Earnings reports

Ciena Boosts Numbers, Cuts Jobs

Ciena Corp. (Nasdaq: CIEN) announced the layoff of 10 percent of its workforce this morning, but officials said revenues for the fourth fiscal quarter could be slightly higher than analysts' consensus estimates (see Ciena Trims Fat).

"Today's news is really about our workforce reduction," CEO Gary Smith told Wall Street analysts on a conference call this morning. "However, we wanted to provide some context." The company revealed details of its fourth fiscal quarter 2001, which closed October 31 and will be reported in full December 13.

Specifically, Ciena plans adjusted net income between $0.04 and $0.06 per share on revenues of $367.8 million for the quarter that ended October 31, 2001. This represents a 19 percent sequential reduction in revenues (see Ciena's Day of Reckoning), but an increase of 27 percent compared to the same time one year ago (see Ciena Reports Q4 Figures).

The guidance is better than what investors had hoped. Until now, analysts' consensus estimates have called for net income of about $0.04 per share on revenues of about $358 million.

Wall Street applauded the news. By early afternoon, Ciena's stock was trading at $19.17, up 1.99 (11.58%).

"This is significant and positive," says Rick Schafer of CIBC World Markets. He says investors have been wondering why the firm hasn't announced a restructuring, given that all major players in the industry have done so.

Despite investors' glee, 380 people, about three quarters of them in Ciena's main manufacturing facility in Baltimore, are out of work. According to Smith, most of these employees were involved in the manufacture of Ciena's CoreStream transport gear. But he was careful to say that a lack of demand wasn't the sole reason for the layoff.

"We're a victim in a sense of our own manufacturing efficiency," Smith said. Ciena's been able to perfect its manufacturing techniques over the past three years to a degree that it doesn't require as much labor to get the same job done. What's more, Smith says, there are more qualified outsourcers dealing with optical gear these days. And he acknowledges that transport demand is down, even though he says the CoreStream, like all of Ciena's products, met revenue expectations this quarter.

Officials said Ciena will take a $5 million to $6 million restructuring charge for the layoffs in the first fiscal quarter 2002. Since the charges are related mostly to manufacturing, they'll affect cost of goods sold and not actual operating expenses, Smith said.

The company also is restructuring some of its physical facilities, taking a $15 million to $16 million charge in the fourth quarter 2001 on "lease terminations and non-cancelable lease costs and the write-down of certain property, equipment and leasehold improvements."

Details of just what's being consolidated are sketchy. Spokespeople say some storage facilities in Maryland will be closed. And Smith said in today's call that in line with reduced manufacturing requirements, Ciena plans to move some testing and support activities associated with manufacturing from Cupertino and Fremont, Calif., back to Maryland. But the California facilities will still be used for other purposes.

Ciena also announced today that it's reassessed the value of its acquisition of Cyras Systems Inc. and plans to take a $1.7 billion charge in the fourth quarter to reduce goodwill related to the purchase.

Back in March 2001, Ciena paid about $1.1 billion for Cyras (see Ciena Completes Cyras Purchase). But the bursting of the optical bubble and the present market downturn apparently have decimated the startup's original valuation.

Still, officials say the products acquired through the merger are doing well. Smith told analysts today that initial revenues from the products based on Cyras's K2 platform are rolling in as expected. And he said the MetroDirector K2 switch has several new customers, although he later acknowledged these are existing Ciena customers and not entirely new takers.

Smith also said plans are still underway to consolidate certain transport ADM functions in the MetroDirector K2, enhancing its cost-savings capabilities for carriers.

While congratulating Ciena on its good numbers, analysts on today's call were frustrated that the company won't provide any guidance for fiscal 2002 for at least another two weeks. Some are concerned about gross margins in the final quarterly report. Others seemed preoccupied with what the news signifies about ongoing demand for Ciena's products. "How can we not look at this as some statement of a change in outlook?" one analyst demanded.

But the company's lips are sealed on further revelations. And Smith seemed confident of ongoing success. "We are not merely surviving," he said, "but also leveraging a strong cash position to continue strategic investments in technology and products and to broaden sales channels."

— Mary Jander, Senior Editor, Light Reading
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PantomineHorse 12/4/2012 | 7:35:23 PM
re: Ciena Boosts Numbers, Cuts Jobs A positive development or a "whiff in the air"?

