Q: I own shares of JDS Uniphase. The company just announced plans for a reverse stocks split. Is that good news? —— Cliff, Temecula

A: JDS Uniphase was one of the high fliers back in the boom days of the tech industry. It soared to more than $150 a share at the start of 2000, and then began a precipitous decline to its current price of under $3 a share.

This was a classic example of people buying into companies they knew nothing about. If I told you that it "provides communications test and measurement solutions, and optical products for telecommunications service providers, cable operators and network equipment manufacturers," would you really understand its business?

To be fair, JDS Uniphase is a real company with products and services that are in demand. The problem is, it has lots of competition. It continues to lose money, and recently announced big layoffs.

The announcement of a reverse stock split can hardly be considered good news. Stock splits, by definition, do not change the value of your investment. Rather, they are a form of financial cosmetic surgery.

Let's say you own 100 shares of a company that trades for $20. The value of your investment is $2,000. If the company does a normal stock split, say a 2-for-1 split, you will wind up with 200 shares of a $10 stock. Again, the value is still $2,000.

The purpose of this type of split is to make the share price more attractive to investors. Sometimes, when a stock price climbs quickly, investors have a tendency to shy away.

A reverse stock split, as the name implies, is just the opposite.

If you own 1,000 shares of $1 stocks and it does a 10-for-1 reverse stock split, you end up with 100 shares of a $10 stock. Either way, your investment is $1,000.

JDS Uniphase is proposing an 8-for-1 reverse stock split; the ratio could be as high as 10-for-1.

Another factor that leads to a reverse stock split is research. Stock market analysts rarely covered companies that have a stock that trades for less than $5 a share.

Reverse stock splits are often a matter of survival. Companies that are listed on the New York Stock Exchange or other trading arenas are required to meet certain criteria. That would include maintaining a certain market value, trading activity and price.

If a company is unable to fulfill those requirements, the exchange has the option to delist the stock. That means shareholders may find it difficult to trade their stock.

George Chamberlin is a regular contributor to the North County Times, and also is a TV and radio commentator. Contact him at geoc1045@adelphia.net.