JDS Uniphase Corporation (JDSU) - Description of business

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Company Description
General JDS Uniphase Corporation (“JDSU”) is a worldwide leading provider of innovative broadband and optical products and solutions that enable dramatic improvements in the way we communicate, detect, present, and experience information. Our products are used in communications, commercial and consumer applications including broadband and optical networks, brand protection, biotechnology, semiconductor, aerospace and defense. Industry Trends The storage and distribution of high-speed data, audio and video, such as high definition television (HDTV) and multi-player games, is transitioning from physical storage, compact discs (CDs), and digital video discs (DVDs) and related distribution methods to digital transmission over packet-based communications networks and storage on large-capacity servers and hard drives. These transitions require the support of higher capacity networks. Traffic generated over broadband access networks accounts for the majority of data traffic, and continues to grow. As greater bandwidth capability is delivered closer to the end user, we expect consumer demand for real-time, interactive visual and audio experiences to increase. Many of the forces driving demand for high-bandwidth communications networks such as the emergence of Voice over Internet Protocol (VoIP), video over IP (IPTV), and on-line gaming are similarly transforming the consumer electronics industries. For example, cell phones increasingly offer integrated audio, image, and video capabilities, and digital music and video downloads over personal storage players are being rapidly adopted. We believe that the confluence of new digital consumer electronic technologies and the expanding availability of broadband networks will continue to drive significant bandwidth growth over optical networks. Given JDSU’s leadership in the broadband test & measurement and optical networking markets, we believe that we are well positioned to continue to benefit from these industry trends. Additionally, optical technologies are increasingly being applied to solve complex problems, for example, enabling the manufacture of smaller integrated circuits for use in today’s compact consumer electronics. In the pharmaceutical sector, new drugs can be tested via induced fluorescence, and Deoxyribonucleic Acid (DNA) sequencing can be accomplished through the appropriate application of monochromatic light. Commercial and consumer products, ranging from medicines to electronics, can be protected against counterfeiting via secure labels with embedded optically variable micro flakes and other optical security devices. This technology is also used to inhibit counterfeiting of currencies and other valuable documents. These applications, in general, have been enabled through innovations in lasers, optically variable pigments, and other optical technologies. As a leader in optical innovation, we believe that JDSU can benefit as these trends and applications further evolve. JDSU addresses three major markets: Optical Communications, Communications Test & Measurement, and Commercial and Consumer. To serve these markets, JDSU operates in three principal segments: Optical Communications, which accounted for approximately 39% of our net revenue in fiscal 2006; Communications Test & Measurement, which accounted for approximately 41% of our net revenue in fiscal 2006; and Advanced Optical Technologies, which accounted for approximately 14% of our net revenue in fiscal 2006. In addition, our Lasers business unit, included in All Other, accounted for approximately 6% of our net revenue in fiscal 2006. In fiscal 2006, we changed our financial reporting structure with the formation of the Advanced Optical Technologies segment, which includes our Flex and Custom Optics businesses. Our Lasers business unit is being reported in the All Other category. Our Flex, Custom Optics and Laser businesses serve our Commercial and Consumer markets and were previously reported in our Consumer and Commercial segment. See “Note 17. Operating Segments and Geographical Information” of the Notes to Consolidated Financial Statements for details. Our Optical Communications segment provides components, modules, and subsystems. They are used by communications equipment providers for telecommunications and data communications enabling the transmission, transport and receiving of video, audio, and text data encoded in optical signals over high-capacity fiber optic cables. JDSU offers a broad range of products, including tunable transmitters, receivers, amplifiers, multiplexers and demultiplexers, reconfigurable optical add/drop multiplexers (ROADMs), switches, optical performance monitors, couplers, splitters and circulators. Our Communications Test & Measurement segment provides instruments, software, systems, and services that help communications equipment manufacturers and service providers accelerate the deployment of broadband networks and services from the core of the network to the home, including deployment over fiber to the curb, node or premise (FTTx) and digital networks. Our systems are designed to help network operators improve service quality, reduce customer turnover, and lower operating expenses. They enable the effective management of services such as VoIP and IPTV by providing visibility into the end-user experience. JDSU also provides repair, calibration, instrument management and other services to aid our customers in the rapid deployment and repair of networks and services. JDSU’s Communications Test & Measurement solutions support a broad range of network architectures and protocol requirements, including optical core (long haul and metro), optical access (FTTx, passive optical network or PON), copper access (xDSL), cable access and cable head-end (MPEG, Coax), and enterprise networks (GE, FiberChannel). Services and protocols supported include VoIP, IPTV, metro Ethernet, ATM/Frame Relay, SONET/SDH, and many others. Our Advanced Optical Technologies segment provides document authentication, brand protection and product differentiation solutions for a range of commercial and consumer applications. It also provides thin film coated optics for applications including computer monitors and flat panel displays, projection systems, photocopiers, facsimile machines, scanners, as well as optically variable micro flakes for security applications and decorative surface treatments. Our lasers and high-performance photovoltaic converters offer solutions for semiconductor manufacturing, defense, aerospace, instrumentation, biotechnology, material processing, various sensor, and other applications. See “Note 17. Operating Segments and Geographical Information” of the Notes to Consolidated Financial Statements. We were incorporated in California in May 1979 and reincorporated in Delaware in October 1993. JDSU is the product of several significant mergers and acquisitions, including, among others, the combination of Uniphase Corporation and JDS FITEL Inc. to form JDS Uniphase Corporation on June 30, 1999, and major subsequent acquisitions, including Optical Coating Laboratory, Inc. (“OCLI”) in February 2000, E-TEK Dynamics, Inc. (“E-TEK”) in June 2000, SDL, Inc. (“SDL”) in February 2001, Lightwave Electronics, Corp. (“Lightwave”) in May 2005, and Acterna, Inc. (“Acterna”) in August 2005. Available Information We are subject to the information requirements of the