I carried out a RM Ranking analysis on JDSU in this post:http://boards.fool.com/Message.asp?id=1030043001615001&sort=postdateI would like to support my nomination of JDSU as the next Rule Maker purchase by additionally evaluating JDSU on the 10 Rule Maker criteria.1) Dominant Brand - Is there a clear distinction between JDSU's Directly Modulated Laser (DML) modules and ORTL's DML modules? Or do JDSU's Lithium Niobate optical modulators clearly dominate SDLI's Lithium Niobate Optical modulators?First of all, we need to define consumer. In the fibre optic networking industry, the retail consumer is not a customer. Most of us retail consumers will never really see a WDM Coupler in our lifetime, unless we go out of our way to visit JDSU. No, instead, JDSU's propspective customer would be the CATV and Telco service providers, and companies who build fibre optic networks (eg. LU, NT, CSCO) .Now, I would argue that branding in this industry is not as important as it is in other industries, say Internet portals (eg. YHOO). A customer in this industry will make purchasing decisions based on:1) technology - JDSU's product offering uses leading edge techology in fibre optics. They have the largest staff of PhD's, and hold over 421 optics related patents:http://boards.fool.com/Message.asp?id=11501000000790002) price - don't know how JDSU's prices compare to SDLI, ETEK, or ORTL.3) complete sytem solution - JDSU by far has the biggest line of products to offer. Customers will prefer this, because then JDSU becomes the "one stop shop" for any/all fibre optic needs, thus eliminating the need for going to Company A for WDM couplers, and Company B for He-Neon Lasers, etc.Conclusion: JDSU has great brand recognition among its peers and customers, and it is the preferred choice among the customers in its industry.1 point 2.Repeat-purchase business - I do not know whether JDSU has repeat purchase customers. Does anyone have any info on this?0 points3.Convenience Because of their vast product offering, JDSU makes it convenient for the customer to select JDSU's fibre optic component solutions to satisfy all of their needs. Other than that, I'd have to admit that I don't know enough about JDSU in this particular area to comment further on it. Anyone else care to comment about JDSU in terms of the convenience criteria?0.5 points4.Expanding possibilities JDSU is currently building 3 more manufacturing plants in order to meet customer demand for fibre optic components. The world is transitioning to fibre optics as the superior choice for meeting the insatiable thirst for network bandwidth. I think CSCO's optical internetworking roadmap provides us with some clues on the direction of this market:(reference source: http://investor.cisco.com/media_files/nsd/csco/optical.html) 1) Data over TDM - provide SONET/SDH solutions working with existing TDM infrastructure. 2) Data over Optical - integrate current products with newer optical components, build WDM networks. 3) TDM integration - build hybrid products that support both TDM and WDM. 4) Optical Integration - Build TDM interfaces to WDM products. Direct coupling of traditional networking technologies with optical networking technologies. Introduce new approaches to fibre optic internetworking.Here, CSCO effectively outlines new potential markets which compelement JDSU's current businessmodel. JDSU can provide the following new optical components:WDM-TDM interface devices, hybrid devices which support TDM and SONET. As a matter of fact, I'm sure that JDSU realizes the other spinoff markets as well, such as WDM-wireless LAN interface, just to name one. So, we have a healthy plethora of new but compelementary markets in which JDSU could move into to increase its revenues to beyond the $2 Billion barrier. Isn't this also how the networking industry (and CSCO) grew a few years back? You know, network everything. For JDSU, it's fibre optic everything.1 point5.Your familiarity and interest My interest in JDSU has led me to request them add a list of 1999 acquisitions onto their webpage. (See http://www.jdsunph.com/html/corpinfo/mergers.cfm)Also, the data gathering for the RM Ranker analysis increased my familiarity with JDSU's financial (and overall) health.1 point6.Sales growth of at least 10% - As indicated by the RM Ranker, JDSU received over 230.1 Million in sales in Sep/99, over 300% from the same quarter last year.. So far, a lot of this growth has been through mergers and acquisitions (M&A). But if executed properly, M&A is a viable way to grow the company. See this post that I made for further details of this claim that I'm making:http://boards.fool.com/Message.asp?id=11501000009390032 points7.Gross margins of at least 50% - JDSU achieved gross margins of 45.6%. Current expansion has prevented the Gross margins from increasing