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JDS Uniphase: Time to Buy This Stock for Long-Term Gains

June 24, 2014 | About:
jaggom

jaggom

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Growth in telecom spending, along with the roll out of LTE in China, has driven the performance of optical test and measurement company JDS Uniphase (JDSU). The company has performed impressively in spite of tough competition arising from peers such as Finisar. So, in such a scenario, can Uniphase continue its string of strong performances?

Strongly positioned

JDS Uniphase has built a solid position to leverage its technical expertise in the new and emerging markets, especially in network infrastructure, commercial lasers, and anti-counterfeiting. Moreover, it has experienced good growth in its organic business and is making concrete investments in new products. Moreover, Uniphase’s M&A strategy to expand its product portfolio into mobility and service enablement should be additional drivers for its business.

In addition, the company is benefiting largely from various key trends that are driving its business. First, the need for higher bandwidth and network intelligence to support ever-growing network traffic and complexity should lead to the build out of more data centers and telecom equipment. Also, its core optical business should benefit from additional deployment and upgrades by its service providers on the network expansion front.

What will drive the business?

Uniphase has been experiencing strong momentum for its 100G and mobile broadband that are driving LTE deployment in America. Also, the company is expected to benefit from increased activity in China, leading to the roll out of 100G due to the 4G/LTE built-outs. With Internet and cloud service providers expanding their infrastructure, Uniphase continues to see strong datacom market demand, particularly in the data center and cloud segment.

In addition, carriers, service providers, and enterprises are driving its business as they are addressing surging network complexity guided by greater traffic, and an ever- increasing array of applications, demand for higher speed and security, and reliability challenges. This should increase its profitability and growth in the future.

Uniphase has successfully executed the roll out of its service-enablement software portfolio that comprises of PacketPortal and PacketInsight as it acquired Trendium, a mobile assurance software provider and Uniphase partner that supports 4G LTE networks. Besides, the company was also able to record a $10 million-plus tender from one of the top five global mobile operators for its new Trendium solutions.

Also, Uniphase recently acquired the Zürich-based provider of high-powered ultrafast lasers, Time-Bandwidth, which will enhance its laser product line. The company has seen an increasing use of consumer electronics and connected devices globally, which are driving demand for ultrafast lasers for micro-machining applications. So, Uniphase has designed its Q Series solid-state family of products to complement the requirements of the market.

Also, its anti-counterfeiting could be another major revenue driver for Uniphase in the coming years. The company is targeting this segment with its OSP products, that are used by consumers to visually authenticate bank notes and other secure documents. OSP's flagship and anti-counterfeiting technology, optically variable pigment, or OVP, has been adopted by central banks issuing banknotes for more than 110 countries around the world.

Additionally, the launch of Uniphase’s newest anti-counterfeiting product, the ChromaGuard banknote security thread substrate, with its lead customer last quarter quarter, illustrates Uniphase’s commitment to developing new solutions for this market.

Uniphase is also targeting the gesture recognition market which is seeing strong growth due to gaming, computing, home entertainment, and mobility. Uniphase is a key supplier of proprietary components, and supports the Kinect system and Microsoft's new Xbox One gaming console with optical technology that enables the console to provide highly-precise 3D imaging capabilities. It is working with customers on other applications as well, and expects revenue opportunities going forward.

Overall, Uniphase looks strong as the company has diversified its business and is expanding its technology portfolio that should lead to better performances going forward. Moreover, the company plans to invest significantly in R&D, product development, and resources to open up new opportunities.

Conclusion

Though Uniphase has a comparatively better outlook, Finisar turns out to be a better investment for investors. Analysts have predicted a CAGR of 26% for the next five years for Finisar, while Uniphase is projected to grow at a CAGR of 19% for the same duration. So, while Uniphase might be making some good moves and recording improvements in the business, it might not be a better pick than Finisar in this industry.


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