JDS Uniphase Corporation
JDS Uniphase Corporation
Sales: $587.9 million (1999)
Stock Exchanges: NASDAQ Toronto
Ticker Symbols: JDSU; JDU (Toronto)
NAIC: 334413 Semiconductors and Related Device Manufacturing; 334417 Electronic Connector Manufacturing
JDS Uniphase Corporation is a high technology company that designs, develops, manufactures, and distributes a wide range of products for the growing fiberoptic communications market. The company’s fiberoptic components and modules are used by system manufacturers worldwide to develop advanced optical networks for the telecommunications and cable television industries.
Fiberoptic systems work by turning digitized information into rapid-fire pulses of invisible infrared light generated by a laser beam. To increase bandwidth, researchers developed new systems that could split light into many more wavelengths, each carrying a separate stream of data. This technology, known as wavelength division multiplexing (WDM), is what JDS Uniphase specializes in. Riding the demand for more bandwidth that has been fueled by the growth of the Internet and electronic commerce, JDS Uniphase stock has been extremely popular with investors. For 1999 its stock rose 814 percent, then added another 77 percent by mid-March 2000.
JDS Fitel Inc.: 1981-98
JDS Fitel Inc. was formed in 1981 by Jozef Strauss and three coworkers at Bell-Northern Research Ltd., the now-defunct research arm of what became Nortel Networks Corporation, in Canada. As employees of Bell Northern, they were part of a team of physicists and engineers assigned to design components for Nortel’s first generation of fiberoptic systems. Strauss and his coworkers decided to establish their own business making components for fiberoptic networks. They called it JDS, using the last-name initials of the cofounders Philip Garel-Jones, Gary Duck, William Sinclair, and Strauss.
By 1990 JDS Fitel had grown to 70 employees and $7 million a year in sales. Demand for fiberoptics, which had been predictably linear during the 1980s, would grow exponentially following the creation of the World Wide Web in 1990. By making it possible to combine text with graphics, which typically require more bandwidth, the Web stimulated demand for more bandwidth, or network capacity. With the addition of video and audio files, even more bandwidth was needed. Demand began to soar following the introduction of the first commercial Web browser in 1994, Netscape Navigator.
In March 1996 JDS Fitel completed its initial public offering (IPO) and raised C$93.6 million before underwriting expenses. Following the IPO the Furukawa Electric Co. Ltd. of Japan retained a majority interest in JDS Fitel of about 55 percent. For fiscal 1996 ending May 31 JDS Fitel had C$74.8 million in revenues, up 21.5 percent from fiscal 1995, and net income of C$12.9 million compared to net income of C$10.4 million in fiscal 1995.
In February 1997 JDS Fitel entered into a strategic alliance with Optical Coating Laboratory Inc. (OCLI) to capitalize on the growing opportunities in the dense wavelength division multiplexing (DWDM) business. Revenues rose substantially in fiscal 1997 to C$115 million, while net income more than doubled to C$8.3 million. In November 1997 the company raised net proceeds of C$118.4 million through a secondary public offering.
In May 1998 the company acquired a 68 percent interest in FITEL-Photomatrix (Canada) Inc. from The Furukawa Electric Co. Ltd. for C$20.4 million. FITEL-Photomatrix designed and manufactured WDM and related products. Later in the year JDS Fitel acquired the remaining 32 percent of the company for C$13.6 million. For fiscal 1998 sales nearly doubled to C$227.2 million, while net income more than doubled to C$22.5 million.
In November 1998 JDS Fitel acquired the Akzo Nobel Photonics business unit from Netherlands-based Akzo Nobel N.V. Akzo Nobel Photonics was a world leader in waveguide technology for optical switching.
Uniphase Corporation: 1990s
Uniphase Corporation became a public company in 1993. It manufactured red helium and blue argon gas lasers for printing, biomedical, and other applications. Its helium neon lasers were used in bar code readers. The company then developed a new automatic defect classification system for semiconductor wafers that it called Ultrapointe. During the semiconductor boom of 1994-96 Ultrapointe helped the company grow. The assets of the Ultrapointe business were sold to Tencor Instruments in December 1996.
In 1995 Uniphase acquired the United Technologies Photonics Division, which became the core of Uniphase Telecommunications Products (UTP). It made lithium niobate-based modulators that are used to convert electronic signals to optical. UTP also made optical transmission equipment. UTP grew so fast over the next two years that Uniphase became focused entirely on the communications market. In 1996 Uniphase bought a U.K. laser packaging company that formed the base of its operations there. For fiscal 1996 ending June 30, Uniphase reported sales of $69 million compared to $42.3 million in fiscal 1995. Net income for fiscal 1996 rose to $2.8 million from $735,000 in fiscal 1995.
