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JDS to take huge loss on sale of next-generation optical unit

Thu, 08/01/2002 - 8:00pm
Susan Taylor

Copyright 2002 Toronto Star Newspapers, Ltd.

Toronto Star…08/02/2002

From LexisNexis

JDS Uniphase Corp. said yesterday it will sell technology once considered critical in the rush toward next generation fiber-optic networks to France's MEMSCAP for about $9 million (U.S.).

That's a fraction of the $565 million paid two years ago by JDS, the world's largest supplier of components and modules that boost the speed and capacity of optical networks.

MEMSCAP will pay an additional $5.6 million for JDS's Cronos MEMS unit if it reaches set revenue targets over a 2.5 year period.

MEMS, or micro-electromechanical devices, is technology based on tiny silicon structures that can be controlled to switch, add, direct and control light as it travels through fiber-optic networks.

It is used in small, high-capacity switches and was expected to play a critical role in all-optical "megaswitches." But sinking demand for telecommunications equipment from phone companies has hurt demand for new tools that move data farther and faster.

"We could see a two- to three-year lag here before any of these new technologies work their way into the market," said Max Schuetz, an analyst at Credit Suisse First Boston.

Telecom companies, hit by falling prices and a glut in capacity, are only buying equipment to make small additions to capacity, rather than advanced gear for new networks, he said.

"JDS decided, fairly wisely, that having 100 people and two semiconductor fabs (plants) down in North Carolina for three years before they really got a return on that investment probably wasn't the best they could do in the current market conditions," said Schuetz, who believes JDS fared well in the deal.

"If nothing else, it saves them. There are 100 people working there, so just based on average costs, laying them off and shutting down the facilities could have cost JDS $7 million or $8 million." The sale marks a capitulation for JDS, which said MEMS technology formed a "key strategic resource" for its customers when it bought Cronos Integrated Microsystem Inc. as part of an intense acquisition spree.

The sale comes one week after JDS said it would cut more jobs and shutter plants as it reported a fourth-quarter loss of nearly $1 billion and warned that sales would continue to erode.

Chief executive Jozef Straus said at the time that his company needed to make "bets about where the technology and where the market is going."

It may be harder for JDS to sell further parts of its business, said Schuetz.

"The other bits are harder to carve out neatly," he said. Amplification equipment sales may lag for the next two years, but those products would be hard to carve out from JDS's research and development and manufacturing, he added.

Under the Cronos deal, MEMSCAP will acquire the unit free of debt, other liabilities, working capital or cash balances, for 10.5 million common shares. MEMSCAP will issue a further 6.5 million shares if revenue targets are met.

Under the arrangement, MEMSCAP will be an exclusive supplier to JDS for MEMS chips and other MEMS products for at least three years. JDS said it has committed to initial purchases, but did not specify the volumes.

Shares in JDS dropped 28 cents to $2.25 on Nasdaq exchange yesterday and 26 cents to $4.24 (Canadian) on the Toronto Stock Exchange.

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