Ciena Looking to Merge Away Misery
Ciena Corp. (Nasdaq: CIEN) this morning set its sights firmly on the future -- probably the only choice, considering the lower revenues and significant losses for its second quarter of 2002.
Ciena posted revenue of $87.1 million for the quarter ended April 30 -- compared to $162.2 million last quarter. Its net loss under GAAP was $612.2 million, or $1.86 per share. Last quarter, the company's GAAP-reported net loss was $70.6 million, or $0.22 per diluted share (see Ciena Closes Q1).
The company expects to see a loss per share next quarter between $0.17 and $0.19.
The quarter was also marred by an assortment of special charges. Operating losses, restructuring costs, and other charges amounted to over $404 million.
The company claims the restructuring and layoffs have paid off, and that no further cutbacks are expected (see Ciena Slashes Some More). "We expect to see additional benefit of those actions in our financial results for our fiscal third quarter," said CEO Gary Smith in a prepared statement. The company is done with the bulk of the restructuring, execs say.
The company's pitch to investors now appears to be that it will merge its way out of misery -- officials are waxing positive on its anticipated merger with ONI Systems Inc. (Nasdaq: ONIS), now set to close in late June (see Ciena and ONI: Wedding of the Year?). Ciena's next quarterly report in late August will include ONI financials. No new revenue guidance will be given prior to that call.
Ciena is also looking to the international market for financial renewal. Throughout today's conference call with analysts, company executives stressed the company's new emphasis on international carriers. Last quarter, international customers accounted for 22 percent of Ciena's overall sales. This quarter, that figure is up to about 43 percent.
"The pivotal issue is not so much about capex going down or up, but how many of these large incumbent carriers can Ciena penetrate as quickly as possible," Smith said.
Smith said Ciena now claims 5 to 10 percent of the optical equipment revenues of the world's top 30 to 35 carriers but wants to grow that to 15 percent. The key tactic will be to provide solutions that include both transport and switching -- at first in separate boxes, moving toward further integration over time, and led by the company's flagship CoreDirector grooming switch.
Ciena says sales this quarter show a balance in acceptance of the company's switches versus traditional long-haul transport gear. For the first time, sales of CoreDirector and MetroDirector K2 switches represented more than 50 percent of Ciena's quarterly revenues, ahead of traditional CoreStream transport products.
Ciena would not break out the proportion of metro switches in the above figures, but it says the market for metro DWDM is also picking up internationally. Of the company's top four customers, two are using the CoreDirector exclusively and two are using a mix of CoreDirector and other products. (Ciena says the four top customers include two international carriers and two domestic ones and there is no trend toward favoring metro versus CoreDirector in any region.)
Ciena has scored a major win with an unnamed international PTT, one it says has not been a customer before. China looks promising too: About 10 percent of all revenues this quarter came from China, execs say.
On the homefront, Ciena expects a slow takeup in the RBOC market, even though it is proceeding apace with efforts to obtain Osmine certification with Telcordia Technologies Inc. By the time that certification is completed, Smith said, the RBOC market should be starting to pick up as a result of capacity requirements tallying with ongoing customer demand for bandwidth -- an "inflection point" Ciena expects to see sometime in 2003.
Ciena's international focus is apparently a hard-learned lesson, resulting from setbacks at customers with large domestic presence, specifically Qwest Communications International Inc. (NYSE: Q) and Sprint Corp. (NYSE: FON). Ciena took a hit last quarter when these important customers fell on hard times (see Ciena: Outlook Dim).
But despite Ciena officials' positive assurance, skeptics abound. Chatter from several sources has it that Ciena's rollout of gear at AT&T Corp. (NYSE: T), the result of a much-touted contract win (see AT&T Boosts Ciena, Cisco), has not gone as smoothly as AT&T would have liked. Some sources say Ciena ran into problems of scaleability there. Ciena denies these speculations, saying there's been nothing out of the ordinary about the AT&T deployment, and claims it's completed more than half the requested installation, although execs would not say on today's call what revenue they've realized so far from the arrangement. (Ciena says its policy is not to release any revenues for specific customers.)
Indeed, with the telecom market still mired in a deep economic slump, many challenges remain for the company. Questions still surround Ciena's ability to deliver a combined transport and switching platform to international carriers, especially since the company continues to cut spending on R&D along with other operating costs.
At press time, Ciena shares were trading at $5.99, down $0.45 (6.99%).
— Mary Jander, Senior Editor, Light Reading