& cplSiteName &

Did Ciena Deserve a Severe Haircut?

Ray Le Maistre

Ciena's stock got slammed Thursday, losing nearly 17% of its value, following the publication of its fiscal fourth-quarter financials and its 2016 forecast. The problem, it seems, wasn't its Q4 but the outlook for the coming year.

Ciena Corp. (NYSE: CIEN) reported fourth-quarter revenues of $692 million and fiscal full-year revenues of $2.45 billion. Its margins and net income were improvements compared with a year earlier -- the full details can be found in the vendor's press release: Ciena Reports Fiscal Q4 2015 Results .

It's the company's expectations for its fiscal year 2016 that seem to have freaked out Wall Street: Ciena expects revenues for first quarter (ending January 2016) to be in the range of $555 million to $590 million, with adjusted gross margins of about 44%, while its full fiscal year revenue number is expected to grow by between 8% and 9%, which would take it to between $2.65 billion and $2.67 billion. Full-year adjusted gross margin is expected to be in the mid-40s percent range.

Is that so bad? Apparently so. Financial analysts had expected higher revenues for the first quarter and the full year -- on average, $612 million and $2.72 billion respectively. Ciena's share price lost $4.02, a whopping 16.9%, to end Thursday at $20.04.

That dramatic haircut gives the perception that Ciena is in for a terrible year. Yet many companies would give their right arm for a rise in full-year revenues of 8-9%. And one analyst thinks this is now a good time to buy Ciena shares.

The negative stock reaction was "overdone," writes MKM managing director Mike Genovese in a research note. "We recommend buying… since demand trends are actually improving and all of the growth drivers (100G Metro, DCI, SDN software and ERIC distribution) are in place and tracking mainly according to plan," he adds, noting that the full year forecast is "softer than expected but still calls for year-on-year acceleration."

Ciena's management, as you'd expect, focused on the upside to the vendor's business during the fourth-quarter earnings conference call. The company now boasts four of the five largest web-scale companies as customers "and we are gaining share within those accounts," stated CEO Gary Smith according to this transcript of the earnings call.

He added that the data center interconnect (DCI) market, into which Ciena has launched its Waveserver product, "represents an opportunity for increasing direct and indirect sales. We're building a strong DCI position with Waveserver … We only started shipping a couple of weeks ago. We will take revenue in Q1. We have four new customers, including, importantly, one top-five web-scale customer … we will continue to drive this solution across multiple customer segments globally, which we are uniquely positioned to do." (See DCI Boxes Aren't Just for Metros Anymore and Ciena Surfs DCI Wave With New Platform.)

Smith also cited the "metro transformation" sector as a growth area, thanks in part to Ciena's "clean sweep in North American Tier 1s." (See Verizon Taps Cisco, Ciena for Next-Gen 100G US Metro Network and Ciena, Cisco Tipped for Verizon Metro 100G .)

Forecasting is always tough and clearly there were greater expectations for Ciena in the coming year, hence the share price adjustment. But it shouldn't be forgotten that the company is one of the global market leaders in the supply of optical transport equipment, which will, in my view, be in high demand for the next two to three years as traditional and web-scale network operators prepare their networks for the distributed cloud and 5G era, none of which will count for anything unless a mesh of high-capacity optical links is in place to carry vast volumes of data increasingly close to the very edge of the network. That can only spell good news for the likes of Alcatel-Lucent (NYSE: ALU), Ciena, Huawei Technologies Co. Ltd. and Infinera Corp. (Nasdaq: INFN).

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

(4)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View        ADD A COMMENT
User Rank: Light Sabre
12/12/2015 | 2:06:52 PM
Question here for CIEN
It appears to me that CIEN is in the process of losing market share to someone.  The question for them is who is eating their lunch?

Their completed quarter seemed to be on a par with what their share price had been doing, but then came their "outlook" and the disastrous conference call with Gary Smith's glowing remarks having nothing to do with their suggested future numbers.

Something is wrong, IMO. 
User Rank: Light Sabre
12/11/2015 | 1:20:08 PM
Re: Beyond the share price
Depends on the approach, in my opinion.

If the portfolio evolves to a SDN centric optical transport infrasturcture, there is a mid term sustainability.

But yeah, optical transport will become a commodity in the long run.
Mitch Wagner
Mitch Wagner,
User Rank: Lightning
12/11/2015 | 1:12:14 PM
In the enterprise world, you frequently hear vendors say, "Nine of the top 10 on the Fortune 500 use our product!" This is less impressive than it sounds -- companies that size are so huge that they have a little of EVERYTHING. The question is how much of the vendor's products are they using, and is it strategic? I expect the same might be the case in telecom. 
User Rank: Blogger
12/11/2015 | 1:11:26 PM
Beyond the share price
Looking beyond the share price rollercoaster.... for how much longer will there be a viable optical transport infrastructure market, one that can deliver profitable business?
Featured Video
From The Founder
Light Reading is spending much of this year digging into the details of how automation technology will impact the comms market, but let's take a moment to also look at how automation is set to overturn the current world order by the middle of the century.
Flash Poll
Upcoming Live Events
November 30, 2017, The Westin Times Square
December 5-7, 2017, The Intercontinental Prague
March 20-22, 2018, Denver Marriott Tech Center
May 14-17, 2018, Austin Convention Center
All Upcoming Live Events
SmartNICs aren't just about achieving scale. They also have a major impact in reducing CAPEX and OPEX requirements.
Hot Topics
When Will 6G Arrive? Hopefully Never, Says BT's McRae
Iain Morris, News Editor, 11/21/2017
Let's Talk About 5G Efficiency, Not Wacky Services
Iain Morris, News Editor, 11/21/2017
Eurobites: Telefónica Reckons Plastic Is Fantastic for FTTH
Paul Rainford, Assistant Editor, Europe, 11/15/2017
Juniper's New Contrail VP Hails From Google
Craig Matsumoto, Editor-in-Chief, Light Reading, 11/15/2017
Animals with Phones
Live Digital Audio

Understanding the full experience of women in technology requires starting at the collegiate level (or sooner) and studying the technologies women are involved with, company cultures they're part of and personal experiences of individuals.

During this WiC radio show, we will talk with Nicole Engelbert, the director of Research & Analysis for Ovum Technology and a 23-year telecom industry veteran, about her experiences and perspectives on women in tech. Engelbert covers infrastructure, applications and industries for Ovum, but she is also involved in the research firm's higher education team and has helped colleges and universities globally leverage technology as a strategy for improving recruitment, retention and graduation performance.

She will share her unique insight into the collegiate level, where women pursuing engineering and STEM-related degrees is dwindling. Engelbert will also reveal new, original Ovum research on the topics of artificial intelligence, the Internet of Things, security and augmented reality, as well as discuss what each of those technologies might mean for women in our field. As always, we'll also leave plenty of time to answer all your questions live on the air and chat board.

Like Us on Facebook
Twitter Feed
Partner Perspectives - content from our sponsors
The Mobile Broadband Road Ahead
By Kevin Taylor, for Huawei
All Partner Perspectives