Goodwill means bad news for JDS Uniphase

JDS Uniphase posted a loss of $7.9 billion for its fiscal fourth quarter and $50.6 billion for fiscal 2001, largely the results of write-downs in goodwill from acquisitions. The company also removed its guidance for the next quarter and announced an expanded restructuring program that includes 7000 additional job cuts.

For the quarter ending June 30, JDS Uniphase reported a pro forma net loss of $477 million or 36 cents per share.

Sales for the quarter were $601 million, down 35% sequentially. Sales for the year were $3.2 billion compared to 2000 pro forma combined sales--including the performance of companies acquired by JDS Uniphase--of $1.8 billion.

But the biggest story on the balance sheet for this quarter and for fiscal 2001 was the write-down of goodwill, attributed primarily to the devalued worth of the SDL, E-TEK and OCIL acquisitions and the merger of JDS Fitel and Uniphase.

Reviewing its balance sheet for the quarter ending March 31, JDS Uniphase will amend that earnings report to show a $38.7 billion reduction in goodwill for that quarter. For the quarter just completed, the company has recorded an extra $6.1 billion charge related to valuations that have fallen even further.

While the company’s loss attracts immediate attention, a research note from David Jackson of Morgan Stanley Dean Witter, questions the severity of the news.

“Investors should view JDSU’s goodwill write-down as a non-event. While some argue that the goodwill write-down indicates the level to which JDSU overpaid for its recent acquisitions, we believe investors must recognize that JDSU paid for its acquisitions in an equally overvalued currency--its own stock.”

Rather, according to Jackson, there are two other pieces of news to come out of the company that demand greater attention: the removal of guidance for upcoming quarters and an expanded restructuring program.

For the fiscal first quarter 2002 ending Sept. 30, JDS Uniphase had predicted revenue of $450 million. But the company’s sales have continued to slow, so it now projects sales to be below its previous estimate. JDS Uniphase executives declined to give updated guidance for the first quarter or for future periods.

JDS Uniphase’s extended slowdown in sales caused the company to expand its realignment program.

“With the change in the level of our business and the insights in operations we found through the company, we have expanded the scope of our global realignment program,” said Greg Dougherty, the company’s chief operating officer.

The realignment calls for 800,000 square feet of operating facilities to be closed and an additional 7000 layoffs.

In addition to the 9000 layoffs already been completed, the job cuts should reduce JDS Uniphase’s work force to 13,000 employees—55% less than the 29,000 workers that began the year with the company.

According to Dougherty, the company plans to cut some low-priority research-and-development projects and reorganize to improve integration and better reflect market structure.

“Modules and subsystems have become our customers’ top priority, and we are adjusting our management structure to further prioritize these areas, as well as increase our focus on the high-growth areas of metro and switching,” he said.

Overall, these changes are expected to save JDS Uniphase $400 million annually, on top of the $300 million per year that previous initiatives are expected to save. The program is designed to let JDS Uniphase reach breakeven financial performance at quarterly sales of $350 million.