JDS Uniphase: This Optical Components Supplier Can Deliver More Upside

Optical components supplier JDS Uniphase (JDSU, Financial) has dropped so far this year, but investors should not rule out a turnaround. Uniphase is well-positioned to tap growth in software-defined networking (SDN) and virtualization market. This is a big opportunity for the company, as SDN is expected to be worth $35 billion by the end of 2018, up from just $1.5 billion at the end of last year. In addition, Uniphase is already seeing impressive growth in its order book. In fact, JDS Uniphase reported a book-to-bill ratio of more than 1 during fourth quarter of 2014.

Looking ahead, Uniphase is focusing on accelerating its innovation invest in research and development in major product areas that will be crucial to its growth in fiscal 2015 and beyond. Specifically, it will be investing in verticals such as virtualization, SDN, quicker broadband access, and security.

The company believes that there is considerable opportunity ahead of it to grow as more devices get connected to the internet. This will lead to generation of solid demand for wired and wireless data traffic, along with an increase in challenges for managing networks.

Sound strategies and end-market prospects

To improve its position in the market, JDS Uniphase is diversifying its business. This will allow it to expand beyond its key telecom customer base and penetrate innovative growth markets like enterprise and applications management.

In addition, the company is seeing an evolution in management solutions, network architectures, and business models. This evolution is expected to create a strong opportunity for enablers such as Uniphase, as the company will be able to tap enterprise Web 2.0 players, network equipment manufacturers, carriers, and service providers.

As such, management is primarily focused on delivering workforce efficiency, hardware-focused solutions, and lab and field instruments to leverage the cloud. Uniphase believes that these moves will place its network enablement business in good shape, and allow it to gain share in field test instruments, fiber, wireless network enablement solutions, and broadband access. Moreover, in service enablement, Uniphase is making investments to help its customers shift toward network function virtualization and SDN technology, and to enhance software content.

These moves should help Uniphase improve its performance in the long run. Moreover, the company is seeing an improvement in demand in its end-markets.

For example, infrastructure spending in Europe was sluggish earlier, but bookings are now getting better. Uniphase cites a recovery in fiscal year 2014 in this market, driven by an 8% expansion in EMEA revenue on an year-over-year basis. Business in the Asia-Pacific, particularly China, is also expanding on the back of growing network infrastructure.

Uniphase is also seeing a rise in demand for optically variable magnetic pigment (OVMP), with its recently introduced banknote design leveraging its security technology. OVMP now captures banknote designs in 51 countries, an increase from 48 in the previous quarter and from 43 last year, with complete security pigments delivered in excess of 110 countries.

In addition, Uniphase is working in tandem with consumer electronics companies, and focused on developing 3-D sensing features. Also, the company is focusing on high-volume opportunities with the increased adoption of personal computing, home entertainment, and new applications for mobile devices.

Conclusion

It is expected that Uniphase's performance will improve going forward. As such, investors should continue holding Uniphase shares in their portfolio as the company can get better in the future.