Ciena Dips on Lack of Bull

NEW YORK -- Ciena Corp. (NYSE: CIEN) shares got off to a rocky start at the beginning of the company's analyst day here, as shares dove nearly 10 percent shortly after opening comments by CEO Gary Smith and CFO Joseph Chinnici.

In late morning trading, Ciena shares fell $2.18 (8.05%) to $24.89.

It may have been the lack of news, rather than the news itself, that weighed on shares. Ciena officials stuck mostly to known information and did not release much that could be construed as new and bullish.

"There's no new message here," said Michael Genovese, analyst with Citigroup .

One number did have an impact, however. Most of the financial analysts in the room were focused on one financial number -- Ciena's operating margin. CFO Chinnici said Ciena's margins would likely hover around 10 percent, less bullish news than the market anticipated.

"The 10 percent operating margin comment is not that impressive," said Genovese. "There's a lingering concern that they could miss a quarter."

Fund managers were equally unimpressed. "Usually at analyst days they try to get you pumped up," said one analyst for a fund, asking to remain anonymous. "They're just not talking things up." The analyst added that 10 percent operating margin was not that impressive, and probably not sufficient to hold the stock at the current valuation.

While CFO Chinnici crunched numbers, CEO Gary Smith focused on comparing Ciena to where it was in the past five years, focusing mostly on the story of the recovery of the company from the optical implosion. Most analysts said they were looking for something new, and it just wasn't there.

Senior VP of Strategic Planning Thomas Mock said Ciena will continue to focus on tying together optical and Ethernet solutions to reduce operating costs for providers. He also said Ciena is increasingly building large networks for companies other than large service providers, including cable MSOs, government networks, and enterprises.

"There are new buyers coming, away from traditional service providers," said Mock. Mock said that Gbit/s Ethernet is the key to tying all of these markets together, by enabling equipment providers to lower the cost on one technology that could be plugged into any environment.

But for the most part, early morning sessions were dominated with concern about Ciena's financials.

Chinnici tried to assure investors that Ciena was back on solid footing, and that the company was moving toward profitability. But he said that the company continues to invest in new resources for growth.

"We are still burning cash. The days of the big burns are over. A lot of the cash is being used to grow the business."

— R. Scott Raynovich, Editor in Chief, Light Reading