Securities Exchange Act of 1934, or the Exchange Act. Therefore, we file periodic reports, proxy statements and other information with the Securities and Exchange Commission (SEC). Such reports, proxy statements and other information may be obtained by visiting the Public Reference Room of the SEC at 100 F Street, NE, Washington, DC 20549 or by calling the SEC at 1-800-SEC-0330, by sending an electronic message to the SEC at publicinfo@sec.gov or by sending a fax to the SEC at 1-202-777-1027. In addition, the SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically. Our Internet address is www.jdsu.com. We post all SEC filings on our website at www.jdsu.com/investors as soon as reasonably practicable after they are electronically filed or furnished to the SEC. All such filings on our Investor Relations web site are available free of charge. The SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Markets Our Optical Communications and our Communications Test & Measurement markets are driven by major trends in the communications industry. Our Commercial and Consumer market is comprised of multiple applications across several market segments. Optical Communications and Communications Test & Measurement Markets In the communications industry, as content providers are developing new business models to expand their distribution capabilities, they are increasingly adopting on-line channels for the distribution of rich broadband content such as music, video programming, and movies. Telecommunications service providers are, in turn, planning to increase their revenues and profitability by expanding the capabilities of their IP packet-based networks to increase their network capacity and to deliver sophisticated levels of quality of service required to meet the service requirements of the content providers and the consumers. Telecommunications, cable television, satellite, and wireless service providers are competing with each other to offer content providers and consumers with the ability to carry virtually any type of content via bundled services. Potential benefits for service providers include increased Average Revenue per User (“ARPU”) and reduced customer turnover, thus increasing profitability and long-term competitive advantage. As a result, many providers are developing new, consolidated network architectures intended to enable a “triple-play” (i.e. integrated voice, data and video services) offering from a single provider rather than three separate services from three separate providers over three separate networks. Additionally, the proliferation of new and higher bandwidth services, including video-based content such as news, movies, and gaming, is generating strong growth in demand for network capacity and bandwidth rates, which in turn drives demand for many types of networking, access and transport systems. Driven by this need to offer a broadening suite of digital services, network operators worldwide are migrating to IP networks, which offer an effective solution for delivering triple-play services while lowering capital operating costs. Within the enterprise market, demand for broadband is driven by growing intra-company (LAN or local area network) and inter-company (WAN or wide area network) information networks needs. In addition, many companies are embracing new productivity-enhancing applications such as VoIP, which replaces traditional fixed circuit, point-to-point voice communications with packet-based network routed calls, and universal messaging systems that require greater bandwidth capability and data storage requirements. Growing demand for network capacity and bandwidth is expected to result in greater adoption of optical communications products across the telecom sector, including long haul, metro (core and access), CATV, submarine, and fiber to the premises (FTTP or FTTx) and in the storage and enterprise sectors, including LAN, storage area networks (SAN) and WAN. We believe that deployment of fiber closer to the end user increases the availability of high-bandwidth services and will result in increased demand on the metro and long-haul infrastructures into which these services feed. We believe that JDSU, with its broad optical communications product portfolios, is poised to capitalize on these developments. To remain competitive, telecommunications and cable service providers need to provision bandwidth more rapidly to keep up with the deployment of broadband triple-play services and the consequent increase in bandwidth demand. At the same time, service providers must continue to reduce operating costs associated with high-capacity DWDM networks. Migrating to Agile Optical Networks, which employ Reconfigurable Optical Add / Drop Multiplexers (ROADM), tunable transponders, and other Agile Optical products, can provide an effective solution. A service provider can add capacity, for instance, via remote management applications, eliminating the need to dispatch technicians to each impacted node. We believe that increasing deployments of broadband access, the expansion of IP-based services, and the need to reduce deployment time and cost will result in increased demand for communications test & measurement instruments, systems, software, and services. Such communications test & measurement solutions support the rapid deployment of new services, increase customer satisfaction by helping technicians complete installation and repair work correctly the first time, and lower operating expenses by automating and improving network installation, maintenance, and management processes. We believe our broad portfolio of test and measurement solutions position us well to benefit from these developments. We remain cautious, however, in attempting to forecast the future. Visibility remains limited, and we cannot provide any assurance as to the timing or scale of optical network deployments. In particular, we note that the service provider market is undergoing a phase of consolidation aimed at accelerating providers’ ability to provide triple-play or quadruple-play (includes wireless) services and to compete more effectively. This action is driving consolidation among network equipment manufacturers. In addition, the deployment of triple- or quadruple-play services increases the complexity of existing IP networks. While the trend is clear, the industry has embarked upon the initial phases of a long journey. Commercial and Consumer Market Brand Protection and Document Authentication The prevalence of product counterfeiting is increasing, creating the potential for consumer health and safety risks, corporate liability issues, devaluation of brand image, weakening of brand loyalty, and lost revenues. Products that have been targets for counterfeiting have included pharmaceuticals, imaging supplies, apparel, automotive parts, consumer electronic products, and electronic media. Multiple factors are contributing to the counterfeit market, including the broad adoption of the Internet to facilitate distribution, ready availability of low-cost, extremely high-quality printing equipment to reproduce product packaging, the elimination of international trade barriers, and an increasingly mobile global society. In response, many corporate brand owners are accelerating the introduction of protective measures, developing overt and covert packaging strategies that provide consumers and/or inspection personnel with the ability to quickly determine product authenticity, for instance, by visually detecting a color-shifting