2013 was supposed to be a good year for optical networker JDS Uniphase Corp (NASDAQ:JDSU) and the company had even kicked off the year in style, posting solid results and an upbeat outlook. However, the stock’s performance has since deteriorated and the third-quarter results released earlier this month haven’t done much to revive its fortunes.
The company missed estimates and the outlook for the ongoing quarter wasn’t up to the mark. This is a classic case of the wheels coming off a company’s business when it was expected to take off. The boost from telecom spending, which Uniphase had hoped for, didn’t materialize as it was supposed to be as the company’s revenue came in at the low end of its own guidance.
JDS Uniphase Corp (NASDAQ:JDSU) blamed the delay in the release of spending budgets by carriers, which ideally happens in February but got delayed into March and hurt its top line. But then, the good thing in the report was that Uniphase exited the quarter with a book-to-bill ratio of above 1, which suggests that its business might have bottomed and we would probably see better revenue performance ahead.
JDS Uniphase Corp (NASDAQ:JDSU), as always, is counting on the roll out of faster networks to drive its growth, but the company is uncertain about the timing of upgrades. It’s a well-known fact that carriers are moving to faster networks, and being a leading supplier of 4G LTE test and measurement solutions, Uniphase should benefit from this growth.
A case of when, not if
Management cites that Uniphase is witnessing some activity at major telecom carriers and is recording design wins as well, but it doesn’t know when this design win activity will result in revenue. For instance, management said that it doesn’t know exactly when it will see the deployment of 100G by a major Chinese carrier, which might be China Unicom (Hong Kong) Limited (ADR) (NYSE:CHU). Huawei, which is supplying the technology to Unicom for the 100G roll out is one of JDS Uniphase Corp (NASDAQ:JDSU)’s customers.
Now, China Unicom (Hong Kong) Limited (ADR) (NYSE:CHU) is conducting a pilot program for 100G as it intends to check the viability of the network, but then, the telecom giant doesn’t seem to provide a timeline as to the actual deployment. Also, since Huawei counts China Mobile Ltd. (ADR) (NYSE:CHL) as one of its customers, it might be possible that Uniphase was referring to the contracts doled out by the world’s largest carrier.
China Mobile Ltd. (ADR) (NYSE:CHL) is investing huge resources into 100G, bigger than what its rivals are, and recently awarded contracts to Huawei for providing optical transport network infrastructure. While the time when these major carriers would start their deployment isn’t known, it should be noted that having Huawei as a customer is a big advantage for JDS Uniphase Corp (NASDAQ:JDSU) as the networking equipment major enjoys a good relationship with several carriers in Asia.
Moreover, Uniphase is witnessing an accelerated shift to faster networks as management stated that carriers are moving aggressively to high-speed broadband and wireless from wireline networks. Probably, they are indicating AT&T Inc. (NYSE:T) here, as the telco giant recently announced that it is witnessing faster and more efficient roll out of its Project Velocity IP.
Through this program, the company is upgrading its networks and had outlined $8 billion for bolstering wireless networks. If the deployment is indeed happening at a faster than anticipated pace, then JDS Uniphase Corp (NASDAQ:JDSU) should see a boost to revenue sooner than later, even though the efficiencies in the project have led Ma Bell to lower its capex estimates for 2014 and 2015.