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Optical/IP

Ciena: 'Flat to Up'

Ciena Corp.'s (Nasdaq: CIEN) report from this morning: Things aren't getting worse (see Ciena Reports Q1).

That qualifies as good news in the roughed-up telecom equipment market. Ciena's stock popped $0.18 (3.26%) to $5.20 in early morning trading.

On a generally accepted accounting principles (GAAP) basis, Ciena reported a net loss for the period of $107.1 million, or $0.25 per share.

Ciena's executives also issued some lukewarm guidance for the next quarter, predicting the potential for more sequential growth.

“We believe revenue in our second quarter could be in a range of between flat and up slightly from our first-quarter revenues, depending on order timing,” says CEO Gary Smith.

In the current market, anything but a decline in revenues is considered good, as companies have been lowering their cost structures. Ciena's slim growth forecast also comes in the context of networking industry giant Cisco Systems Inc.'s (Nasdaq: CSCO) "flat to down" prediction for its coming quarter.

However, some analysts contend Ciena still has not cut enough of its expenses. Steve Levy, an analyst with Lehman Brothers, says he regards the earnings news as "slightly better than expectations," but the guidance "slightly less than expectations."

"Ciena has a long ways to go before they break even, and the valuation on the stock gives them no room for mistakes," he says. "The very high break-even level is not likely to be achieved any time soon."

Ciena still has a considerable cash hoard, and the company used some of that cash to pay down some debt. The company ended its fiscal first quarter with cash and short- and long-term securities valued at $1.9 billion. Ciena burned through $43 million in the first quarter, exclusive of money it used to buy back debt. During the quarter, the company spent an additional $139.2 million in cash to repurchase debt.

Ciena also disclosed that it had made a cash payment of $2.5M in the settlement of a patent lawsuit with Nortel Networks Corp. (NYSE/Toronto: NT). It acquired this lawsuit when it bought ONI Systems (see Nortel, Ciena Settle Suit).

— R. Scott Raynovich, US Editor, Light Reading
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googol_byte 12/5/2012 | 12:36:40 AM
re: Ciena: 'Flat to Up' I've heard rumors that CIENA was going to get a big contract from British Telecom. Apparently it is the contract that Marconi could not deliver on. Rumors are the the whole thing is going to CIENA. I'm surprised they didn't announce this on the call.

Peter Heywood - Any chance you can follow-up with your contacts at BT to confirm?
VolTrdr 12/5/2012 | 12:36:36 AM
re: Ciena: 'Flat to Up' I believe CIENA has CoreDirector in trials at BT. Given that the new CTO there may still own a stake in Ciena, I would say they have a pretty good shot at getting the contract.

Gary Smith did mention that in terms of decisions on trials, certain service providers have made internal decisions to delay projects, but he doesn't think they are postponed indefinitely. Does this affect the contract at BT? Couldn't tell you, but I wouldn't expect revenues anytime soon.

As far as announcing the contract if they win, I don't think they will make a formal announcement until they have actually deployed some equiptment into the network, similar to the way they did the announcment when CoreDirector got into AT&T's network. Usually by the time a formal announcment is made, it's old news.

Smith also mentioned that he does not see the "legacy" vendors or Sycamore in the trials CoreDirector is involved in. If these other vendors aren't even in the running, then who else is? Baffling...
dodo 12/5/2012 | 12:36:31 AM
re: Ciena: 'Flat to Up' "Smith also mentioned that he does not see the "legacy" vendors or Sycamore in the trials CoreDirector is involved in. "

I believe that Gary Smith should do a deeper competitive intelligence analysis as to where some of his competitors stand.....Nuf said :-)
Peter Heywood 12/5/2012 | 12:36:31 AM
re: Ciena: 'Flat to Up' Thanks for the tip...although now they'll know why I'm snooping around.

FYI, when we were were trying to do a test of grooming switches with BTexact (thoughout 2002), BTexact had already tested Ciena's CoreDirector and Sycamore's optical switch. This was Sycamore's original switch, before it could do STS1 grooming.
photonicman 12/5/2012 | 12:36:25 AM
re: Ciena: 'Flat to Up' If the rumor is true, and Ciena gets the
BT network build out, then it will be a
huge win for Ciena, a big blow to Marconi
and Nortel. This would be as big for Ciena
as the first win with Sprint.
BobbyMax 12/5/2012 | 12:36:19 AM
re: Ciena: 'Flat to Up' Ever since Ciena bought Cyras, located in California, the fate of Ciena was sealed. Ciena paid over $4.3 Billion to acquire a piece of junk. The company lost its focus in addition to losing hard earned money.
twistedcopper 12/5/2012 | 12:36:09 AM
re: Ciena: 'Flat to Up' bobby is right! the $10B acquisition of cyras was a joke and california doesn't know how to innovate. it's all about jersey, baby!!!! TELM will acquire CIEN one day soon.

-twisted
grapsfan 12/5/2012 | 12:36:07 AM
re: Ciena: 'Flat to Up' > If the rumor is true, and Ciena gets the
> BT network build out, then it will be a
> huge win for Ciena, a big blow to Marconi
> and Nortel. This would be as big for Ciena
> as the first win with Sprint.


Which win? When they got the LH DWDM business, or when they first put CoreDirector in? If you mean the former, I'd agree with you wholeheartedly. That win established the company as a serious player in the industry.

If you mean the latter, well, I'm not so sure how successful that's been. Tellabs has had the majority of Sprint's U.S. hubs for a couple of years (I could dig up the old link to the LR article, won't due to laziness, but I think it was in 2001). CoreDirector is in Europe, but I don't know how many NEs are there carrying traffic.
lilgatsby 12/5/2012 | 12:36:03 AM
re: Ciena: 'Flat to Up' Two points -

1. Were Marconi run under rational commercial operating guidelines, instead of being coddled by the "state", this European gem would be a fading memory. So, I disagree...ANYBODY beating MONI in ANY deal is not a blow, it is the way things should be.

2. It is interesting how certain aspects are quickly forgotten when judging CIEN. For instance, they are one of very few companies with cash (and quite a bit of it) and a debt ratio that is manageable, they are improving their opex and revenue in a tough market, they have the market share for core switching wrapped as tightly as Cisco has edge routers, they have the market share for metro transport thanks to a very wise ONI buy, they are considered 1 or 2 in worldwide long-haul market share. There are many companies in this industry that would love to have the "problems" CIEN is criticized for by some of you chaps. So before throwing too many stones, perhaps some should do a little homework.

lg
mellonHead 12/5/2012 | 12:35:59 AM
re: Ciena: 'Flat to Up' >2. It is interesting how certain aspects are >quickly forgotten when judging CIEN. ... they >are improving their opex and revenue in a tough >market,
I'm not sure you can say they are improving opex.
They burned through about $45M in cash last
quarter and admit they got a little lucky. They
expect to burn $50M..70M a quarter for the
forseeable future. The feel you get from the
company conference calls is they don't expect that
to change in the next year or more. So a year
or year and a half out that pile of cash is going
to take quite a hit.

Revenue up 14% over last quarter. Yup, it's up. Now at about $72M/quarter. Problem is break even is about $200M a quarter -- which isn't on the
horizon in the forseeable future.



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