effect on the package. JDSU provides optical products for commercial and consumer security and brand authentication applications across various markets. Products from our Advanced Optical Technologies segment protect approximately 100 currencies worldwide and have been widely adopted by leading pharmaceutical and biotechnology companies on prescription drug packaging. Companies in other industry sectors also have implemented brand protection solutions using our color-shifting technology to prevent counterfeiting of their brands. Decorative Global competition and an increasing range of product offerings are driving designers to look for innovative ways to differentiate their products. Products from our Advanced Optical Technology segment are used by our customers in decorative coatings to create striking or unusual visual effects. Custom Optics Complex, high-performance optical coatings are needed in an increasing range of applications, including medical instruments, satellite solar covers, computer-driven projectors, large screen projection televisions, aerospace, and defense. JDSU is a leading manufacturer of optical thin film coatings and components used to manage light. Commercial Lasers There is increased demand for high precision lasers for a variety of commercial markets, including semiconductors, materials processing and biotechnology as well as for use in imaging, aerospace and defense applications. Technology demands and trends in these markets are shaping the adoption of high-performance optical solutions. These trends include:   •   Wafer inspection and materials processing   •   Demand for electronic products with greater functionality, requiring high speed, precise micro machining, and materials processing   •   Advances in cytology (the study of cells used, for example, in the diagnosis of cancer), hematology (the study and science of blood), genome sequencing, and crime scene investigation   •   The development of innovative, non-invasive, effective measurement and analysis for bio-analysis   •   The need for remote sensing in environmental applications. These trends are generating growing demand for commercial high-precision laser products. Market growth is further stimulated by the continuous reductions in size and power driven by adoption of solid state laser technology and the need for higher reliability in products. We believe that, as a leading provider of high-precision commercial lasers and other supporting technologies, we are poised to benefit from the development of these industry trends. Photonic Power Power provided over copper cables is susceptible to RF and EMI interference. Photonic Power is immune to RF and EMI, is lighter, generates less heat, and is spark-free. JDSU is a pioneer in this emerging market with applications in aerospace, medical, defense, energy, and wireless communication. Operating Segments Our principle operating segments are Optical Communications, Communications Test & Measurement and Advanced Optical Technologies. Our Lasers business, which includes our Photonic Power business unit, are reported in the All Other category. Optical Communications Our Optical Communication segment provides the broadest portfolio of components, modules, and subsystems in the industry to support optical telecommunications networks, including submarine, long haul, metro, access, and cross-connect applications. We also serve the data communications market, including SAN, LAN, and Ethernet WAN applications. We provide the industry’s broadest portfolio of optical communications solutions required to build and maintain Agile Optical Networks. An Agile Optical Network (AON) is a dynamically reconfigurable DWDM network designed to accelerate triple-play service deployment and enable advanced wavelength applications at significantly reduced cost. We believe the dynamically reconfigurable nature of the AON offers many unique competitive and cost advantages, enabling communications service providers to more efficiently use and scale network capacity, streamline service provisioning and modify network topology through simple “point and click” network management systems. The breadth of our communications product offering with AON solutions is described below. Components High Power Pump Lasers : We supply 980-nanometer and 14xx-nm (wavelength tailored) pump lasers that are utilized in erbium-doped fiber amplifiers (EDFAs) and Raman modules for amplification of optical signals. We also offer a line of high-power, high-brightness products targeted for industrial fiber laser and FTTx applications. Modulators : Modulators are used to encode information being sent through the network. We supply a range of modulators, including monolithically integrated internal and high performance lithium niobate external modulators. Wavelength Lockers : We supply wavelength lockers that are used to stabilize the wavelength of lasers in DWDM transmission systems. Wavelength Division Multiplexing (WDM) Couplers, Filters, Isolators and Circulators : WDM couplers are used to split and combine signals of different wavelengths. We also supply isolators and circulators, including fixed and tunable filters, which are used to control the direction and flow of light in a network. Switches and Attenuators : Optical switches are used to route and switch signals to different destinations within networks. Attenuators are used to adjust the power of the optical signal to be compatible with the optical receivers within a network system. Submarine Applications : We offer the most comprehensive set of components for submarine applications. These include high power pump lasers and other active and passive components designed and manufactured to meet the stringent requirements of marine applications. Modules and Subsystems Agile Optical Switches: JDSU’s Agile Optical Switch family provides the broadest portfolio of ROADM solutions to match the requirements of major market segments. These solutions are the building blocks of Agile Optical Networks and provide the flexibility to remotely reconfigure any or all wavelengths, reducing time-to-service, simplifying the network, and streamlining planning and management. This results in significant operating and capital expense reductions and faster time to revenue. In addition, our switching solutions enable the cost-effective creation and deployment of more complex network architectures. Agile Transmission Modules : The JDSU Agile Transmission Modules family includes tunable transponders and tunable lasers. The deployment of next generation, IP-based voice, data and video services presents a new series of network management challenges for communications service providers, and we believe the flexibility enabled by JDSU’s transponders is critical to their success. Our Agile Transmission Modules also support multiple modulation formats to allow multiple applications, from ultra long haul to metro networks, in a single platform. Agile Optical Amplifiers : Our Agile Optical Amplifiers cover a wide range of functionality and are designed to boost optical signals, permitting an optical signal to travel a greater distance between electronic terminals and regenerators. Our amplifiers also respond dynamically to accommodate changes in the number of wavelengths or signal powers using advanced transient suppression techniques. As a result, they preserve gain, flatness, and output power over a wide range of input conditions to meet the needs of reconfigurable optical networks. Transmitters: We manufacture