JDS Uniphase to Outperform

We initiate coverage on JDS Uniphase Corp. (JDSU) with an Outperform recommendation. The company is gradually accelerating its top-line growth driven by significant contribution from its optical networking equipment coupled with the recent acquisition of network solutions products of Agilent. Fourth quarter fiscal 2010 financial results were slightly below the Zacks Consensus Estimates. Nevertheless, management has given a strong financial outlook.

We are optimistic regarding the success of the company’s product portfolio targeting next-generation technologies of IPTV, wireless backhaul, LTE networks, and 40 Gbps and 100 Gbps optical network systems. JDS Uniphase is very much focused on cutting costs and preserving cash. This helps the company to significantly improve both the gross and EBITDA margins. An improving global economy will also help the company to sustain growth.

As a leading supplier of fiber optic components and modules used in advanced high-speed communications networks, JDS Uniphase is benefiting from rapidly growing Internet traffic and associated applications. During the fourth quarter of fiscal 2010, all the three segments had greater than 1.0 book-to-bill ratio, indicating strong order bookings. This is for the fifth consecutive quarter that JDS Uniphase achieved an overall book-to-bill ratio of greater than 1.0.

Acquisition of Network Solutions Division (NSD) of Agilent increased JDS Unipahse’s addressable market size to $800 million. NSD expanded end-to-end wireless network test solutions portfolio of the company. In the fourth quarter 2010, NSD contributed $15.7 million in revenue. Furthermore, JDS Uniphase entered into a partnership with Amada to develop a high-power 4 kilowatt fiber laser. Industry sources estimated that the market size for kilowatt materials processing may exceed $1 billion by 2013.

JDS UNIPHASE CP (JDSU): Free Stock Analysis Report

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