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Rocking out at a Bruce Springsteen concert is an unusual night for JDS Uniphase Corp. Chief Executive Jozef Straus. Wagnerian opera is more his speed. But since replacing the company's recently departed CEO, Kevin Kalkhoven on May 18, Straus feels it's vital for him to cut a bigger public profile than he did as the company's No. 2 (see accompanying Q&A). So, he's planning to bump elbows with 40 other leading telecommunications CEOs at a Springsteen show on June 12 during a conference in New York City.
With Straus there, the Boss should lead off his concert with Born to Run. The new CEO takes the top job at a time when JDS Uniphase is moving at cyberspeed. JDSU, the market leader in fiber-optic components, is struggling to keep up with soaring demand for its products fueled by a virtually insatiable need for faster and bigger communications infrastructure to handle Internet traffic. It has been party to nine mergers and acquisitions since the big one that created the company last June 30 between Uniphase Corp. and Ottawa-based JDS Fitel Inc., which Straus headed. Since then, the company's share price has skyrocketed: Its market capitalization is up 13-fold , to $80 billion.
The question now is whether Straus can fill Kalkhoven's shoes. A Canadian citizen born in Czechoslovakia, Staus is well-known north of the border, where his stellar record at JDS Fitel earned him a strong rep among investors. Before the two companies combined, JDS Fitel had annual sales of $305 million, up 101% from the year before, compared to $283 million for Uniphase, up 53%. While Kalkhoven had taken Uniphase to the leading market position in so-called active optoelectronic components, which emit or detect light signals, Straus had made JDS Fitel the industry powerhouse in passive components, which manipulate light signals when they're sent along fibers.
THE BLACK BERET.
For the last year, Straus has played a supporting role as JDS Uniphase's president and chief operating officer, and he's less well known to U.S. investors than Kalkhoven. Increasing his profile is crucial because the company's shares trade on the Nasdaq, and it has been a favored U.S. Internet play. And keeping the share price high is crucial to keeping the company's explosive growth going because most of its big deals have been done with stock.
Since Kalkhoven suddenly stepped down, citing exhaustion, Straus has been on the road meeting investors and clients. He's rapidly becoming known on Wall Street as the guy in the black beret because of his trademark headwear. He says he now expects to spend 50% to 70% of his time traveling. That's partly because the company maintains two headquarters -- in San Jose, Calif., and Ottawa, where Straus is based. Straus also has to deal with a U.S. Justice Dept. review of its latest acquisition, a $15 billion stock deal for E-Tek Dynamics Inc., a leading competitor in the production of optical modules, pre-assembled packages of components. Straus calls the deal "very, very important" to JDSU's future.
So far, Straus seems to be winning over investors. The company's share price is up more than 20%, to about $110, since he took over. "He will be as aggressive as [Kalkhoven] was -- if not more," predicts CIBC World Markets analyst James Jungjohann. Adds Charles Willhoit, senior equity analyst at J.P. Morgan Securities: "What they need today is manufacturing and operational expertise. They have a very large company -- yet it's a lot of disparate companies that still need to be tied together under a single roof."
TALKING THE TALK.
The hope is that Straus's operational skills can offset the loss of the visionary Kalkhoven. Straus holds a PhD in physics from the University of Alberta, and his stint as COO gave him plenty of nitty-gritty manufacturing experience. You hear it in the way he talks. "We're putting more automation in our lines," he says, "outsourcing non-value-added activities, improving manufacturing processes, improving measurement processes -- basically tackling and working in manufacturing to make sure we have what we need."
But just coping with JDSU's massive growth will be tough. The company is losing massive amounts of money, for one thing -- largely because of the huge amount of goodwill that must be written down from its many acquisitions. In the nine months that ended Mar. 31, JDSU reported a $485.9 million net loss on sales of $906.4 million. Still, analysts are cheered that it seems to be turning in substantial operating profits. Wachovia Securities figures that, acquisition costs aside, JDSU will generate an operating profit of $309 million on sales of $1.4 billion for the full fiscal year, which ends June 30.
The E-Tek deal is crucial to keeping up the company's torrid growth pace. To remain the components leader, JDSU has to keep up with demand from other fast-growing telecoms such as Nortel Networks, Lucent, and Sycamore. According to telecom industry research outfit RHK, such hungry clients will cause the components market to explode to $23 billion by 2003, up from $6.6 billion now. "One or two quarters without the right products -- you're dead," Straus admits. He says the E-Tek merger is key to JDSU's goal of quadrupling its production capacity over the next 10 to 18 months. The deal will also widen its product portfolio and increase its production in low-cost areas such as China.
MEMS-MAKER.
Analysts predict the U.S. Justice Dept. will give JDSU a green light to take over E-Tek. The merger is slated to take place at the end of June, two days after E-Tek's shareholders are to vote on the matter, and the companies are still hoping Justice will finish its review by then. "It's pretty early days in optical components space to prove something anticompetitive," argues Willhoit. "There are so many competing technologies, so many new companies springing up to compete."
Meanwhile, the technological ferment in the industry spells opportunity for JDSU. In April, it acquired Cronos Integrated Microsystems for $750 million. The deal gives it the technology to make microelectronic mechanical systems (MEMS) devices, which enable the creation of arrays of very small, high-capacity switches. JDSU is now working to integrate this next-generation technology into its existing products.
Straus hints that he'll continue to gobble up smaller companies with good technology. "It's like every morning when I wake up and say, 'what shall I eat,'" he says. "We always have to look at what we need to do to complement our product line and technology." If Straus can keep JDSU going as it did under his predecessor, most investors will only have one thing to say to that: bon appetit.
By Hugh Filman in Toronto
EDITED BY THANE PETERSON
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