term inventory correction on the part of its customers, and (3) a weak seasonality. Nevertheless, we believe these negatives are already reflected in the current valuation, which plummeted 64% in the last year. This low-level of valuation may restrict further downslide of the stock price. We therefore, reiterate our Neutral recommendation on JDS Uniphase. 

In the near future, we believe JDS Uniphase may face severe competitive pressure in some of its core growth areas. For the past few years, XFP tunable and the Super Transport blade were the two segments exclusive to JDS Uniphase. However, Oclaro Inc. (OCLR) and Finisar Corp. (FNSR) are in the verge of launching XFP, while Oclaro and Sumitomo may become competitors for the Super Transport blade. Increasing competition may take a toll on the overall growth prospects of JDS Uniphase since these two businesses were driving revenue in the previous year. High-margin Test and Measurement division may also face growing competitive pressure.

Meanwhile, emerging 4G Long-Term Evolution (LTE) networks became another major growth driver for JDS Uniphase. At the end of 2010, there were 22 commercially operational LTE networks throughout the world and this number is expected to reach at least 64 by end-2012.