We reiterate our long-term Neutral recommendation on
JDS Uniphase Corp.
). The company reported disappointing financial results for the
third quarter of fiscal 2013, missing both the top and the bottom
lines of the Zacks Consensus Estimate. Lower-than-expected
capital expenditure by telecom carriers was the primary reason
for this poor performance. JDS Uniphase currently has a Zacks
Rank #4 (Sell).
Why Kept at Neutral?
JDS Uniphase's newly launched products coupled with the
acquisition of Arieso are the long-term positives for the
company. In the last quarter, the newly launched differentiated
products accounted for 64% of its total revenue in the core
network market. We believe that carrier expenditures for
high-speed broadband network, faster mobility and 100 Gbps
Ethernet network will increase in 2013, aiding JDS Uniphase's
prospects over the long haul. The company is expected to improve
its cash flow, gross and operating margins and adjusted earnings
before interest, depreciation and amortization.
The acquisition of Arieso will significantly enhance JDS
Uniphase's mobility software portfolio. Arieso's technologies
mainly deliver effective network design and performance by
monitoring and optimizing Radio Access Network (RAN). The RAN
optimization market size is expected to grow to $1 billion by
2015. Most notably, Arieso has a promising list of clientele that
includes several global telecom giants, such as
Vodafone Group plc.
). We believe that this deal will be incrementally positive for
the company from the fourth quarter of fiscal 2013.
Nevertheless, the optical component industry is still not out
of the woods. The ongoing global economic fluctuations may
significantly affect the prospects of JDS Uniphase. Moreover, the
consolidation trend of wireless networks and data centers will
make the situation even worse. The optical component industry is
highly cyclical in nature and is characterized by extreme price
volatility. A weaker-than-expected market recovery will worsen
the situation. Additionally, mergers among telecom carriers and
equipment manufacturers may result in lower orders.
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