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Some Reasons Why This Telecom Equipment Company Is Not a Good Investment

July 25, 2014 | About:

Fiber optics part supplier JDS Uniphase's (JDSU) year went from terrible to worse. Uniphase reported impressive first-quarter results, yet a feeble direction prompted a massive drop in the share cost. Also, with opponent Finisar (FNSR) seeing a bounce back sought after for its telecom products, Uniphase investors may stress that it may be losing market share to its peers.

Stressing signs

Uniphase referred to frail orders from North America for its test and measurement solutions that serve the telecom industry. As a result, Uniphase saw a 9% drop in revenue from its system and service-enablement business, which accounts for 40% of general revenue.

These test and measurement solutions are essential used by telecom carriers. This is the reason a drop sought after in this segment isn't an empowering sign since telcos in North America are sending LTE networks, separated from spending cash to make their existing system more productive. In addition, Uniphase's general book-to-charge degree in the previous quarter stayed beneath 1, showing that the organization isn't seeing much interest for its products.

At the same time, rival Finisar is seeing great footing in its telecom business. At the point when Finisar reported its second-quarter results, it saw a 25% increase in revenue. Considering that its telecom business had dropped 12% on a sequential basis in the final quarter, this increase is exemplary.

Finisar adjusted off its robust quarterly report with an outstanding viewpoint. It guided for revenue between $290 million and $305 million, in front of the $290 million Street estimate. Also, its earnings direction of $0.43-$0.47 per share convincingly surpassed consensus expectations of $0.38 per share. Finisar expects its telecom business to show signs of improvement later on the once more of clients such as Ciena and interest from China.

A couple of positives to note

So, Uniphase isn't doing as well as Finisar and has been under pressure since its latest report. On the other hand, it expects things to show signs of improvement in the long run. Uniphase is depending on an increase popular for system data transmission. It believes that the organization of small cells by telecom carriers and the take off of LTE will in the end lead to more noteworthy interest for its products.

Uniphase is right in its assessment of what could drive interest for its products. Case in point, Verizon (VZ), which operates the largest 4g system in the U.s. coating 500 markets and 301 million customers, is still attempting to make its system more productive. Not long ago, Verizon administration stated that they will start sending small cells in the second a large portion of the year as it looks to boost limit and scope of its LTE system.

This activity should help Verizon enhance system speeds and discover At&t, which is sending it small cells. At&t is at the present time conveying 40,000 small cells through the following three years. Thus, segment suppliers such as Uniphase stand to addition from the telecom wars in North America. In any case sadly, Uniphase doesn't have a strong request book as of now to profit from these deployments.

Uniphase is also optimistic about its information communications business. The development in server farms is prompting strong interest for Uniphase's optical correspondence products. The organization expects this segment to develop further as server farms get to be more unpredictable and the requirement for network and limit inside and between server farms increases.

Not adequate

In any case despite this optimism, Uniphase doesn't resemble a persuading investment at this time. The stock is expensive at 45 times earnings, its revenue development slowed down to just 1.90% year over year in the previous quarter, and the request book doesn't paint a pretty picture with a book-to-charge degree of less than 1.

As such, it would be reasonable for investors to take their cash out of Uniphase and instead invest in a superior optical systems administration play such as Finisar.

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