In 1997 Uniphase acquired Australian-based Indx, a leader in fiberoptic reflection filters for wavelength division multiplexing (WDM), and renamed it the Uniphase Fiber Components division. Indx was managed by Dr. Simon Poole, a co-inventor of the erbium-doped fiberoptic amplifier (EDFA).
In March 1997 Uniphase acquired the laser diode manufacturing unit of IBM, located in Zurich, Switzerland, and renamed it Uniphase Laser Enterprise AG. Uniphase moved its European laser research to Zurich and subsequently closed Uniphase Lasers Ltd. in Rugby, England. In March 1998 the company opened its European semiconductor laser fabrication plant in Zurich at a cost of about $20 million. In June 1998 Uniphase acquired Philips Optoelectronics B.V., the Netherlands-based laser operations of Philips Electronics N.V., and renamed it Uniphase Netherlands. These developments made Uniphase the dominant supplier of transmitter lasers used in fiberoptic networks for the telecommunications and cable television industries.
For the fiscal year ending June 30, 1998, Uniphase reported net sales of $185.2 million, up from $107 million in fiscal 1997, and a net loss of $19.6 million compared to a net loss of $18.9 million in fiscal 1997. JDS Fitel had sales of C$227.2 million (US$162.2 million) and net income of C$47.6 million (US$34 million) in fiscal 1998. In November 1998 Uniphase acquired Broadband Communications Products, which became Uniphase Broadband Products, Inc.
Creating a Fiberoptic Powerhouse, the JDS Fitel and Uniphase Merger: 1999
In 1998 Jozef Straus approached Uniphase CEO Kevin Kalkhoven. Uniphase was a leading supplier of active fiber components, including lasers, to leading telecommunications equipment providers such as Nortel, Lucent Technologies, and Alcatel SA of France. JDS Fitel specialized in so-called passive components. Together, JDS and Uniphase would be able to supply customers with a full range of fiberoptic hardware. When the merger was announced in January 1999, it was valued at C$6.1 billion (US$4.7 billion).
On June 28, 1999, the stockholders of JDS Fitel Inc. and Uniphase Corporation approved the merger of the two companies to form JDS Uniphase Corporation. While they had little overlap in products, the two companies shared a tremendous overlap in customers. The merger created an independent supplier with a broader portfolio of components and modules for modern communications systems.
Kevin Kalkhoven became co-chairman and CEO, while Jozef Straus became co-chairman, president, and chief operating officer (COO). Shares of JDS Uniphase began trading on the NASDAQ under the symbol JDSU, while shares of JDS Uniphase Canada Ltd. began trading on the Toronto Stock Exchange under the symbol JDU. The two companies began combined operations starting July 1, 1999, the start of its new fiscal year.
For the fiscal year ending June 30, 1999, the company reported pro forma combined sales of $587.9 million and net income of $124.9 million. Separately, Uniphase Corporation reported net sales of $282.8 million and a net loss of $171.1 million. The loss was due in part to a reevaluation of the cost of acquired research and development in connection with the Uniphase Netherlands acquisition. JDS Fitel, Inc. reported sales of C$456 million (US$305.7 million) and net income of C$99 million (US$66.4 million) for its fiscal year ending May 31, 1999.
Every time you make a long-distance phone call, watch a cable television program, use a cell phone or surf the net, you have more than likely used components and modules designed and produced by JDS Uniphase. Our lasers, modulators, multiplexers, amplifiers, switches and other products form the fiberoptic foundation for these and other types of communications.
Acquiring Several High-Tech Companies: 1999-2000
In August 1999 JDS Uniphase raised $602.8 million through a public offering of more than nine million shares of common stock of JDS Uniphase and more than 500,000 exchangeable shares of JDS Uniphase Canada. The U.S. shares were priced at $82.625 a share. In September 1999 the company acquired AFC Technologies, a Quebec-based developer of optical amplifiers and broadband instruments. In October 1999 it acquired Ramar Corporation, a Massachusetts-based developer of lithium niobate-based integrated optical components. JDS Uniphase planned to integrate Ramar into its modulator business, which produced lithium niobate modulator components for the telecommunications industry.
