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Ciena Beats Numbers, Drops Hints

Light Reading
News Analysis
Light Reading
5/18/2000

Regardless of whether you're rooting for or against Ciena http://www.ciena.com/, there was enough in the quarterly results conference call to both please you and scare you. Ciena executives, drier than most in delivering the goods, said they beat analyst numbers, announcing a profit of $0.12 per share, a couple pennies above most estimates. But company officials also warned that manufacturing concerns and the "disappointing" growth in newer metropolitan and network edge product lines were "challenges" for the rest of the year.

The company reported revenue of $185.7 million for its second fiscal quarter ended April 30, 2000. These results represent sequential revenue growth of more than 20 percent over the company's fiscal first quarter results of $152.2 million and an increase of more than 66 percent as compared to the same period a year ago when the company reported revenue of $111.5 million. Net income for the second quarter was $18.4 million, or $0.12 per diluted share. This compares with net income for the previous quarter of $9.1 million, or $0.06 per diluted share. For the same period in fiscal 1999, the company reported net income of $0.5 million, exclusive of one-time charges, just about breaking even.

Overall, it didn't seem like enough to send Ciena shares flying significantly higher in the near-term. Investors seemed to know something was up ahead of time. The stock sunk 6 13/16 to close at 137 5/16 in Thursday's trading, before results were announced. Still, the shares have seen lofty gains in recent months. Ciena shares were trading under $50 as little as seven months ago. With a market cap of $19 billion, the company is trading at a multiple more than 20 times projected annual sales.

In the discussion of results and during the ensuing Q&A, manufacturing constraints, components shortages, and slower-than-anticipated growth of revenue for the CoreDirector and EdgeDirecor product lines were mentioned as concerns.

"Manufacturing capacity has not been a contraint with regard to deliveries," said Patrick Nettles, Ciena's CEO. "But it's affecting our responsiveness to some degree. As we scale up, we will have some periods... when we will be less flexible than we would like to be."

Mr. Nettles said that the demand shortages for electronic components had not curtailed the sales of product but that they were cutting into gross profit margains by raising the price of components.

Company officials said that sales in the EdgeDirector and CoreDirector product lines were falling short of projections.

"The market's initial reception of the product [EdgeDirector] has been somewhat disappointing," said Ciena Chief Operating Officer (COO) Gary Smith.

When several analysts asked Ciena about its competitors, company officials said that Nortel had become its primary competitor in the market. "Our primarily competitor is Nortel [http://www.nortel.com/], both in the metro area and the long-haul," said Smith.

--R. Scott Raynovich, excecutive editor,Light Reading http://www.lightreading.com

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