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Strong comms demand vexes JDSU

The laser chip and module manufacturer is seeing increased bandwidth demand driving strong growth, but must also work to improve on limited profitability in the sector.

Production constraints have forced JDSU to postpone delivery on $10 million worth of optical communication orders beyond September.

These orders, which include products containing its InP tunable lasers, have been delayed from the company s current fiscal quarter as demand has risen faster than its own capacity buildup. The Milpitas, California, headquartered company is also contending with supply delays in the face of what is an otherwise optimistic outlook arising from increasing amounts of internet traffic.

“We see favorable end market indicators,” said JDSU s CEO Kevin Kennedy, “and we believe broadband capacity will continue to expand as higher data rates are delivered.”

In the June quarter sales from JDSU's optical communications division were $136.1 million, up 6 percent sequentially and 33 percent year-over-year. This includes revenues arising from Picolight, the chip maker whose acquisition JDSU completed in May 2007, since when it has added three VCSEL customers.

Kennedy predicts that his optical communications unit will grow 5-15 percent annually in spite of the present obstacles, but says improving profitability is still a priority. That s because comms was the fastest growing of JDSU's four divisions in the last quarter, but boasts the worst profit margin.

Therefore, without boosting its profitability, the health of optical communications will not help improve upon the company's most recent quarterly results, in which both its revenues and official losses expanded. Quarterly losses were $29.8 million, growing from $17.9 million, even though total revenues increased from $350.7 million to $390.3 million over the same period.

JDSU attributed the increased loss largely to charges related to two acquisitions "“ da Vinci systems, a video color enhancement and image restoration firm, and American Banknote Holographics. Those charges came to $45.4 million, but were largely compensated for by litigation and patent wranglings that actually resulted in a net income of $40.8 million.

In the firm s own unofficial figures, which it says represents the view “through the eyes” of management, it recorded a $15.5 million profit for the quarter.

Over the coming months the merger of Finisar and Optium will see JDSU lose its position as the number one component, module and subsystem manufacturer in optical communications. This is part of a series of consolidation moves, that includes Emcore buying assets from Intel, Oplink buying out OCP, and Opnext's pending acquisition of Stratalight.

However, despite facing a challenge to make more money from this market, JDSU says it is not looking to make any more acquisitions to regain its lead.

“Making money in optics is as much about what you choose not to do as what you choose to do,” said Kennedy. “We have chosen where to play in order to make sure that we continue to improve our profitability and make money.”

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