For its fiscal second-quarter 2014 (ended 28 December 2013), JDSU of Milpitas, CA, USA has reported revenue of $447.6m, up 4% on $429m last quarter and $429.4m a year ago (and above the guidance of $420-440m).
By sector, 44.2% of revenue came from Communications and Commercial Optical Products (CCOP), 43.6% from Network and Service Enablement (NSE, formerly Communications Test & Measurement, or CommTest) and 12.2% from Optical Security and Performance (OSP). This compares with 47.7%, 40.1% and 12.2% last quarter, i.e. a swing back from CCOP to NSE.
CCOP revenue was $198m, up 6.6% on $185.8m a year ago but down 3.2% on last quarter's $204.6m (and below the guidance of flat on last quarter). Within CCOP, Lasers revenue was $23.5m, down 22.2% on $30.2% a year ago and 17.3% on $28.4m last quarter. Optical Communications revenue was $174.5m, up 12.1% on $155.6m a year ago but down 1% on $176.2m last quarter (reflecting the anticipated seasonal drop-off in gesture recognition revenue, partially offset by increased telecom business). Demand for 100G line-side telecom components was strong (26% of transmission revenue). Revenue doubled for TrueFlex ROADM s (reconfigurable optical add-drop multiplexers) and revenue for tunable XFP and SFP+ products grew by more than 14%. Amplifier revenue fell 10%, and provides a good leading indicator for continued transmission product growth for tunable XFP and SFP+ in the build-out for more metro and edge 10G applications, says JDSU.
On a non-GAAP basis, gross margin was 48.5%, up on 46.3% last quarter and 48% a year ago (and the best quarter since fiscal Q2/2011). In particular, CCOP gross margin rose from 32% to 32.3%, reflecting favorable product mix and operational improvements despite the sequentially lower revenue. Of this, Optical Communications gross margin rose from 29.5% to 30% and Laser's gross margin rose from 47.5% to 49.4%.
Operating margin was 11%, up on 8.3% last quarter (and above the expected 8.5-10.5%) but down on 11.4% a year ago, due mainly to increased investments in R&D and NSE and CCOP, as well as incremental expenses from the acquisition of Arieso. In particular, CCOP operating margin was 12.1%, down from 13.3% last quarter (and at the low end of the 12-14% guidance), impacted by the lower CCOP revenue and increased R&D investments.
Net income was $45.3m, up from $30.2m last quarter and $42.3m a year ago. Driven by the higher sales and better margins, operating cash flow has nearly doubled from $29.5m last quarter to $54.4m. Capital expenditure was a higher-than-expected $31.9m, due to the $14.7m purchase of the firm's largest fabrication facility in California (to protect its capital investment in this facility, reflecting a long-term commitment to the site as well as providing operational flexibility and cost savings). During the quarter, total cash and investments rose from $1087.3m to $1095.6m.
"We are pleased with the performance of our organic business, the progress of our continuing investments in new offerings which align with customer requirements and market trends, and our continuing M&A strategy to expand our product portfolio into mobility and service enablement," says president & CEO Tom Waechter. New products (less than 2 years old) represented 65% of revenue. "We believe JDSU is well-positioned to leverage our technical leadership in new markets in network infrastructure, commercial lasers and anti-counterfeiting in calendar 2014."
For fiscal third-quarter 2014 (ending 29 March), JDSU expects revenue to fall to $420-440m, including $175-185m from NSE, $49-51m from OSP and $195-205m from CCOP. Operating margin should be 6-8%, including 5-7% for NSE, 10-12% for CCOP and 34-36% for OSP.
In CCOP, the sequential decline reflects an expected decline in gesture revenue offset by improvements in telecoms, datacoms and Commercial Lasers. "In CCOP, we see a healthy demand for our 100G products and are working to increase reduction capacity on these products," says Waechter. "We're excited about the early success of our tunable and TrueFlex product lines and pleased with our penetration into the datacom market with our 10G and 40G products," he adds.
"We continue to see strong datacom market demand, particularly in the data center and cloud segment as Internet and cloud service providers expand their infrastructure," Waechter continues. "Datacom was healthy for CCOP's 10G and 40G portfolio in the first half of fiscal 14 and is expected to continue being an area of growth for CCOP as we expand our product offering for this space and penetrate new accounts."
