Ciena Struts Its Stuff
In releasing its second-quarter earnings this morning, Ciena reported revenue of $425.4 million for its second fiscal quarter ended April 30, 2001, a 20 percent increase over first-quarter levels and a 129 percent increase over the $187.7 million in revenue Ciena reported in the second quarter of last year (see Ciena Reports Q2 Earnings).
Ciena reported adjusted net income of $65.4 million or 20 cents per diluted share for the second quarter. That excludes approximately $75.7 million in charges related to the acquisition of Cyras Systems Inc., as well as other special charges.
The earnings and revenue growth comes in dramatic contrast to some of Ciena's competitors, including Sycamore Networks Inc. (Nasdaq: SCMR) and Nortel Networks Corp. (NYSE/Toronto: NT), both of which recently experienced revenue shortfalls and massive losses (see Sycamore Drops a Bomb and Nortel: Losses and Layoffs, Eh?).
Ciena's second-quarter figures exceeded the company’s guidance and analyst estimates. The average analyst profit estimates were for 18 cents per share, according to First Call. Ciena officials stuck to their previous growth estimates for the future, saying annual revenue growth for 2001 should be between 95 percent and 100 percent over 2000 levels. The company expects to earn 72 cents to 75 cents per share during fiscal year 2001.
In early trading Ciena shares gained ground, but by the end of the day they had given all of it back to close at 56.75, down 2.15 (-3.65%).
Ciena also made some management moves. Current President and Chief Operating Officer Gary Smith will now become President and Chief Executive Officer. Patrick Nettles, formerly the CEO and Chairman, will assume the role of Executive Chairman, focused on the long-term strategic direction of the company.
The company said it added eight new customers during the quarter, bringing total customer count to 49, 33 of which contributed during the second quarter. The new customers included Genuity Inc. (Nasdaq: GENU), Level 3 Communications Inc. (Nasdaq: LVLT), TyCom Ltd. (NYSE: TCM; BSX: TCM), and Dynegy Inc. (NYSE: DYN).
The tone of the conference call was generally optimistic and confident. Ciena officials said their strong results come from telecommunications providers shifting spending from legacy technology to next-generation optical networking equipment.
”While carriers are reducing overall capex, they are spending more on next-generation equipment,” said CEO Smith. “This next-generation equipment allows them to spend less and reduce capital expenditure. We continue to believe that Ciena is well positioned to break away from the pack.”
However, Ciena officials did issue a few words of caution: They said the company was “not immune” to the macroeconomic slowdown and that gross margins could come under pressure. Pricing pressure on its long-haul optical transport products was the greatest concern. “We’ve seen evidence of at least one competitor resorting to desperate pricing tactics,” said Smith. “This turbulent period is likely to lead to increasingly desperate measures for competitors."
Gross margins for the quarter rose to 45.6 percent, up from 44.5 percent in the first quarter. Ciena officials said it is possible that number could fall as much as one percent in the next quarter because of pricing pressure from competitors.
Smith said Ciena’s long-haul transport systems, the MultiWave CoreStream and MultiWave Sentry, continue to be the largest contributors to revenue. Systems sales outpace channel card sales, and new customers are starting to buy 10-Gbit/s transmission equipment.
In other product lines, Ciena officials said the CoreDirector optical switching business continues to grow, representing more than 10 percent of the quarter's revenue. But CoreStream still represents the lion’s share of Ciena’s growth, increasing 50 percent over first-quarter levels.
Ciena officials also noted that the company had taken its first order for its K2 metropolitan networking system, which it procured in the acquisition of Cyras. That order came from Level 3. The details of the contract were not provided, but company officials said they expect to realize revenue from the K2 plaform in the fourth quarter.
— R. Scott Raynovich, Executive Editor, Light Reading