In the first week of January, I had written about two stocks that I believed were nicely positioned to benefit from higher telco spending this year. I was quite confident about their prospects, given their solid products and the industry in which they ply their trade. But I’d never thought that one of them would shoot through the roof after a solid earnings report.
Optical networker JDS Uniphase Corp (NASDAQ:JDSU) gained 17% in a single day, after the company comfortably topped estimates in its just-reported second-quarter and issued a decent outlook. The company’s top line grew almost 5% from the year-ago period to $429 million while adjusted earnings grew almost 17% to $42.3 million or $0.18 per share.
Also, JDS Uniphase’s non-GAAP gross margin came in at a record 48%, which is the highest in the past two years. Moreover, outlook for the current quarter calls for revenue between $405 million to $425 million, at par with the consensus estimate at the mid-point.
Carriers to open their wallets
And this is just the beginning. Management is upbeat about the company’s prospects, and this optimism is driven by an expectation of increased investment in network infrastructure this year. Gartner expects a jump in global IT spending this year, driven by investments in data centers and telecom. Also, late last year, AT&T Inc. (NYSE:T) signaled its intention of stepping on the gas for boosting its networks.
The carrier intends to spend $14 billion over the next three years in a bid to enhance its wireless and wireline broadband network, and expand its 4G LTE coverage to 300 million customers by the end of 2014. Such investments by Ma Bell could spur other carriers into action as well, and this would in-turn translate into better revenues for companies such as JDS Uniphase.
Solid products mean more customers
JDS Uniphase has prepared a lineup of strong and innovative products to cash in on the build out of faster networks. Its new products, which are less than two years old, have been bringing in more than 50% of its core network-related revenue over the past seven quarters. Uniphase’s PacketPortal solution is finding great adoption and currently sports 11 customers, apart from 23 completed trials.
The company’s industry leading 4G LTE test solution should find more takers as roll out of 4G gathers steam. In addition, JDS Uniphase also seems well-positioned to benefit from growth in cloud computing and data centers. The company is preparing itself to launch products that satisfy cloud customers, and is in the last stage of winning several new contracts for this business.
Cloud and more
Management expects this foray into data centers to yield strong results, and might even become the fastest growing of all of Uniphase’s businesses. Moreover, the presence of Cisco Systems, Inc. (NASDAQ:CSCO) as a customer is another advantage for Uniphase’s data center business. Cisco’s data center segment is on a roll and witnessed an impressive sales growth of 61% in the previous quarter. And given Cisco’s aggressive investments into its data center strategy through its Unified Computing System platform, one can expect Uniphase to gain some goodies from its client.