transmitter modules that combine source lasers, modulators, wavelength lockers, and electronic drivers in one package to create and encode optical signals. Transceivers and Transponders : For the data communications market we offer 1 Gb/s, 2 Gb/s and 3 Gb/s Fiber Channel, and 1 Gb/s and 10 Gb/s Ethernet transceivers. Form factors supported include GBIC SFP, X2 and XFP. In the telecom segment, we offer a broad range of solutions for Synchronous Optical Network/Synchronous Digital Hierarchy (SONET/SDH) and WDM markets. Solutions offered include Small Form Factor pluggable (SFP) and 10 Gigabit Small Form Factor Pluggable (XFP) transceivers and 300 pin Small Form Factor (SFF) and LFF transponders. In addition to these fixed-wavelength telecom transponders, we offer tunable telecom transponders as part of our Agile Transmission module family. Add-Drop Multiplexers : These modules allow systems to add and drop optical wavelengths without the need to convert to electrical signal. The modules include multiple components such as switches, wavelength multiplexers/demultiplexers, and attenuators. Optical Channel Monitors : Optical Channel Monitors (OCM) allow optical network performance to be checked continuously in real-time. The OCM integrates all the functions needed to cost-effectively monitor wavelength, power, and optical signal to noise ratio (OSNR) performance. WaveReady Products : These low-cost and easy-to-operate bit-rate and protocol independent modules, software, and shelves can be configured to deliver carrier class and enterprise optical transport solutions for LAN and SAN extension, Gigabit Ethernet, SONET, data, and video and to help triple play deployments. WaveReady solutions can be used with existing SONET-based networks to expand existing services such as DSL or add new services such as VoIP and provide a cost-effective solution to adding new fiber to a network. JDSU’s unique portfolio of WaveReady Network Ready Subsystems allows providers to enable bandwidth aggregation and design hybrid dense or coarse WDM optical networks. The WaveReady family is easy to manage through Simple Network Management Protocol (SNMP) and TL1 compatible communication modules as well as JDSU Node Manager software. Optical Layer Subsystems : We provide amplifier, transponder, switching and other circuit pack subsystems, which include optics and electronics on a circuit board and/or otherwise packaged with an interface for telecommunication systems. These products contain higher levels of hardware and firmware integration, including increasing levels of embedded software intelligence. Competition We compete against numerous public and private companies providing fiber optic components, modules, and subsystems, including independent merchant suppliers and business units within vertically integrated equipment manufacturers, some of whom are our customers. A partial list of our public company competitors includes Avanex, Bookham Technology, Finisar, Fujitsu, Furukawa Electric, Oplink Communications, and Sumitomo Electric. In addition to these established companies, we face significant and focused competition from other companies and from emerging start-ups. While each of our product families has multiple competitors, we believe that we have the broadest range of products and technologies available in the industry. Furthermore, we believe that the breadth and product leadership of our Agile Optical Network portfolio positions JDSU well as the industry continues to migrate from fixed to reconfigurable DWDM architectures and networks. Communications Test & Measurement JDSU offers one of the industry’s most expansive set of communications-focused test and measurement solutions. This portfolio provides end-to-end test support across communications networks, including the core, metro, access, and home networking environments. We are a leader in the test and measurement market and have an installed base of hundreds of thousands of test instruments and systems deployed in communications networks around the world. Our customers include the world’s largest communications service providers, communications equipment manufacturers, government organizations, and large corporate customers. JDSU’s test and measurement product portfolio includes: Instruments — Instruments are devices that perform various communications test and monitoring functions. Designed to be mobile devices, these products assist service provider technicians in assessing the performance of network elements and segments or verifying the integrity of the information being transmitted across the network. These instruments incorporate high levels of intelligence and have user interfaces that are designed to simplify operation and minimize necessary training. JDSU’s test instruments also include those used by network equipment manufacturers (NEMs) in the design and manufacture of next-generation network equipment. Thorough testing by NEMs plays a critical role in producing the components and equipment that are the building blocks of network infrastructure. Systems – JDSU’s systems are test and management devices that reside in our customers’ communication networks. Typically, these systems consist of hardware and software components. Using an integrated test and management system, our customers are able to analyze a variety of network elements, transmission technologies and protocols from a single console, simplifying the process of deploying, provisioning and managing network equipment and services. From a centralized location, technicians can access the test systems within the network and perform simultaneous test and monitoring functions on one or more elements, either manually or in an automated fashion. These capabilities allow network operators to initiate service to new customers faster, decrease the need for technicians to make on-site service calls and allow service providers to make necessary repairs faster and provide higher quality and more reliable services. Software – JDSU provides software products and custom software development services for our customers. Software products address applications for network capacity management, test operations support systems and workflow solutions. Software services are provided to customize software applications and to interface JDSU software to customer operations support systems. Services – JDSU offers a range of product support and professional services geared to comprehensively address our customers’ requirements. We provide repair, calibration, and software support services for our products as well as technical assistance on a global basis. In addition, we offer product and technology training services to our customers. Project management services are an integral part of the professional service offerings. These professional services are provided in conjunction with system integration projects that include installation and implementation. We provide product and process consulting to our customers. Competition We compete against various companies, including Agilent, Anritsu, Exfo, Spirent, and Sunrise. While each of our product families has multiple competitors, we believe that we have the broadest range of wireline products and solutions available in the communications test & measurement industry. Advanced Optical Technologies Our Advanced Optical Technologies segment represents JDSU’s center of excellence for thin film coating. Optical thin film coatings are microscopic layers of materials such as silicon and magnesium