above 50%. This should be scrutinized for the next year or so, to determine whether the Gross will increase above 50%.1 point8.Net profit margins of 7% or greater - JDSU posted Net profit margin of 30.9 % from its most recent quarter2 points9.Cash no less than 1.5x total debt JDSU is sitting on over $900 Million of cash (& short term investments) with no debt2 points10.Efficient Use of Cash (Flow Ratio below 1.25) JDSU posted a Flowie of 1.74. Compared with its competitors, JDSU's flowie is about average. JDSU will need to increase the size of its accounts payable, and decrease the size of its accounts receivable. However, there is no doubt in my mind that as JDSU grows in size, it will be able to leverage some better deals to delay payments to its suppliers.0.5 pointsDIRECTION EXCEEDS LOCATIONIt is my belief that this is the key factor on which JDSU should be evaluated. Sure, its flowie doesn't pass the test today. Sure, JDSU's gross margins don't meet the stringent Rule Maker standard. Yet.But anyone studying JDSU's business model will find their strategies very familiar, as it is patterned after CSCO's model towards domination: 1) Mergers and acquisitions2) Flawless business plan execution3) Global expansionJDSU's revenues are exploding. Their earnings, if you discount the one-time acquisition related charges, are also growing. Their cash flow from operations are increasing.And, if you allow yourself to indulge in trusting Kevin Kalkhoven's vision, and view the revolutionary changes occuring on the fibre optic landscape, you will see what I see, an inevitability that JDSU will be crowned as the King of the Hill as it achieves success in all 3 factors (M&A, business plan execution, and Global expansion) on the road towards domination.In summary, JDSU scores an 11 on the RM Essentials spreadsheet, and a 47 on the RM Ranker spreadsheet as indicated by these to follow-up posts to my RM Analysis:http://boards.fool.com/Message.asp?id=1030043001615002http://boards.fool.com/Message.asp?id=1030043001615005Thus, JDSU should be the next purchase for the Rule Maker portfolio.Further sources of compelling arguments:TMF JDSU FAQ, v1.01:http://boards.fool.com/Message.asp?id=1150100000646000JDSU website:http://www.jdsunph.comThx.Cheers,Albert
JDSU's revenues are exploding. Their earnings, if you discount the one-time acquisition related charges, are also growing. Their cash flow from operations are increasing. And, if you allow yourself to indulge in trusting Kevin Kalkhoven's vision, and view the revolutionary changes occuring on the fibre optic landscape, you will see what I see, an inevitability that JDSU will be crowned as the King of the Hill as it achieves success in all 3 factors (M&A, business plan execution, and Global expansion) on the road towards domination.<<<Nice analysis. I agree that you have to subtract the acquisition charges when looking at margins when analyzing this company. I think this is legitimate mainly because of the rapid sales growth and the way the company is using its acquisitions. A naysayer could come along and say, "they are not profitable." My retort would be look at the cash flow statement!-MarkV
As an update, here are the 3 different RM rankings that have been carried out on JDSU thus far:http://boards.fool.com/Message.asp?id=1030043001405000&sort=postdatehttp://boards.fool.com/Message.asp?id=1030043001615001&sort=postdatehttp://boards.fool.com/Message.asp?id=1030043001630000&sort=postdateAnd, in #5115, I opined:"2.Repeat-purchase business - I do not know whether JDSU has repeat purchase customers. Does anyone have any info on this? 0 points",Well, I decided to go and ask the horse's mouth to see what they had to say. I got this reply from JDSU's Investor relations dept (my comments are un- italicized):"Nortel, Lucent, Alcatel, Ciena, and Pirelli have been our major customers for the past 8 years. (makes me wonder if it's still valid to consider LU and NT as the competition when using the RM ranker for JDSU) We do not quantify "repeat business" in the way that you describe.(what i had asked was how much of JDSU's revenues come from repeat customers)"... We make components that can last for 200 years in submarine applications, not pantyhose.(umm..... ok!) Our repeat business comes from the expansion and upgrade of systems by systems providers who have worked with us over a long period of time."Ok, so my interpretation of all this is that JDSU's repeat business comes out of their customer's need to continually :a) expand and b) upgrade their fibre optic systems. Would this also imply that JDSU's products are NOT considered commodities then?Comments?Thx.Cheers,AlbertPS. In my opinion, JDSU gets another point in the RM Essentials spreadsheet, bringing the grand total to 12!
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