In November 1999 JDS Uniphase announced a merger with Optical Coating Laboratory, Inc. for about $2.8 billion in stock. The two companies had operated a successful joint venture since 1997. OCLI was a leading manufacturer of optical thin film coatings and components used to control and enhance light propagation to achieve specific effects. This technology, essential in the fiberoptic telecommunications industry and other important markets, was becoming increasingly important as the demand for bandwidth continued to drive system manufacturers to increase the number of wavelengths in their wavelength division multiplexing (WDM) systems. The merger would enable JDS Uniphase to expand its product lines, speed up product development, and obtain access to a key technology for building the optical telecommunications networks of the future. The merger was completed in February 2000, with OCLI continuing to operate as a wholly owned subsidiary of JDS Uniphase.
At the same time JDS Uniphase completed its acquisition of EPITAXX, Inc., a New Jersey-based supplier of optical detectors and receivers for fiberoptic telecommunications and cable television networks, for approximately 2.2 million shares of common stock valued at $400 million.
In December 1999 the company completed its acquisition of SIFAM Ltd., a United Kingdom-based maker of fused component products that are used to split, combine, and filter light in optical fiber, for £60 million. Many of SIFAM’s products were critical components in optical amplifiers.
Responding to high levels of demand for its fiberoptic products, JDS Uniphase announced plans at the end of 1999 to invest $125 million to expand its production capacity by adding 600,000 square feet and related capital equipment to its global operations. The largest single expansion would take place in Ottawa, Canada, where the company would begin construction of the third phase of its main campus facility, consisting of about 360,000 square feet of additional R&D, manufacturing, and office facilities. The remaining 240,000 square feet would be added to operations around the world in Sydney, Australia; Chalfont, Pennsylvania; Bloomfield, Connecticut; West Trenton, New Jersey; Melbourne, Florida; and Torquay, England. The expansions would bring the company’s total square footage to more than 2.1 million square feet.
Positioning for the Future
At the start of 2000 JDS Uniphase announced a merger with E-TEK Dynamics Inc. for $15 billion in stock. E- TEK had 2,450 employees and was headquartered in San Jose, California. It was a leader in the design and manufacture of high quality passive components and modules for fiberoptic systems, including wavelength division multiplexers (WDMs) that increased the capacity of new and existing fiberoptic networks. The company also made components such as isolators, couplers, and integrated optics that were important in enabling optical communications systems. Following the merger E- TEK would operate as a wholly owned subsidiary of JDS Uniphase.
JDS Uniphase announced it would introduce more than 30 new products at OFC 2000, a major fiberoptics show taking place in March 2000. It was the broadest array of new products introduced by JDS Uniphase to date and represented intense new product development activities. The new optical components and modules would serve a wide range of applications in the telecommunications and cable television industries, including optical transmission, amplification, dense wavelength division multiplexing (DWDM), switching and network control, data communications, and optical instrumentation.
The acquisitions continued in 2000 as the company announced an agreement to acquire Cronos Integrated Microsystems, Inc., a North Carolina-based provider of optical MEMS (micro-electro-mechanical systems) devices to the telecommunications industry, for $750 million in stock. MEMS technology was expected to play a key role in future generations of optical components. Before the year was out, the company was expected to command a workforce in excess of 12,000, a phenomenal increase, considering it listed fewer than 100 just a decade earlier.
E- Dynamics Inc.; Optical Coating Laboratory, Inc.; Uniphase Laser Enterprise AG (Switzerland); Uniphase Broadband Products, Inc.; Uniphase Netherlands.
Principal Operating Units
Active Products Group; Transmission and Test Group; Laser Subsystems Group.
- JDS Fitel Inc. is formed by former employees of Bell-Northern Research Ltd. in Canada.
- Uniphase Corporation completes its initial public offering (IPO).
- JDS Fitel completes its IPO.
- JDS Fitel Inc., located near Ottawa, Canada, and Uniphase Corporation of San Jose, California, merge to form JDS Uniphase Corporation.
Austen, Ian, “Supplier to the Stars,” Canadian Business, May 29, 1998, p. 81.
Donlon, J.P., “Photon Man,” Chief Executive (U.S.), May 1999, p. 30.
Gilder, George, “Paradigm Party,” Forbes, August 24, 1998, p. S95.
Laver, Ross, “An Empire Built on Light,” Maclean’s, March 27, 2000, p. 46.
Slocum, Kevin C, “The Making of a Powerhouse,” Electronic News (1991), April 3, 2000, p. 48.
“Uniphase Corp.,” CDA-Investnet Insiders’ Chronicle, May 16, 1994, p. 16.
“Uniphase Selling Ultrapointe Business to Tencor,” Electronic News (1991), December 16, 1996, p. 32.
—David P. Bianco