Even as Wall Street is knocking Ciena's stock around today -- it was down 8% today, based on its projections of lower earnings in the fourth quarter -- Ciena CEO Gary Smith remains cool, confident and focused. In an interview with Light Reading, Smith attributes the fourth-quarter revenue woes to the specific structuring of one contract -- AT&T's -- and says this uncertainty shall pass quickly. (See Ciena Ramps in Q3, Dampens Q4 Expectations.)
In fact, Ciena Corp. (NYSE: CIEN) is poised to do very well in the coming era of software-controlled networks and has a new balance to its balance sheet, based on customer diversity, to get the company through any rough times during the coming transition to SDN and NFV, Smith says. (See Optical Vendors Optimistic Despite Shrinking Market.)
"We have been focused on the convergence between optical and packet, and also on driving a more software-driven architecture for some time now," he comments, dating the change back to when Ciena acquired Nortel's optical assets. "Yes, that includes SDN and the various applications that help an on-demand-type network. But this is not an epiphany of the last year or so, it is a very deliverable strategy that we have been talking about for the last four or five years.
Responding to repeated questions from analysts on the earning call, Smith says the soft fourth-quarter projections relate to "disproportionate effects as a result of the way the AT&T Inc. (NYSE: T) deal came together," which will go away by the middle of 2015. (See What's With AT&T's Capex Dip?)
In the interview, Smith called the current network transition "very different, in terms of scope and scale" than previous transitions he has seen -- and there have been many in his 17-year tenure at Ciena.
"You are talking about a very large-scale shift at how people build networks. It's not trivial, not going to happen overnight," he says. "This is a fundamental change in the architecture and also the business model, to create a truly on-demand network, with a different set of dynamics."
While previous transitions often focused on step changes in the capacity of networks, this one isn't about moving bits around faster or moving more bits, he notes, and Ciena has been positioning itself for this change, with 70% of its engineering talent being software-focused.
"It's about evolving from a company that not just moves bits from A to B, but actually does something with them," Smith says. "That is where the value is moving forward."
Given the scope of the transition, there are likely to be other hiccups, as large telecom players try to get their strategies right. Smith argues that Ciena's business won't be seriously harmed by such issues, as it might have been in the past, because the company has diversified its business significantly in recent years, and no longer derives more than 20% of its revenue from any one customer -- even one as big as AT&T.
"We have a much more diversified business: We are the number one player in packet-optical, and we do business with many of the large carriers, but 30% of our revenue comes from non-carrier infrastructure," he says. "We have 1,000 customers, with geographic diversity, customer diversity and market diversity. And even within the large carriers, we have application diversity as well." (See Ciena Stirs Up the Metro Market.)
By staying true to its packet-optical focus and not trying to be an end-to-end supplier, Ciena will be able to play with a broad range of companies in the coming transition, and will capitalize on that strength, Smith maintains. However, he does see the partnership with Ericsson as a key advantage for getting Ciena an entry point into markets where it doesn't currently play strongly, including the mobile world. (See SDN at Heart of Telstra-Ericsson Deal and Ericsson's Ciena Tieup: It's a Migration Thing.)
— Carol Wilson, Editor-at-Large, Light Reading