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Cyan's SDN Customer Wins Soar to 85

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News Analysis
Light Reading
8/7/2013
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Cyan, Inc. says it's making progress with real, revenue-producing SDN deployments while other vendors are "simply messaging" about the SDN trend.

In announcing its second quarter results -- its first earnings report as a public company since it listed in May -- Cyan Chairman and CEO Mark Floyd said the company now has 85 customers for its Blue Planet SDN platform, which launched in late 2012. (See Cyan Spins 'Blue Planet' For SDN).

That customer tally is up from 35 at the end of the first quarter, by the count of Jeffries analyst George Notter, who issued a post-earnings research note maintaining his "buy" rating on Cyan.

Cyan President Michael Hatfield added that "the lion's share" of those customers, none of which are in trial mode, are delivering reportable revenues to Cyan. "We are making real progress with SDN, while other companies are simply messaging," Hatfield said. Cyan's customer count follows Tellabs' recent, less specific claim of having several SDN customer engagements. (See Tellabs Boasts SDN 'Engagements'.)

Separate from the SDN wins, Hatfield said Blue Planet also allowed Cyan to get its foot in the door with an array of potential Tier 1 carrier customers during the second quarter. "What's interesting in the Tier 1s is it's coming from the top down," he said. "SDN is such an impactful movement that where we usually [experience] a lot of inertia, we are seeing more urgency [among carriers' top executives] and getting asked to do things with SDN a lot quicker than we expected."

Cyan, however, did not oversell its new engagements with the Tier 1s. Floyd said, "Tier 1 [buying] cycles are likely to be long and revenues not realized for a while." He added that Cyan's goal is to be deployed in Tier 1 networks starting next year.

While there are signs the tide is turning for vendors from hardware to software sales, the migration remains a gradual one. Floyd grounded the SDN celebration by noting that the vendor's software exploits are still well over-shadowed by its packet optical hardware revenue, with about 20 percent of the company's total customer base being software-only, and software currently making up less than 10 percent of Cyan's total revenue. "It's not yet a meaningful portion of total revenue," he said. "We'll start breaking it out when it reaches 10 percent. We think that revenue will become material in 2014."

For the second quarter, Cyan reported year-over-year revenue growth of 37 percent to $31.7 million, which beat many estimates. It posted a gross margin of 43.4 percent, but a net loss of $9.1 million, compared to $1.5 million a year ago and $9.4 million in the previous quarter.

Hatfield said increasing software business, including Blue Planet platform sales and related software applications, should help Cyan reach a three-to-five-year goal of gross margins between 50 percent and 60 percent.

In the short term, Cyan is offering third quarter guidance of a net loss between $8.6 million and $10 million from revenues of between $36 million and $38 million. And, it would appear, it was that third quarter guidance that resulted in a significant share price dip Wednesday, as Cyan saw its share price tumble by $1.71, more than 15 percent, to $9.32, below its May list price of $11. (See Cyan's Not Blue Over NYSE Debut.)

— Dan O'Shea, Managing Editor, Light Reading

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8/7/2013 | 8:21:52 PM
re: Cyan's SDN Customer Wins Soar to 85
Cyan also has been beating the drum over international expansion, but Floyd said those opportunities are developing more slowly than expected, with early returns on that investment not likely until Q4.
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