JDS Uniphase (CA) Earnings Call Insights: Gesture Recognition Growth and OpEx

JDS Uniphase Corp CA (NASDAQ:JDSU) recently reported its third quarter earnings and discussed the following topics in its earnings conference call.

Gesture Recognition Growth

Kevin Dennean – Citi: I guess a question either for Alan or maybe Rex, if we were to strip out gesture and lasers from CCOP, should we expect the rest of the business to grow in June?

Rex Jackson – EVP and CFO: Well, we don’t really break it down to that level, and I think that’s a good question with respect to the overall 7% to 11% we expect. A good portion of that is from gesture recognition growth. But I think at this point in time, we don’t want to breakdown how much comm, telecom or datacom is going to grow. It’s going to be what it is and since we have such VMI content, it’s really hard to say.

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Kevin Dennean – Citi: Alan, just two quick follow-ups. ASP was down about 5% this quarter. How are we thinking about pricing for optical components for the balance of the year?

Alan Lowe – Communications and Commercial Optical Products Business Segment: Well, it’s hard to say what’s going to happen in the out course, but we don’t see anything that’s atypical in the June quarter. We predict it to be within 2% to 3% range which is seasonably typical for that quarter.

Kevin Dennean – Citi: And the drop in VMI as a percentage of revenues, what happened there?

Alan Lowe – Communications and Commercial Optical Products Business Segment: That happens when some customers change their manufacturing facility or their hub location and they will give us discrete orders. There is really no change with respect to what happen with those customers, it’s just a matter of when they bring up a new hub or new manufacturing location that give us discrete orders if they don’t know how to deal with VMI quite yet, but those transitions are done.

 

OpEx

James Hillier – UBS: This is actually Jim Hillier for Amitabh. On the OpEx front, you’re seeing a bump in OpEx of $6 million to $11 million, sequentially. I guess, what we are thinking about this, is this the sort of the run rate trend we should be expecting going forward given that much of the increase is coming from Arieso and you sort of expect that to run through mid-2014? And also, if you can just sort of talk about the methodology behind the deal given that this is going to prove to be a bit of a drag in terms of OpEx.

Rex Jackson – EVP and CFO: This is Rex. I’ll take the first part of the call then I’ll turn it over to David. As far as the operating expense baseline, our goal is to give you the tool to be able to work with Arieso. From an OpEx perspective, I would expect that number to be consistent going forward, and you just build that in. R&D is also a place where we put an enormous amount of focus in the Company both CommTest and CCOP in particular are continuing their investments in that area. So I’d expect to see that component of it hold as well. The variable comp just varies based quarterly performance. So, something along the lines of the range we’re giving you is probably a good thing to work with going forward. As I mentioned in my script commentary from a revenue perspective, we’re bagging through building the base of revenue for Arieso from a ratable perspective. So it’s going to take us some time on U.S. GAAP to get that built up, and I gave you the quarters when I think the things would turn for us. But one of the things that we are contemplating doing in at least the near term is giving you a sense of bookings and cash as we move through the next two or three quarters, so you can see the underlying strength of that business. From a strategy standpoint, I’ll turn it over to David…

David Heard – Test & Measurement Business Segment: Yeah, so good point on the investment piece. Obviously we are seeing a very, very strong demand as we talked about in Analyst Day or the (explosion in) growth of small-cells and we talked about software enabling the network. You’re hearing a lot about software defined networks. Arieso gives us that visibility to the edge of the small-cells. So as Rex mentioned, we’re seeing strong order demand ahead of plan for that business and growing quite dramatically. It’s a timing impact of the investment that we make in actual dollars of both cash and expense to continue to fuel that growing business that does yield orders and cash flow. But as we take the impacts of that software over time, I think that (either or) will catch up that Rex just went through, but obviously our commitment to continuing that investment is based on the strong customer response and active market demand.

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James Hillier – UBS: And then just a quick follow-up. Could you discuss linearity in the quarter and if you’re starting to see any bit of pickup in the month of April?

Rex Jackson – EVP and CFO: Typically this March quarter is back-end loaded and we saw it even more so this quarter. And as we mentioned, we’re expecting that to somewhat repeat itself, maybe not to that extreme in the June quarter, just because of the timing of the release of these budgets.

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