Ethernet equipment

Ciena's Ethernet Push Pays Off

Shares in Ciena Corp. (NYSE: CIEN) jumped as the company posted strong second-quarter financials. Driven by its recent Ethernet push, Ciena announced results that beat analyst expectations and raised its growth forecast for the year.

For the second quarter 2007, Ciena reported a profit of $13 million, or 14 cents a share, on revenues of $193.5 million. That compares with a net loss of $1.9 million, or 2 cents a share, on revenues of $131.2 million during the year-ago period. (See Ciena Reports Earnings.)

Ciena's sales jumped 47.5 percent over the previous year's quarter, and its gross margins rose to 42.3 percent, with product gross margins of 47.3 percent. The company also became cashflow positive for the first time since the second quarter of 2003.

According to Ciena CEO Gary Smith, the company's strong results underline the success of Ciena's expanding Ethernet story.

"We're benefiting now from the steps we've taken over the last several years to create an Ethernet-optimized portfolio that is well aligned with market direction," Smith said on the company’s earnings call this morning. "Whereas a year ago, when many of our customers were focused on simply adding bandwidth to their existing network infrastructure, we're now also seeing demand driven by next-generation Ethernet-based architectures."

Earlier this year, Ciena began to push its "FlexSelect for Ethernet" initiative, announcing the CN 3000 access line and the CN 5060 carrier Ethernet platform. While still a small portion of Ciena's overall results, Ethernet access products posted strong growth, increasing from $9 million in the first quarter to $13 million in the second. (See Ciena Continues Ethernet Push, Ciena Unveils Strategy, and Ciena Debuts New Look, New Message.)

New customer wins included Mid-Atlantic Crossroads (MAX), the Swedish University Network (Sunet), THUS plc (London: THUS), and Internet2 . Sunet, THUS, and Internet2 have all deployed the company's CN 4200 FlexSelect, which can be used as an Ethernet transport box. (See MAX selects Ciena, Sunet Deploys Ciena, THUS Selects Ciena, and Ciena, Internet2 Team.)

As a result, Ciena expects its strength to continue, raising estimates for its third quarter and fiscal year. The company forecasts up to 5 percent revenue growth in the third quarter and has increased its forecast for the fiscal year to 36 percent growth, from its previous forecast of between 27 and 30 percent growth.

In a research note this morning, JP.MorganChase analyst Ehud Gelblum noted that "guidance is very strong with Ciena pegging FQ307 q/q revenue growth at 'up to 5 percent,' in line with our current 4.8 percent estimate but from a significantly higher FQ2 revenue base that indicates FQ3 revenue of up to $203.2M, well above our current $185.5M estimate."

Wall Street reacted favorably to the earnings report and forecast, driving shares up $4.10 (14%) to $33.38 in late-morning trading.

— Ryan Lawler, Reporter, Light Reading

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