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Ciena Soars on Strong Demand

Ray Le Maistre

Ciena spread some cheer for the optical transport sector Thursday following a strong second fiscal second quarter that defied concerns about AT&T's capex strategy, and an outlook that suggested even better times ahead. (See What's With AT&T's Capex Dip?)

Its numbers also put a smile on the face of its investors, as the vendor's share price jumped by $3.49, or 18.4%, Thursday to $22.48.

Ciena Corp. (NYSE: CIEN) reported revenues of $560 million for the three months to the end of April, up 10.3% from a year earlier. Net loss was $10.2 million, better than a year ago, while adjusted net income (after one-time costs are stripped out) was $19.4 million, and adjusted gross margin edged up to slightly to 43.1%. All these numbers were slightly better than expected. (See Ciena Reports Growth in Fiscal Q2 .)

One customer, believed to be AT&T Inc. (NYSE: T), generated a hefty 21.5% of total revenues in the quarter (about $120 million). Ciena's CEO, Gary Smith, said during the company's earnings conference call that the vendor's engagement with AT&T is spread across many parts of the operator's business, including its metro networks, optical backbone, submarine links, and mobile backhaul, supporting all manner of residential, enterprise, wholesale, and managed services.

What is encouraging for Ciena, though, is that these latest numbers don't look like a blip. The company is expecting fiscal third-quarter revenues in the range of $585-$615 million, significantly better than expected, while Smith repeatedly stressed how the company's customer base is expanding, so reducing its reliance on the Tier 1 operators in the US.

"As we continue to diversify our business, we expect to deliver steadily improving financial performance, including performance in the second half of the year that is stronger than the first half," said the CEO in the company's earnings announcement.

That broadening customer base, significantly, includes sales to customers beyond the traditional telecom operator segment: Ciena now generates about 30% of its sales from non-telco customers, including web services firms and data center operators that need high-capacity connectivity between data centers, cable operators (Ciena signed three new customers in the quarter), government agencies, and large enterprises in vertical markets such as financial services, utilities, and healthcare.

"We're helping customers drive service creation through models such as carrier managed services, and applications such as cloud services, data center interconnection and other applications that grow carrier revenues," said Smith during the earnings conference call Thursday.

The vendor is also growing its business in the submarine networks sector, and expects its business outside the US market to grow in the future as its partnership with Ericsson starts to deliver new business. In the fiscal second quarter, 42% of revenues came from non-US customers. (See How Will Ciena + Ericsson Play Out? and Ericsson's Ciena Tieup: It's a Migration Thing.)

The driving force for Ciena, though, is 100G. Revenues from its packet/optical portfolio, including 100G products, grew 22% year-on-year to $357 million, and Ciena said during its conference call that it had added 15 new 100G customers to take the total to 129.

In addition, MNM Partners analyst Mike Genovese pointed out that about 20% of its 100G revenues are now from metro network-related products, a sign that the metro 100G market is starting to ramp up. (See The Rise of 100G & Terabit Transport Networks.)

— Ray Le Maistre, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, Editor-in-Chief, Light Reading

Want to learn more about the evolution of packet-optical transport and the 100G market? Check out the agenda for Light Reading's Big Telecom Event (BTE), which will take place on June 17 and 18 at the Sheraton Chicago Hotel and Towers. The event combines the educational power of interactive conference sessions devised and hosted by Heavy Reading's experienced industry analysts with multi-vendor interoperability and proof-of-concept networking and application showcases. For more on the event, the topics, and the stellar service provider speaker lineup, see the BTE schedule.

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User Rank: Light Sabre
6/6/2014 | 1:30:45 PM
Re: Long build-up...
@Ray:  How much would you hedge your bets on 100G Products?  I feel that there could be more growth from non-US customers.  Just speaking as a Canadian.
User Rank: Blogger
6/6/2014 | 8:31:08 AM
Long build-up...
Ciena has been talking about a market uptick for quite a while -- what would be really impressive is if the company can set itself up for long-term stability and profitability, and not just a couple of good quarters. It does appear, though, that the likelihood of sustained business does look more likely now thahn in the past, and if Ciena pulls it off then it will be a credit to its strategy of the past few years.
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