fluoride that are applied to the surface of a substrate, including glass, plastic or metal, to alter the substrate’s optical properties. Thin film coatings work by controlling, enhancing or modifying the behavior of light to produce specific effects such as reflection, refraction, absorption, abrasion resistance, anti-glare, and electrical conductivity. Custom Optics The aerospace, defense and medical/environmental instrumentation markets require sophisticated, custom, high-precision coated products and optical components that selectively absorb, transmit or reflect light to meet the specific performance requirements of advanced systems. We provide a wide array of precision optics and advanced optical technologies from the ultraviolet to the far infrared portion of the light spectrum. Most products are custom optical filters that require one or more thin film coatings on a simple or irregular shape. Uses for these custom optics can be found in commercial applications, scientific products and telecommunication systems, among others. Our products include infrared filters, beam splitters, and optical sensors for aerospace applications, optical filters for medical instruments, and solar cell covers for satellites. Our products in the office automation market include photoreceptors and mirrors for photocopiers, document scanners, overhead projectors, facsimile machines, and printers. Aerospace and Defense: We provide solar cell cover glass and thermal control mirror technology. One or more of our solar products can be found on U.S. manned spacecraft, on U.S. satellites, and on international satellites. In addition, we supply various types of filters used in military defense applications such as night vision goggles and electronic counter measures. Consumer and Commercial Electronics: We manufacture and sell products for use in home and business display systems. These products include dichroic filters, mirrors, polarization compensators, heater panels and other coated optics, and assemblies. Instrumentation: We provide multi-cavity and linear variable infrared filters on a variety of substrates for numerous applications, including gas monitoring and analysis, thermal imaging, smart munitions, fire detection, spectroscopy, and pollution monitoring. Our filters are additionally used in biomedical applications including microscopy, cytology semiconductor test systems, and test and measurement equipment. We also provide advanced optical technologies and filters that are used to create dramatic lighting effects and project rich, saturated color in intelligent lighting systems for concerts, discotheques, stages, studios, and architectural lighting. Document Authentication and Brand Protection Our security products use light interference technology, which allows inks or plastics to exhibit different colors and visual effects from different viewing angles. This technology is also used to inhibit counterfeiting of currencies and other valuable documents. We also supply products incorporating proprietary interference technologies to provide brand authentication and security solutions intended to deter counterfeiting. Applications include pharmaceuticals, imaging supplies, electronics, computer, and other consumer goods. We offer these products in a wide range of flexible solutions by incorporating them into labels and packaging. Decorative Products Our line of decorative products utilize proprietary manufacturing processes and light interference technology to provide products with certain color characteristics that are attractive for applications in paints, cosmetics, and plastics. The products create a durable color shifting finish for automotive, consumer electronics, and other applications. Competition In these markets, we face competition from providers of special effect pigments, including BASF and Merck KGaA. We also face competition from Japanese coating companies such as Nidek, Toppan, and Tore as well as display component companies such as Viratec, Nitto Optical, Asahi, Nikon, and Fuji Photo-Optical. In our commercial and defense markets, we compete with optics companies such as Deposition Sciences and Barr Associates. Lasers Laser Products Our portfolio of laser products includes components and subsystems used in a wide variety of OEM applications. Our broad range of products, include high-reliability industrial diode lasers, fiber lasers, helium-neon (HeNe) gas lasers, air-cooled argon gas lasers, and continuous wave and pulsed diode-pumped solid-state lasers. The solid-state lasers include low- to high-power output, ultra violet (UV), visible and IR wavelength solid state solutions. This broad portfolio addresses the needs of our customers in markets and applications such as biotechnology, materials processing, semiconductor, graphics and imaging, remote sensing/ranging, and laser marking. Diode-Pumped Solid-State Lasers: Our diode-pumped solid-state lasers with high output power, excellent beam quality, low noise, exceptional reliability, and extremely small packaging are used in biotechnology instrumentation, material processing, graphics and imaging, semiconductor manufacturing, and laser induced fluorescence applications. We offer very low noise continuous wave green lasers, high repetition rate near infrared lasers, and high power pulsed and very high repetition rate UV lasers. Industrial Diode Lasers: We have leveraged our telecom expertise into a family of industrial laser diode products, including components, plug and play modules and fiber-coupled devices. These diode lasers address a wide variety of applications, including laser pumping, thermal exposure, illumination, ophthalmology, image recording, printing, material processing, optical storage, and spectral analysis. Argon Ion Lasers : We are a leading manufacturer of air-cooled argon ion lasers. Argon lasers are very stable and reliable over the entire range of operating currents and temperatures, making them well suited for complex, high-resolution OEM applications such as flow cytometry, DNA sequencing, graphics and imaging, and semiconductor inspection. Helium-Neon Lasers: We offer helium-neon lasers in the red, green, yellow, and orange wavelengths. These products provide high output power with low noise, offering excellent beam pointing and amplitude stability, and instant start-up. These lasers are used in various applications, including bar code scanning, flow cytometry, metrology, photo processing, and alignment. Fiber Lasers: Fiber lasers are compact in size, require simple wall-socket power, and are air-cooled, making them easy to integrate into a system. The nominal output wavelength of one micron is perfect for precision machining applications such as marking, bending and cutting, and selective soldering. Photonic Power Solutions JDSU is driving change in a broad range of market segments with photonic power, a revolutionary alternative to existing power delivery solutions. Delivering power over a fiber optic cable instead of copper wiring removes many of the barriers imposed by copper transport, isolating electronics from environmental factors across a broad array of applications. JDSU’s innovative power delivery system can be used to drive sensors, gauges, actuators, low power communications devices, nanotechnology, micro-electromechanical (MEM) systems, and innumerable other electronic devices. The isolated nature of the power delivery makes it ideal for applications that require a spark-free environment or that are operating under high