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The offensive angle to outsourcing, preached by Etterman as a way to kick-start the company, is based on creating closer relationships with customers. For starters, the single, centralized database allows JDSU to share information across the company in real time, which helps make it easier for customers to do business with the firm. For example, a customer buying a variety of different lasers and attenuators that are manufactured at different facilities can generate a single purchase order and receive a single shipment. "We need to be aggressive in our approach to advancing technology and improving the customer experience," says Etterman. "I'm responsible for multiple functions to improve customer experience, and I work with and for customers."

But the real payoff will come if the software can help JDS Uniphase sell more sophisticated (and profitable) products than its traditional offerings, which have increasingly become commodities. Created through a series of high-profile mergers and acquisitions in the late 1990s and early 2000s, JDSU grew by selling optical components and modules to makers of high-end telecom equipment. But the company has staggered over the past few years as customers scaled back purchases in the face of overcapacity fed by a prolonged downturn, just as the technology behind its products was becoming more commonplace. These days, communications products represent about 50 percent of sales; the rest comes from specialized optical products used to create things such as high-tech paints that change with the light and forgery-proof identification marks for currency and pharmaceutical-product labels.

Still, it is the communications gear that is expected to drive any recovery, and that remains a very tough market. "Prices dropped a lot on their components, and they will never again see sky-high margins on things like long-haul transceivers," says Chris Dzurinko, a senior equity analyst with American Technology Research Inc., in San Francisco. "They really get whipped around by customers higher up the food chain. Big companies like Juniper Networks and Cisco Systems have leverage over their smaller suppliers, and their tight inventory management has made life hard for JDSU."

Many of JDSU's problems confront the entire optical-component sector. JDSU, which had a net loss of $116 million in fiscal 2004 (ended June), after taking substantial write-offs in 2001 and 2002, looks relatively less troubled when viewed alongside its top two competitors: Avanex Corp., which includes operations acquired from Corning Inc. and France's Alcatel, has lost money for years, and Bookham Technology PLC, which bought units of Nortel Networks Corp. and Marconi Corp. PLC, also continues to struggle. JDS Uniphase has made its own mistakes, with quality problems plaguing the components it provides for big-screen television manufacturers, and slow integration of some acquisitions into a coherent strategic plan.

Now the industry is pinning its hopes for a recovery on the introduction of higher-end, integrated products. "They have to go up the value chain to get their margins back," says Dzurinko. "The more you can move up the value chain and get better margins on what you sell to the Nortels and the Siennas, the more you are relevant." The opportunity is there, he says, as the equipment makers have cut their research-and-development budgets in the face of their own problems, and may therefore share more design work with their suppliers. "If [JDSU] can build subsystems to spec, that's the Holy Grail."

The centralized ERP and database software is supposed to help in this effort by coordinating JDSU's geographically dispersed design and production facilities. Even after a grueling two-year retrenchment that vaporized thousand of jobs and closed more than two-dozen manufacturing sites, the company operates at 14 locations, including an increasingly important manufacturing plant in Shenzhen, China. "The single, consistent database is critical if we are going to have rapid growth," says Enzo Signore, JDSU's director of product marketing. There are signs that this may happen, he says, citing the example of workers at the Shenzhen plant who recently started production on a new product—without special training—by using design specifications drawn up in California and made instantly available on the global network.

That kind of performance, says Etterman, shows how the hosted software can power the company's drive to use technology in support of the business strategy. But no matter how well the Oracle project has worked, there are some things Etterman says he would not consider outsourcing, including the human intelligence of the business-systems analysts who maintain the relationship between the technology organization and the functional units. "We're morphing those jobs to be less technology focused," he says. "We would never outsource them, because they are critical to making the business work."

This article was originally published on 01-05-2005
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