For its fiscal first-quarter 2014 (ended 28 September 2013), JDSU of Milpitas, CA, USA has reported revenue of $429m, up 1.8% on $421.3m last quarter and 1.9% on $420.9m a year ago (and at the high end of the guidance range of $410-430m).
Of total revenue, 46.4% ($199.2m) came from the Americas, 24.3% ($104m) came from EMEA (Europe, Middle-East and Africa), and 29.3% ($125.8m) came from Asia-Pacific. This compares with 48% ($204.5m), 21% ($86.8m) and 31% ($130m) respectively last quarter, i.e. EMEA was up significantly, while the Americas was down slightly due to lower North America demand and Asia Pacific was also down slightly.
By sector, 47.7% of revenue came from Communications and Commercial Optical Products (CCOP), 40.1% from Communications Test & Measurement (CommTest, now termed Network and Service Enablement or NSE) and 12.2% from Optical Security and Performance (OSP). This compares with 43.3%, 45% and 11.7% last quarter, i.e. a swing from NSE (due to weak order intake in North America, including the US government) to CCOP.
CCOP revenue was $204.6m, up 5% on $194.9m a year ago and 12.2% on last quarter's $182.3m, driven by renewed telecom product strength and continued growth in the datacom portfolio. Within CCOP, Optical Communications revenue was $176.2m, up 14.3% on $154.1m last quarter and 8.1% on $163m a year ago (with telecoms, datacoms and gesture recognition all recording double-digit percentage growth); Commercial Lasers revenue was $28.4m, down 11% on $31.9% a year ago but up 0.7% on $28.2m last quarter (as demand for lasers and semiconductor applications offset softness in other microfabrication applications and a flat quarter for fiber lasers).
"Our results for the quarter were driven by strong growth in products that help our customers build out network capacity [including 100G solutions] and this, coupled with robust customer adoption of our new products, positions JDSU well in the markets we serve," says president & CEO Tom Waechter. Network-related revenue from new products less than two years old (such as the TrueFlex ROADMs) was 64%, marking the 10th consecutive quarter of new product revenue ahead of the firm's 50% target.
"The increase we are seeing in telecom demand is usually an indicator of future demand for transmission products that support Metro and Access networks, including our tunable XFP and tunable SFP+," says chief financial officer Rex Jackson. "Our TrueFlex ROADMs grew as expected, tripling off a small revenue base from Q4, as we completed qualifications and started to ramp into live network deployments," he adds. "Cloud networking is driving growth in our Datacom business. We have a strong profit pipeline for this market and excellent customer engagement for our 10G, 40G and 100G solutions."
On a non-GAAP basis, compared with last quarter, CCOP gross margin rose from 30.9% last quarter to 32% (including Optical Communications improving from 28.2% to 29.5%, due to increased revenue and continued operational improvements; Commercial Lasers gross margin rose from 45.4% to 47.5%). Overall gross margin has risen from 45.8% a year ago and 46.1% last quarter to 46.3%.
Operating expenses were $163.1m, down slightly from last quarter but up from $154m a year ago, due mainly to fiscal 2013 acquisitions and continuing investments in R&D. This yielded operating margin of 8.3%, down on 9.2% a year ago but up on 7.2% last quarter (and above the midpoint of guidance). In particular, CCOP operating margin was 13.3%, above the guidance of 10-12% due to the significant increase in revenue, good control of operating expenses, and continued improvement in product cost reduction.
Net income was $30.2m, down slightly from $30.4m last quarter and $35m a year ago. Although down from $57.1m last quarter, operating cash flow was still $29.5m. "We have delivered our 28th consecutive quarter of positive operating cash flow, further strengthening our balance sheet and ability to fuel JDSU's strong innovation pipeline," says Waechter.
During the quarter, total cash and investments rose from $515.9m to $1087.3m. This rise was largely due to JDSU's senior convertible debt offering of $650m in August. The firm used $100m of the $636m in net proceeds to concurrently repurchase 7.4 million shares of outstanding common stock. "We intend to use the balance of the proceeds for general corporate purposes, including potential strategic transactions," says Waechter.
Telecom bookings rose by 60% on last quarter. "It's a pretty good indicator that we're back in the beginning of a pretty strong telecom buildout," comments executive VP & CCOP president Alan Lowe. In contrast, NSE bookings fell.
For fiscal second-quarter 2014 (ending 28 December 2013), JDSU expects revenue to be flat at $420-440m. In particular, NSE revenue should be flat to up 5% and OSP revenue should rise 2-5%. CCOP revenue should be flat. However, this is due to a decline in Gesture Recognition (due to seasonality) as well as lower Commercial Lasers revenue (due to slower demand for lasers used in micromachining) offsetting the higher Optical Communications revenue in Telecoms and Datacoms. Specifically in Optical Communications, following the strong telecom bookings in Q1, JDSU expects growth in both tunable modules (SFP+ and XFP) and ROADMs (for which JDSU is adding capacity to meet the rapidly rising demand for TrueFlex products). Overall operating expenses should rise by 2-3%, yielding operating margin up to 8.5-10.5% (including CCOP operating margin remaining steady at 12-14%).