levels of RF, EMI, or voltage, or other harsh environmental conditions. Power is provided without contributing any adverse effects. This technology can be used in an ever-increasing number of applications, including medical, energy, defense, aerospace, wireless communications, and industrial sensors. Competition In our Lasers business, we compete with laser companies such as Coherent and the Spectra-Physics division of Newport. Our Photonic Power solutions feature a new, innovative technology for which there are not yet direct competitive offerings. Strategy Our objective is to continue to be a leading supplier for all markets and industries we serve. Specifically, we plan to pursue the following product strategies:   •   The strategy of our Optical Communications segment is to help accelerate our customers’ profitability and time-to-revenue via enhanced vertically integrated optical platforms, such as higher-performance modules and circuit packs that leverage the broad optical components portfolio we sell directly to OEMs. Furthermore, we plan to help the service providers reduce their time to market and reduce operating expenses associated with the deployment of DWDM networks via the adoption of Agile Optical Networking solutions.   •   Within our Communications Test & Measurement segment, our strategy is to enhance our market position – while continuing to improve profitability – by providing communications test and management solutions that address the toughest business challenges of network operators and communications equipment manufacturers. Our focus is to enable network operators to accelerate deployment of new services, improve quality and reduce customer churn, and lower network operating expenses.   •   Our Advanced Optical Technologies segment aims to uniquely differentiate and effectively protect valuable brands via a secure, flexible, and aesthetically innovative optical platform. We also strive to supply the highest quality, best in class optical components, and assemblies with innovative coating processes that help our customers effectively differentiate their products.   •   Our Lasers business unit strives to enable our customers’ next generation laser applications, such as laser-based solutions in bio-medical, graphical, remote sensing and material processing markets, by exploiting laser product transitions from gas to solid state. Furthermore, we plan to accelerate new customer applications enabled by our high-performance Photonic Power photovoltaic converters. In support of these product strategies, we are pursuing a corporate strategy that we believe will best position us for future opportunities in all the markets we serve. The key elements of our corporate strategy include:   •   Enabling our customers’ innovation in broadband and optical markets. We are committed to working closely with our customers from initial product design through to manufacturing and delivery. We strive to engage with our customers at the early stages of development to provide them with their entire component, module or subsystem needs. Our sales, customer support, product marketing, and development efforts are organized to maximize effectiveness in our customer interactions. Based on current and anticipated demand, we will continue to invest organically and inorganically in new technologies and products that offer our customers increased efficiency, higher performance, improved functionality, and/or higher levels of integration.   •   Shaping our product portfolio based on profitability and revenue growth. In fiscal 2006, we deliberately exited product lines with approximately $80 million of annualized revenue that were unable to contribute to our longer term profitability objectives. Acquisition targets are carefully selected to support our objective to expand our addressable market in potentially higher growth, higher profitability areas. Similarly, decisions to invest in organic product development will continue to be driven by profitability and revenue growth objectives.   •   Diversifying our customer base and product portfolio. Our acquisition strategy over the last several years has focused on our desire to diversify our business in terms of product offering and customer base. The acquisition of Acterna, for example, doubled our addressable market in the optical communications market and expanded our customer list beyond network equipment manufacturers to include carriers and cable companies. In our lasers business, the acquisition of Lightwave significantly strengthened our portfolio of solid-state lasers and improved our competitiveness as the industry transitions away from gas lasers.   •   Reducing legacy operating complexity and manufacturing costs to enable increased efficiency and quality improvement. Between 2001 and 2006, we consolidated 41 manufacturing locations. We remain committed to streamlining our manufacturing operations and reducing costs by using contract manufacturers where appropriate for our less complex, high volume products, and by situating our factories in lower-cost locations capable of consistently meeting our customers’ quality and performance requirements. Although we expect to be successful in implementing our strategy, there are many internal and external factors that could impact our ability to meet any or all of our objectives. Some of these factors are discussed under “Risk Factors.” Acquisitions As part of our strategy, we are committed to the ongoing evaluation of strategic opportunities and, where appropriate, the acquisition of additional products, technologies or businesses that are complementary to, or broaden the markets for our products. During fiscal 2006, we believe we strengthened our business model by expanding our addressable market, customer base, and expertise, diversifying our product portfolio, and fortifying our core businesses through acquisition as well as through organic initiatives. In May 2006, we completed the acquisition of Test-Um Inc. (“Test-Um”), an industry-leading provider of home networking test instruments for the FTTx and digital cable markets. By acquiring Test-Um, we expanded our channels for the sale of our broad portfolio of test instruments for broadband access networks, including the recently introduced SmartClass line of instruments. We plan to leverage Test-Um’s network of several hundred distribution partners, making our access test instruments available to the service installation and electrical contractors served by Test-Um today. In addition, the acquisition creates new market opportunities for Test-Um’s products, which will be made available through JDSU’s direct sales and service organization serving the largest telecommunications and cable service providers worldwide. In November 2005, we completed the acquisition of Agility Communications, Inc. (“Agility”), a leading provider of widely tunable laser solutions for optical networks. The acquisition is expected to solidify our leadership position in the rapidly growing market for tunable lasers and transponders; offer an optimal path to high volume, high yield, tunable, pluggable solutions when combined with JDSU’s manufacturing scalability; establish JDSU as the broadest end-to-end agile optical network portfolio provider in the marketplace. In August 2005, we completed the acquisition of privately held Acterna, Inc. (“Acterna”), a leading worldwide provider of broadband and optical test and measurement solutions for telecommunications and cable service providers and network