Ciena Dampens Outlook Hopes
President and CEO Gary Smith said Ciena was confident of new wins and further business from large incumbent carriers during 2004; the company is projecting that revenues for the first quarter of fiscal year 2004 (to January 31) will be flat or up by 10 percent from the $70.6 million it recorded in the fourth quarter of 2003.
Ciena's share price dipped by 27 cents, or 4.25 percent, to $6.08, though in early trading the price had fallen as far as $5.87. The 12-month high is $7.74, the low $4.19.
Hopes had been high that Ciena would capture some new business before the end of 2003 that would quickly make a difference to 2004 revenues (see Ciena & Sycamore: New Deals?). Analysts at Lehman Brothers and Merrill Lynch & Co. Inc. noted today that expectation for the first quarter of 2004 had been higher, based on expectations of new customer wins and follow-on revenues from existing clients.
Lehman's research also notes that no new restructuring moves have been announced and that, although costs have been cut significantly in the past year, Ciena is still way short of its breakeven revenue target of between $150 million and $200 million.
Ciena's Smith says there are still signs of increased RFP activity, and "increasing signs of sector stability" that are fueling optimism for 2004. Smith also notes that "we cannot cost-cut our way back to sustainable profitability. Recovery must come from a combination of revenue growth and careful cost control."
Smith says Ciena is in new contract negotiations with two incumbents and expects those deals to close in the first half of 2004. And he was keen to point out Ciena's increasing revenue diversification. "We may have started life as an optical company, but we are now much more."
In fiscal year 2003, 41 percent of the vendor's total $283.1 million revenue came from core networking products, compared with 65 percent in 2002 and more than 90 percent in 2001. In 2003, 36 percent of revenues came from metro gear, up from 17 percent in 2002. Services and support revenues accounted for 14.9 percent of the total in 2003.
Ciena's network edge and data product lines, which once accounted for less than 1 percent of the total revenues, now account for 7 percent, Smith says. He expects this to reach more than 30 percent in the long run.
In the shorter term, however, there are, at least, signs of improving revenues: The fourth quarter's $70.6 million was a 14 percent increase on the same quarter a year earlier and a 3 percent increase on the third quarter of 2003. Net loss for the fourth quarter was $115 million, compared with a net loss of $754.8 million a year earlier and $88.9 million in the third quarter. So again Ciena lost way more money than it brought in (see Ciena Loses More, Spends More).
The company burned $123 million in the fourth quarter, leaving itself with $1.63 billion in cash and investments.
Ciena does have more customers than before and realized its first revenues from U.K. incumbent BT Group plc (BT) (NYSE: BTY; London: BTA). It generated revenue from 110 customers in 2003, up from 77 in 2002. It has gained new customers from acquisitions such as that of Akara Corp., which accounted for 16 new customers (see Ciena Completes Akara Buy).
Ciena's revenue concentration, however, is still a concern. About 60 percent of revenues come from incumbent operators, while two carriers alone, one in North America and one in Europe, account for 26 percent of revenues.
Despite its acquisitions, Ciena has shed staff at a steady clip. It now employs 1,816, down by 208 in total from the previous quarter. In the fourth quarter, Ciena spent $12.9 million on restructuring charges related to a workforce reduction of 230. The company has cut its outlay on R&D and sales, general, and administrative costs in the past year by 25 percent.
— Ray Le Maistre, International Editor, Boardwatch