We reaffirm our long-term Neutral recommendation on JDS Uniphase Corp. (JDSU). The company declared blockbuster financial results for the second quarter of fiscal 2011. Both revenue and EPS were significantly above the Zacks Consensus Estimates. JDS Uniphase achieved several operating milestones in the previous quarter. Meanwhile, the stock price has soared nearly 135% in the last one year and currently provides limited scope for any above-market gain.
As a leading supplier of fiber optic components and modules used in advanced high-speed communications networks, JDS Uniphase benefited due to rapidly growing Internet traffic and associated applications. During the second quarter of fiscal 2011, the company had greater than 1.0 book-to-bill ratio, indicating strong order bookings. This is for the seventh consecutive quarters that JDS Uniphase achieved overall book-to-bill ratio of greater than 1.0. Revenue ($473.5 million), gross margin (45.2%) and operating margin (15.3%) outpaced its previous high levels.
Increasing broadband penetration, Internet traffic boom, growing mobile bandwidth requirement and higher demand for distributed electronics storage systems are the primary reasons for these impressive results. Management has provided a solid financial outlook for the future. As a diversification strategy, JDS Unipahse is emphasizing on non-telecom areas such as commercial laser, currency pigments, brand protection, jester recognition and 3-D cinema.
Emerging 4G Long-Term Evolution (LTE) networks became another major growth driver for JDS Uniphase. For LTE projects, the company is currently working with 30 customers on protocol test, 25 customers on drive test, and 10 customers for service assurance. Recently, a major European telecom carrier has selected JDS Uniphase to provide test solutions for the deployment of the carrier’s super-fast LTE and 100 Gbps networks.
Nevertheless,Optical component industry is cyclical in nature and is characterized by extreme price volatility. Moreover, this segment is highly competitive. The company competes fiercely with several players such as Finisar Corp. (FNSR), Oplink Communications Inc. (OPLK), Opnext Inc. (OPXT), and Oclaro Inc. (OCLR).