equipment manufacturers. With this acquisition, we have become a leading provider of broadband test and measurement systems serving an expanded customer base that includes the largest 100 telecommunications and cable services providers and system manufacturers worldwide. The combined portfolio of products and services are expected to enhance the deployment of IP-based data, voice, and video services over optical long haul, metro, fiber-to-the-home, DSL, and cable networks. Starting the first quarter of fiscal 2006, the addition of Acterna’s Test & Measurement business comprised a new reportable segment of our business. In May 2005, we acquired Photonic Power Systems, Inc., (“PPS”). PPS pioneered the delivery of electrical power over fiber. The acquisition of PPS supports our goal of technology innovation and could allow JDSU to enter a number of new markets, including medical, wireless communications, electrical power, industrial sensors, and aerospace applications. In May 2005, we acquired Lightwave Electronics Corporation (“Lightwave”), a leading provider of solid-state lasers for commercial markets including materials processing, semiconductor fabrication, and biotech. The acquisition of Lightwave expanded JDSU’s product line of the higher-growth solid-state laser market broadening our customer base and reinforcing our commitment to the OEM laser business. Examples of solid-state laser applications include PC board via-hole drilling, wafer singulation for solar cells and light emitting diode (LEDs), wafer inspection and alignment, memory repair, and ultraviolet flow cytometry and confocal microscopy. Please refer to “Note 3. Mergers and Acquisitions” of Notes to Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K for further discussion of the acquisitions completed during fiscal 2006. Restructuring Programs & Divestitures Since April 2001, we have significantly consolidated and rationalized the manufacturing of our products based on core competencies, cost efficiency, and alternative manufacturers, where appropriate. Among other things, we continue to strengthen our partnerships with contract manufacturers primarily for our telecommunications, data communications, and laser products. We also are centralizing in-house manufacturing to our lower-cost facility in Shenzhen, China. In November 2004, we announced a strategic decision to sell our Singapore and Bintan, Indonesia, manufacturing operations to Fabrinet Co. Ltd. (“Fabrinet”), one of our contract manufacturers. The agreement provides us with long-term sourcing guarantees for the datacom transceivers. In April 2005, we announced restructuring programs designed to further reduce the number of manufacturing facilities, in addition to the divestiture or exit from selected businesses and product lines that were not strategic and/or were not capable of meeting our desired profitability goals. This restructuring program included the reduction of headcount at our Santa Rosa facility, the sale of our Fuzhou, China, and Mountain Lakes, New Jersey, businesses, the transfer of our manufacturing operations in Ewing, New Jersey, and Rochester, Minnesota, to a contract manufacturer, and the sale of our CATV product line to a third party. In September 2005, and in further support of our cost reduction program and profitability objectives, we sold our front surface mirror product line. In November 2005, we took steps to further commit to the consolidation of our manufacturing operations and the transfer of such operations to other of our facilities and to the facilities of our contract manufacturing partners. Specifically, we closed our Rochester, Minnesota, facility and announced the transition of products manufactured at our Ottawa site to contract manufacturers and an additional phase of consolidation at our Santa Rosa facility. In February 2006, we entered into an agreement with Fabrinet to transfer the manufacturing operations in Ottawa, Canada to company facilities in Shenzhen, China, and St. Etienne, France. In addition, certain manufacturing operations were transferred to Fabrinet facilities in Thailand. Non-manufacturing activities at the Ottawa site were unaffected by this agreement. We have consolidated manufacturing, research and development, sales and administrative facilities through building and site closures. As of June 30, 2006, 52 sites and buildings in North America, Europe and Asia-Pacific have been closed. The process involves consolidating product lines, standardizing on global product designs, and transferring manufacturing to fewer locations. The 52 sites closed were as follows: North America:    Allentown, Pennsylvania; Asheville, North Carolina; Calabasas, California; Camarillo, California; Columbus, Ohio; Eatontown, New Jersey; Freehold, New Jersey; Gloucester, Massachusetts; Horsham, Pennsylvania; Manteca, California; Melbourne, Florida (two sites); Mountain Lakes, New Jersey; Nashua, New Hampshire; Ottawa, Canada (three sites); Piscataway, New Jersey; Raleigh, North Carolina; Richardson, Texas; Rochester, Minnesota; Rochester, New York; San Jose, California (five sites); Santa Barbara, California; Santa Clara, California; Santa Rosa, California; Scarborough, Canada; Toronto, Canada; Valencia, California; Victoria, Canada; Westlake, California. South America:    Cotia, Brazil Europe:    Arnhem, Netherlands; Bracknell, United Kingdom; Eindhoven, Netherlands; Helsinki, Finland; Hillend, United Kingdom; Leobersdorf, Austria; Oxford, United Kingdom; Plymouth, United Kingdom; Torquay, United Kingdom; Waghaeusel-Kirrlach, Germany; Witham, United Kingdom. Asia-Pacific:    Bintan, Indonesia; Fuzhou, China; Shunde, China; Sydney, Australia; Taipei, Taiwan. We continue to centralize many administrative functions such as information technology, human resources, and finance to take advantage of common processes and controls, and economies of scale. Our results of operations and financial condition were significantly affected by charges related to our restructuring activities, the write-downs of inventories, and the impairment of our investments and long-lived assets during fiscal 2006, 2005, and 2004. We may not be successful in our manufacturing strategy, and there are many risks to be addressed as described in the “Risk Factors” section. Please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations under Item 7 and Notes to the Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K for further discussion on these charges. Sales and Marketing We market our products primarily to service and cable providers, network equipment manufacturers, OEMs, distributors and strategic partners in North America, Europe and Asia-Pacific. Our sales organizations communicate directly with customers’ engineering, manufacturing and purchasing personnel in determining the design, performance, and cost specifications for customer product requirements. Our customers for optical communications solutions include Agilent, Alcatel, Ciena, Cisco Systems, Ericsson, Fujitsu, Hewlett-Packard, Huawei, IBM, Lucent, Nortel, Siemens, and Bell South. Our customers for communications test & measurement solutions include all major telecom and cable operators such as AT&T, Verizon, Deutsche Telekom, British Telecom, France Telecom, China Telecom, Telmex, Comcast, TimeWarner, and many others. Our Test & Measurement customers also include many of the network equipment manufacturers served by our optical communications group. Customers for our advanced optical technologies and our laser