Ericsson Gives Ciena a Boost
Ciena Corp. (NYSE: CIEN) sent out a big "Thank You" to Ericsson AB (Nasdaq: ERIC) today as it exceeded second quarter expectations and saw its share price edge up 15 cents, nearly 3.5 percent, to $4.45 in morning trading.
Ciena reported revenues of $131.2 million, up 26 percent from a year earlier, and a net loss of $1.9 million, or $0.00 (nil) per share, a considerable improvement on the $74.8 million loss (13 cents per share) from a year ago.
After one-time items, Ciena recorded an adjusted net income of $3.6 or 1 cent per share. Analysts, on average, had expected an adjusted net loss of $0.01 per share from revenues of $129.1 million.
So what's Ericsson got to do with it? Well, Ciena had three customers that contributed more than 10 percent of revenues in the second quarter – two North American carriers – not directly named but obtusely identified as AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ) – and one international channel partner, which was the Swedish vendor.
That means in the three months leading to April 30, 2006, Ericsson contributed more than $13.1 million in revenues to Ciena. Ericsson hasn't previously been a 10 percent-plus customer.
On today's conference call, Ciena management said Ericsson is selling almost a full range of Ciena equipment, but sales of the multiservice CN 4200 FlexSelect platform account for the majority. Ericsson is the sales channel partner for the 4200's deployment at Swisscom AG (NYSE: SCM). (See Ciena Claims DWDM Coup.)
The 4200 has been particularly popular in Europe, where BT Group plc (NYSE: BT; London: BTA) is another customer. (See Ciena Launches Mini CN 4200, Ciena Wins in Slovenia, Ciena Wins in Denmark, and Ciena Finalizes BT Agreement.)
Those wins helped push revenues from the 4200 to $12 million in the second quarter, up from $2 million in the previous three months. And CEO Gary Smith says Ciena's gearing up its supply chain for quarterly sales of $40 million for the 4200 product. He says the technology is being used by a broad range of customers, including cable operators, government institutions and enterprises, as well as traditional telecom operators.
According to Smith, 4200 revenues are expected to grow sequentially and hit the $40 million mark in early to mid 2007.
The success of that product, the first based on the FlexSelect DWDM platform unveiled a year ago, means there will be further product launches in the near future in addition to the smaller version of the 4200 (the CN 4200 MC) launched a few weeks ago. (See Ciena Shrinks Its Hot CN 4200 and Ciena Launches FlexSelect.)
Smith reports that there will be further expansion of the 4200 product, while CTO Steve Alexander told analysts on today's conference call that Ciena will be "rolling out additional features of FlexSelect in the next few quarters" to meet the growing needs of carriers that want to migrate from their existing networks to next generation architectures, but can't predict how quickly they will want to scale down or ramp up particular technologies.
"FlexSelect customers don't need to know the timescales for migration – they only need to know they will eventually migrate," stated the CTO, who added that the CN 4200MC was just the first of a number of new products "you'll be hearing about soon."
Ciena's CFO Joe Chinnici also looked into his crystal ball, telling analysts that Ciena was on course to record third quarter revenues between 7 and 10 percent higher than the second quarter, setting the range between $140.4 million and $144.3 million. On average, analysts had expected third quarter revenues of $137.6 million.
Ciena reported higher than normal gross margins in the second quarter of 48 percent, with Smith saying the company should settle down to an average quarter-by-quarter gross margin rate in the mid forties. He noted that a year ago Ciena reported a gross margin of 26 percent.
— Ray Le Maistre, International News Editor, Light Reading