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Ciena Leaps on Better Outlook

Ciena Corp. (Nasdaq: CIEN) gave its weary investors cause for cheer today as it announced improved revenues and forecast further growth.

While the bottom-line numbers looked anything but encouraging – a fourth quarter net loss of $495.1 million, or 87 cents per share, caused by a goodwill charge of $371.1 million – revenues were up 8.5 percent sequentially, and up 16.1 percent on a year earlier, to $82 million (see Ciena Reports Q4 Loss of $495M). Analysts had expected revenues of $76.3 million.

The company also expects revenues to rise sequentially by between 7 and 10 percent in the current quarter to between $87.7 million and $90.2 million. Analysts had been expecting first-quarter fiscal 2005 revenues of $80.3 million.

Ciena also noted that fourth-quarter gross margins improved to 29.5 percent from 24.9 percent in the previous quarter, that operating expenses were down by 9 percent, and that 35 percent of the quarter's revenues came from its new data products.

The news boosted Ciena's share price. In pre-market trading it leaped 38 cents, more than 16 percent, to $2.72 from Wednesday's closing price of $2.34.

"We have taken a number of important steps toward restoring health and profitability to our business, and we have set the stage for continued meaningful improvements to Ciena's operating model," Ciena CEO Gary Smith said in this morning's conference call. Smith pointed out that Ciena delivered stronger-than-expected revenue growth, improved gross margin, and lowered its cash burn.

In addition to adding revenue growth, Smith also said that Ciena should be able to boost gross margins to 40 percent in 2005. Smith called the guidance for revenue and profit growth as "aggressive," but said it was also achievable. "We expect meaningful improvement to our business model in 2005."

Analysts remain cautious, however. In a research note issued this morning, Steve Levy at Lehman Brothers states that Ciena has "struggled over the past few quarters to begin to recognize revenues on contracts it had previously won, and we believe these deployments have begun."

And while noting the figures and guidance are "a step forward for Ciena," Levy says the vendor "remains very far from returning to profits. We remain focused on progress for the new products, among other key issues, which help to diversify Ciena's revenues and improve profitability."

For the current quarter, Levy had been expecting revenues to rise to $86 million "as GIG-BE sales likely rebound" and the vendor benefits from improved uptake of its Wavesmith technology (see Gov't Names GIG-BE Winners and Ciena Nabs WaveSmith).

The Lehman team maintains its $2 target price for Ciena, noting the vendor "has much work left to begin generating material profitability."

UBS AG analyst Nikos Theodosopoulos takes the same view, and is also sticking to his $2 target price.

"Although we view results and guidance positively, we note that Ciena still has a ways to go before achieving breakeven earnings per share," states Theodosopoulos in a research note.

Ciena has been busy in the past few months attempting to broaden its appeal and revamp its image with a new marketing campaign. It's been shortlisted in Light Reading's Leading Lights Awards for best product and marketing by a public company (see Ciena Debuts New Look, New Message, Ciena Invests in Turin, LR Best Product Finalists Revealed, and LR Picks Public Marketing Stars).

— Ray Le Maistre, International News Editor, Light Reading


  • For more information on the Leading Lights Awards, click here.

  • For more information on Light Reading's Telecom Investment Conference, click here.

  • deer_in_the_light 12/5/2012 | 12:59:57 AM
    re: Ciena Leaps on Better Outlook Glad to see that some of the hard work on CoreStream is paying off. Enough bad things have been said about Ciena's lack of strategy at least the engineers are doing their part!
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