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Subject:  Re: JDSU: No gorilla Date:  2/15/2000  5:08 AM
Author:  Phileo Number:  5531 of 8329

Cliffhanger in #5530:
"Likely to become a gorilla? Probably not."
I agree. JDSU is a RuleMaker in the sense that they that they are twice the size of their nearest (pure) competitor, and have a repeat purchase business to sustain their "lock" on the market.
However, they do not own technology which enables them to control the market (in the way that INTC controls the market through the supply chain with their releases of the Pentium chip, and how MSFT is controlling the market through the supply chain with releases of their Windows OS). See this article for further details of this argument.

"Inability on JDSU's part to wipe out their customers' lucrative in-house suppliers makes it unlikely that they could become "gorillas""
Agreed. JDSU's biggest competitors are the in-house suppliers (eg. LU, NT).

"But as supply ramps to meet demand, will JDSU really find itself in a position to write the rules when it holds a minority share of the market and is competing with its key customers?"
Couple of points:

1) Supply isn't meeting demand right now. And supply won't be able to meet demand for the next couple of years. Even with the acquisitions of OCLI (huge manufacturer of fibre optic components) and ETEK, (ETEK owns manufacturing plants in China, Taiwan, and California), JDSU is claiming that they will still need to double their manufacturing capacity (which I still find unbelievable, by the way).

2) Does a company require a majority of the market share in order to "make the rules"? The answer can be found by looking at YHOO. YHOO competes with LCOS, ATHM, AOL, and AltaVista (will be going IPO sometime in March, by the way). With all this competition, YHOO clearly does not capture over 50% of the market (the market being web portals, and spin-off markets from that such as shopping portals, and finance portals, etc.) However, that did not stop them from dominating their industry, and making the rules. What matters is that they meet the criteria which characterizes a RuleMaker. The Rule Maker criteria basically describes in detail what a Rule Maker would look like in any industry, and YHOO fits the description. JDSU pretty much fits the description as well. (I say pretty much, because there are two areas, gross margins, and flowie, where JDSU still does not "look" like a Rule Maker).

3) I think you're trying to equate RuleMakers with Gorillas. There is a distinction to be made, and just because one is a RuleMaker, that doesn't mean it is a gorilla (although gorillas are implicitly RuleMakers)
JDSU is a RuleMaker because it has met (most of) the criteria which characterizes all RuleMakers.
However, Gorillas dominate their respective markets by controlling the proprietary technology in such a way that it would cost the user (or business) to switch away to another technology.
JDSU obviously does not meet this criteria, because it faces stiff competition from GLW, LU, and NT.

We have seen indications that JDSU is a true RuleMaker.
JDSU has stated all along its intentions, and that is to become a one-stop shop for fibre optic components. That is where it will provide its value-add, by offering the most complete suite of products so that you won't need to go anywhere else.

For example, if you wished to purchase all of the folowing components:

Lithium Niobate Modulators
Source and pump lasers
He-Neon lasers
WDM couplers
Dense and wideband WDM components and modules
Optical Transmitters/receivers
Optical switches
Fibre optic mini-modems
Erbium doped Fibre Amplifiers

you would need to visit GLW, ORTL, SDLI, LU, or NT for obtaining the different components.
But you would only need to go to JDSU to obtain them all from one place. This kind of unique convenience encourages more repeat purchase business than their competition. The investor relations dept. @ JDSU has already informed me that LU, NT, and Alcatel are long time customers. I think that it is because of the variety of products that JDSU can offer them.

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