Looking for a few solid candidates for the hit list.
dnjudd 12/4/2012 | 7:35:17 PM
re: Ciena Boosts Numbers, Cuts Jobs Mary Jander's editorial states in part:
"Back in March 2001, Ciena paid about $1.1 billion for Cyras (see Ciena Completes Cyras Purchase ). But the bursting of the optical bubble and the present market downturn apparently have decimated the startup's original valuation.

This is a static valuation analysis that seems to me virtually worthless. A relative comparison might be more realistic. Ciena obviously paid for Cyrus with their own overvalued stock. Speaking in absolute terms represents yesterday's news. Why not give relative comparisons so the analysis will have current relevance. Perhaps I am mistaken but such remarks as expressed by Ms. Jander seem gratuitous and of little real value. Perhaps in the future we can get meaningful insights regarding actual valuation. We have too long been subject to unrealistic claims both on the upside and the downside. Thanks.
ben35bates 12/4/2012 | 7:35:12 PM
re: Ciena Boosts Numbers, Cuts Jobs I thought the interesting news was that while Ciena's long-haul and metropolitan products are getting kicked around like everybody elses, the sales of Coredirector and probably Metrodirector are growing. That has interesting implications for Nortel's HDX/Equinox product and for a product that Lucent said it will launch in the same space. Smith said total sales were down sequentially by 20 per cent from the July quarter but that Coredirector grew, taking market share. He also did some trash-talking of the opposition with their declining legacy products and cuts in R&D leading to more lost market share in the future. In particular, he took a shot at Lucent for making lots of announcements that never amount ot anything. The two Director products probably represents less than a quarter of Ciena sales but that is not shabby in the current mess.
poster 12/4/2012 | 7:35:11 PM
re: Ciena Boosts Numbers, Cuts Jobs excellent point judd.

"Perhaps in the future we can get meaningful insights regarding actual valuation. We have too long been subject to unrealistic claims both on the upside and the downside"
doco 12/4/2012 | 7:35:10 PM
re: Ciena Boosts Numbers, Cuts Jobs
Do the math yourself - it isn't hard.

The link to the story about closing the deal said it was for 27M shares of Ciena Stock. At a price of $18.50 (current price) that works about to about $0.5 billion.

Still a pretty decent price.

Of course people always relate things back to dollar figures rather than shares because we can much more easily relate to and compare dollar numbers than we can the number of shares.
lightmaster 12/4/2012 | 7:35:09 PM
re: Ciena Boosts Numbers, Cuts Jobs The original price that Ciena paid for Cyras in terms of the value of Ciena stock at the time, while a floating number, is still relavant to the story. Ciena announced that they were writing off over a billion dollars in Goodwill, which is roughly the difference between the "book value" of the company you aquire and the amount you pay for them at the time of the deal. It is supposed to balance the transaction from an accounting perspective. You pay X amount in stock and in return you get book value plus goodwill. It gets amortized and expensed as you bring in the multiple billions (yes, that was what was expected last year) of revenue from the product (company) you aquired.

A goodwill writeoff is an acknowledgement that the product will never bring in an amount to justify the price and therefore the value of the aquisition needs to be written down. Cisco, Nortel, and Lucent have done similar things recently on a much larger scale.

This is all accounting mumbo-jumbo since, as has been stated, the same stock is now worth only half a billion. The real question is whether or not it was worth the PERCENTAGE of the company they gave up to get it, i.e. did it add value on a per-share basis.
befuddled 12/4/2012 | 7:35:02 PM
re: Ciena Boosts Numbers, Cuts Jobs Everything I've heard about the K2 is that it still doesn't work. Any proof positive here?
lightmaster 12/4/2012 | 7:34:58 PM
re: Ciena Boosts Numbers, Cuts Jobs befuddled,

They must have some subset of it (K2) working as they claim revenue from multiple customers in their current quarter. They'll probably get grilled on it more when they report earnings in a few weeks.
let-there-be-light 12/4/2012 | 7:34:56 PM
re: Ciena Boosts Numbers, Cuts Jobs Wasn't Cyras talking about a 40G system more than a year ago and scaring the hell out of everyone who was wondering how they were going to do it so quickly?

What happened?
HarveyMudd 12/4/2012 | 7:34:47 PM
re: Ciena Boosts Numbers, Cuts Jobs AS I gather, K2 System does not work at all. It appears to me that Ciena is marketijg a lesser product than it bought on the claims made by Ciena.

The $1.1 Billion will hurt the momoney forever. Dr. Nettles does not realize his mistakes.

I would like to know by what year Ciena would achieve $1.1B in revenue to pay for the acquisition of Cyras.

Ciena will have cut its main work force from the home location as well as Cyras to realize real savings.

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