Another one bites the dust. Sure, JDS Uniphase isn't going under, but co-founder, CEO and JDS icon Jozef Straus, the guy with the beard and the funky beret, is stepping down. And so, another former high-tech superstar empire-builder heads for the exit, just as former Nortel Networks chief executive John Roth did last year. As if to add insult to injury for any long-suffering JDS shareholders, what's left of the once-mighty company is also in the process of shedding virtually all its ties to Canada.
At the peak of the fibre-optic networking boom, the wave that made JDS Uniphase almost a household name (at least in financial circles), the company Mr. Straus founded had sales of $3.2-billion (U.S.), and more than 30,000 employees - including about 10,000 in Ottawa and the surrounding area, where it and Nortel dominated the high-tech workforce. JDS had over 40 manufacturing and technology centres worldwide, and was almost single-handedly responsible for making terms such as optical fibre and even 980-nanometre pump laser part of a stock traders everyday lexicon.
And where is it now? Revenue has plummeted by more than 78 per cent to just $675-million in the year ended in June, and rather than bottoming out as some high-tech companies have done, JDS's sales continue to fall. It had a net loss of $933-million last year, although that's better than the $8.7-billion it lost in 2002 - and pales in comparison to the $56-billion it lost in 2001, one of the largest single-company losses in history. That represented the writing off of virtually every penny it spent (in the form of stock) to buy several high-tech startups during the buying frenzy of the late 1990s.
When it comes to employees, JDS has shed a staggering 80 per cent or so of its former workforce, and has slashed its labour force in Ottawa repeatedly, to the point where there are now about 500 staff working there, mostly in research. In the news release about Mr. Straus retiring on Sept. 1, JDS said that its head office would be consolidated in San Jose, California although some staff would remain in Ottawa. This brings an end to the twin head-office concept that began when Mr. Straus merged JDS Fitel with U.S.-based Uniphase in 1999 in what was then a $6-billion deal.
Mr. Straus, a Czechoslovakian-born Jew who left Prague just before Russian tanks rolled into the city in 1968, got a PhD in physics from the University of Alberta and then worked for Bell Northern Research and Nortel's predecessor, Northern Telecom. He left to join a startup called JDS Fitel, which was working on next-generation fibre-optic technology for communication and data networking. In 1997 and 1998, JDS Fitel started to get noticed for the rapid rise in sales of its fibre-optic gear to telecom companies such as Nortel and Lucent Technologies, and the stock climbed to $60.
Using those highly-valued shares as collateral, JDS negotiated the deal with Uniphase, a competitor based in San Jose. The CEO of Uniphase, Kevin Kalkhoven, became co-chairman and CEO while Mr. Straus was co-chairman, president and chief operating officer, and the company maintained head offices in both Ottawa and San Jose. The new firm had pro forma sales of $420-million and 3,200 employees, and soon began growing larger through stock-financed acquisitions, just as its largest customer, Nortel, was doing. In 2000, JDS bought E-Tek Dynamics for $15-billion, then bought SDL for $18-billion. SDL had annual sales of about $300-million.
As the frenzy of interest in Internet-related technology companies grew, so did JDS's stock price, to a peak of $153 in 2000, which gave the company a market value of about $40-billion (its now one-tenth of that). As sales and profits rose by double and even triple digits every quarter, investors in Internet chat groups cheerfully threw around impenetrable terms such as erbium-doped fibre and dense wave-division multiplexing. Tech guru George Gilder called the company the Intel of the Telecosm, and every brokerage firm had it as a strong buy. Mr. Straus was a media star.
Like many other high-tech executives, Mr. Straus wasnt shy about making the most of his new status, primarily by selling large amounts of stock. In 2000 and 2001, he made $175-million by selling shares he acquired by exercising stock options (Nortel CEO John Roth sold options worth $135-million in 2000). Mr. Straus leaves JDS with about 12 million options, none of which are in the money at the stocks current price of $3.50, and he received another 750,000 options this year at $3.31 (Mr. Roth left with about 5.5 million options and a $700,000 annual pension).
In the latest quarter, JDS reported sales of $160-million, down 27 per cent from the same quarter the previous year. The company had an operating loss of $73-million and a net less of $61-million, down from more than $1-billion in the same quarter last year. JDS has more than $1-billion in cash on hand, but of the 24 brokerage analysts who cover the stock, only one has a buy rating nine have a hold rating, 12 have an underperform rating and two have an outright sell on the company.
Bon voyage, Dr. Straus.
E-mail Mathew Ingram at mingram@globeandmail.ca
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