Falling sales trigger JDSU upheaval

04 Nov 2008

The optical technology giant's CEO resigns, but not before he slashes seven test and measurement research centres and merges two laser diode-based divisions.

Optical communications and commercial lasers look set to escape lightly as JDSU cuts 400 jobs, despite recording the company's biggest falls in revenue in the last quarter. Instead, cuts will be focused in its communications test and measurement division, where 19 research sites will be cut to just 12, and at least three factories closed.

CEO Kevin Kennedy unveiled his rationalization plan on October 29 as he discussed JDSU's financial results for the latest quarter, shortly before announcing his own resignation. The layoffs come as JDSU recorded a third consecutive quarterly loss in the three months ended September, narrowing to $16.6 million from $29.8 million in the previous period.

That the Milpitas, California, headquartered firm slimmed its losses even as sales fell 2.5% to $380.8 million reflects the early stages of the latest rationalization.

Revenues in optical communications fell by 3.1% sequentially to $140.6 million as it chose to stop selling some less profitable 2-4 GHz data communications lines. "Growth was suppressed due to the management decision to prune unprofitable legacy products from the portfolio," Kennedy explained.

The out-going CEO added that JDSU will concentrate its optical communications rationalization on extending this "pruning" into the next quarter, improving manufacturing yields, and tackling supply chain issues. In place of the pruned products the company will focus on more highly integrated offerings, like its recently announced photonic integrated amplifier, to retain high profit margins. It will also emphasize the manufacture of high-value components including pump lasers and VCSELS.

A further consolidation step sees optical communications merge with JDSU's commercial lasers business, where sales fell 3.2% from the previous quarter to $21.4 million. Kennedy attributes this fall to lower demand from semiconductor equipment manufacturers. As well as combining the two units, JDSU is introducing laser diodes originally developed for optical communications into its commercial laser range. "These new products will increase our available market threefold," Kennedy claimed.

Meanwhile, the job cuts in test and measurement underscore three consecutive quarters of falling sales from this division in North America, contributing to a 3% fall in sales to $165.3 million in the recent period. Though Kennedy still sees this business as a strong long-term growth area, he feels that outsourcing more of its manufacturing will protect company profit from unpredictable cost variations.

These steps look set to be among Kennedy's last, as he leaves to become CEO of privately held telecom firm Avaya in 2009. He will however continue to serve on JDSU's board as vice-chairman after taking up his new role.

Although JDSU has never earned a full-year profit under Kennedy's tenure, it has at least narrowed its loss. Kennedy was appointed in 2003, shortly after the company recorded a $934 million reverse. This in itself was a huge improvement on the staggering $8.7 billion and $50.6 billion losses for 2002 and 2001 respectively, triggered by the telecoms bubble.

By fiscal 2008 the company had trimmed its loss down to $20.5 million on $1.53 billion in revenues.