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Optical/IP

Ciena's Nettles: Trends Favor Us

SAN JOSE, Calif. -- Opticon -- Talk about timing. Pat Nettles, Chairman of Ciena Corp. (Nasdaq: CIEN), stepped to the podium here to give a keynote speech, as Ciena's stock was plummeting more than 30 percent. The dive came after company officials reduced their growth estimates for the remainder of this year as well as 2002 (see Ciena's Day of Reckoning).

"I think it shows that nobody is immune to the short-term impact of the carrier marketplace," said Nettles, in response to questions about Ciena's financial results and forecasts. The market is now characterized by a slowdown in carrier spending, the failures of startup carriers, and a grim outlook for capital investment, said Nettles.

He noted that expectations in the optical networking industry had been inflated by an "artificial market" that derived from the investment and spending bubble of last year.

"It was easy money, vendor financing, and 'virtual' sales -- where the customer bought something but couldn't pay for it. There was also hype and fear, driven by component shortages, in which people bought things just because they thought they wouldn't be able to get them later."

But have no fear, said Nettles. Large trends still bode well for the communications industry: Internet traffic is still growing (with less than 5 percent of the worldwide population connected to the Internet); carriers are spending on next-generation optical networking technology that can help them save money; and growth prospects are still healthy in Asia and Europe.

"Industry fundamentals remain solid. Traffic growth is there; revenue and profit growth is there; but you can't do it with legacy equipment."

Nettles took some shots at the competition -- most notably Nortel Networks Corp. (NYSE/Toronto: NT) and Lucent Technologies Inc. (NYSE: LU) -- referring to their products as "legacy" or "closed" gear that is now being shunned by carriers. He said carriers now demand DWDM-based optical systems equipped with automated provisioning systems that allow them to reduce operating costs when setting up new connections.

Once the excesses are worked out of the system, Nettles said, carriers will continue to spend on next-generation optical networking gear that will allow them to more efficiently handle growing traffic at reduced costs. "You need to take out the costs and functionality that's no longer needed to handle Internet traffic."

Nettles also made some brief comments on the outcome of the company's $2.6 billion acquisition of Cyras. Nettles said it's still too early to say how things are progressing, asserting that the product "will be integrated faster, following the management shifts" that the company announced this morning.

-- R. Scott Raynovich, Executive Editor, Light Reading
http://www.lightreading.com
optical 12/4/2012 | 7:56:46 PM
re: Ciena's Nettles: Trends Favor Us Loking for a great leader in this miserable telcom space. You found one in Patrick Nettles!
[email protected] 12/4/2012 | 7:56:41 PM
re: Ciena's Nettles: Trends Favor Us How the mighty have fallen. God, I would really hate to have a business that grew 100% from last year.

This is but an opportunity to buy some shares in a good company with good management. The lack of guidance issue has people panicked? Get real....are you in it for the long term or just the one-night stand?

Here's something to consider....if Ciena is having difficulty, then what does that mean for tellium, corvis and "Sick"amore moving forward?

Lighteating 12/4/2012 | 7:56:27 PM
re: Ciena's Nettles: Trends Favor Us Greatly appreciate the wit and wisdom on this board.

With regard to CIEN going to $11, you end up having to ask -- what valuation will be placed on the rest of the puppies? A very sobering thought.

Forget the Prozac. I'm going for the single malt.

PS - Genuine best wishes to all the LU folks. May you survive the coming week and your famiies prosper.
whose 12/4/2012 | 7:56:27 PM
re: Ciena's Nettles: Trends Favor Us Let's see - in order for Ciena to maintain its $18/share price it'll have to earn $330M next year. It's on a run-rate of $240M, the market as a whole is stagnant or down, and competition is going to be tough on pricing.

My view, for what it's worth, the stock's still a little over priced - $11/share is reasonable.
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