markets include Agilent, Applied Biosystems, BAE System, Eastman Kodak, Hitachi, ITT, Mitsubishi, Northrup Grumman, SICPA, Sony, and Toshiba. We believe that a high level of customer support is necessary to develop and maintain long-term relationships with our customers. Each relationship begins at the design-in phase and is maintained as customer needs change. We provide direct service and support to our customers through our offices in North America, Asia, and Europe. We have aligned our sales organization in the communications business to offer customers a single point of contact for all of their product requirements and created centers of excellence to streamline customer interactions with product line managers. We are also continuing to consolidate administrative functions to provide improved customer service and reduce our cost. Research and Development During fiscal 2006, 2005, and 2004, we incurred research and development expenses of $155.5 million, $93.7 million, and $99.5 million, respectively. Our total number of employees engaged in research and development has increased to 975 as of June 30, 2006, compared to 532 as of June 30, 2005, and 647 at June 30, 2004. The increase in fiscal 2006 was mainly related to the acquisition of Acterna. We devote substantial resources to research and development to develop new and enhanced products to serve our markets. Once the design of a product is complete, our engineering efforts shift to enhancing both the performance of that product and our ability to manufacture it in volume and at lower cost. For the optical communications market, we are increasing our focus on the most promising markets while maintaining our capability to provide products throughout the network. We are increasing our emphasis on the next generation Agile Optical components and modules, such as ROADMs and tunable devices needed for long-haul, metro, access, local area network, storage area network, and enterprise markets. We are also responding to our customers’ requests for higher levels of integration, including the integration of optics, electronics and software in our modules, subsystems, and circuit packs. In our communications test & measurement market, we are increasing our focus on the most promising market, the broadband triple-play segment, while maintaining our capability to serve all major network architecture and protocols needs. In our advanced optical technologies and laser markets, our research and development efforts concentrate on developing more innovative solutions such as economical and commercially suitable light interference micro flakes, color separation filters, and various components for optical systems, and components, modules and assemblies to serve the display and instrumentation markets. Manufacturing The following table sets forth our major manufacturing locations and the primary products manufactured at each location as of June 30, 2006. Manufacturing facilities and products manufactured by our contract-manufacturing partners (located in California, Texas, Ottawa, China, Indonesia, Singapore, Malaysia, and Thailand) are not included in the table below: Location    Products NORTH AMERICA:    United States:            Allentown, PA    Tunable laser packaging         Commerce, CA    Packaging labels for both security and non-security applications         Germantown, MD    Test & Measurement products         Indianapolis, IN    Test & Measurement products         Coral Springs, FL    Color and image enhancement products         San Jose, CA    High power pump lasers, source lasers, waveguides submarine products, CoC testing, and solid state lasers         Santa Rosa, CA    Optical display and projection products, light interference pigments for security and decorative applications, gas and solid state lasers, laser subsystems, and thin film filters         Bloomfield, CT    Lithium niobate modulators, wavelength lockers, and electronic drivers for telecommunications REST OF WORLD:    China:            Beijing    Light interference pigments for security applications         Shenzhen    Variety of standard optical components and modules, transceivers and transponders, photodetectors, receiver products, erbium doped fiber amplifiers (EDFA), optical amplifiers, and source lasers France:            St. Etienne    Test & Measurement products Germany:            Eningen    Test & Measurement products Sources and Availability of Raw Materials Our intention is to establish at least two sources of supply for materials whenever possible, although we do have some sole source supply arrangements. The loss or interruption of such arrangements could have an impact on our ability to deliver certain products on a timely basis. Patents and Proprietary Rights Intellectual property rights that apply to our various products include patents, trade secrets, and trademarks. We do not intend to broadly license our intellectual property rights unless we can obtain adequate consideration or enter into acceptable patent cross-license agreements. As of June 30, 2006, we held over 1,200 U.S. patents and several hundred foreign patents. Backlog Backlog consists of purchase orders for products for which we have assigned shipment dates within the following 12 months. As of June 30, 2006, our backlog was approximately $331.8 million as compared to $142.4 million at June 30, 2005. Because of possible changes in product delivery schedules and cancellation of product orders and because our sales will often reflect orders shipped in the same quarter in which they are received, our backlog at any particular date is not necessarily indicative of actual revenue or the level of orders for any succeeding period. Employees We had 7,099 employees as of June 30, 2006, as compared to 5,022 and 6,041 as of June 30, 2005 and 2004, respectively. Our workforce as of June 30, 2006 included 4,255 employees in manufacturing, 975 employees in research and development, 711 employees in general and administrative functions (including information technology, finance, and human resources), and 1,158 employees in sales and marketing. We have never experienced a work stoppage, slowdown or strike. Notwithstanding the reductions in force that have taken place, we consider our employee relations generally to be good. Similar to other technology companies, particularly those in Silicon Valley, we rely upon our ability to use stock options and other forms of stock-based compensation as key components of our executive and employee compensation structure. Historically, these components have been critical to our ability to retain important personnel and offer competitive compensation packages. Without these components, we would be required to significantly increase cash compensation levels (or develop alternative compensation structures) to retain our key employees, particularly as and when an industry recovery returns. Recent accounting rules relating to the expensing of stock-based compensation may result in us substantially reducing, or even eliminating, all or portions of our equity compensation programs which may negatively impact our ability to attract and retain key employees. ITEM 1A. RISK FACTORS We have a history of net losses, and our future profitability is not assured. We incurred net losses of $151.2 million, $261.3 million, and $115.5 million in our fiscal years ended June 30, 2006, 2005 and 2004, respectively. Although we have made progress both in reducing cost

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