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Vendors' Q4 Outlooks Spooking Market

Dan O'Shea
10/31/2013
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Cyan and Calix are the latest telecom vendors to offer unexpectedly sour earnings guidance for the fourth quarter of 2013.

Both companies reported decent third-quarter earnings earlier this week, but in what has become a pattern among vendors in recent days, they followed the good news with bad. Cyan Inc. cleared record quarterly sales of almost $38 million, but issued fourth-quarter revenue guidance of between $30 million and $33 million.

That came as a shock to analysts such as George Notter, managing director of equity research, communications infrastructure at Jeffries, who said in a research note that Jeffries had been expecting fourth-quarter revenue of about $45 million. Jeffries consequently cut its stock price target for Cyan from $15 to $6.

Calix Inc. (NYSE: CALX), meanwhile, met third-quarter revenue expectations by bringing in almost $104 million, then offered revenue guidance for the fourth quarter of between $97 million and $103 million, well below Street expectations for around $115 million.

The weak outlooks by Cyan and Calix come after Infinera Corp. (Nasdaq: INFN) also capped its own third-quarter earnings report with lower guidance for the current quarter than analysts had been expecting. In similar fashion, Juniper Networks Inc. (NYSE: JNPR) and Cisco Systems Inc. (Nasdaq: CSCO) reported fair earnings for their most recent quarters, and then issued lower guidance, but they also went a degree further by announcing job cuts. (See: Juniper Jettisons 280 Jobs and Cisco Caution Leads to Job Cuts.)

The spate of soft projections suggests service provider spending -- or at least revenue recognition -- will be weak to end the year, a seasonal trend that is not so surprising in itself. However, the full reasoning behind the lowered outlooks may vary from vendor to vendor. Notter noted that, in Cyan’s case, the issue is likely slower-than-expected international sales and “unexpected push-outs at certain customers.” One example of that is revenue recognition from Cyan’s recent Colt Technology Services Group deal getting pushed out from the third quarter of this year to early next year. (See: Colt a Significant Win for Cyan.)

In Cyan's third-quarter earnings results, Cyan Chairman and CEO Mark Floyd noted, "Economic uncertainty driven by the debt ceiling crisis and lack of a federal budget is exacerbating what would have already been a lumpy quarter, as budgets are largely exhausted towards the end of the year. These factors are causing cautious order patterns among our customers."

The good-news/bad-news act comes after things had been looking up for network equipment vendors, particularly those working in the optical sector, in recent months. (See: 100G Action Spurs Optical Optimism.)

— Dan O'Shea, Managing Editor, Light Reading

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brookseven
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brookseven,
User Rank: Light Sabre
1/9/2014 | 9:47:40 AM
Re: Zombie post!
And to make it complete, Calix just pre-announced.  Not as bad as Cyan, but a double dip!

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brookseven
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brookseven,
User Rank: Light Sabre
1/8/2014 | 11:37:25 AM
Zombie post!
But nobody has said anything about Cyan coming in $10M light this quarter....Is CES distracting everyone?

 

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brookseven
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brookseven,
User Rank: Light Sabre
11/6/2013 | 11:43:45 AM
Re: Let's hope this is a blip....
http://wp.me/p3XVhG-2q

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DanJones
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DanJones,
User Rank: Blogger
11/1/2013 | 2:56:01 PM
Re: Let's hope this is a blip....
Plus the AT&T & Verizon LTE buildouts are largely done and Sprint and T-Mobile are not that far behind either.
Ray@LR
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[email protected],
User Rank: Blogger
10/31/2013 | 3:26:25 PM
Re: Let's hope this is a blip....
I think the analysts may have been expecting a combination of spending momentum and fourth quarter capex 'flush' as I believe it is called -- maybe the operators are holding back while trying to figure where they should put thir money given the SDN/NFV discussions. or maybe the CFO told them to stop spending...
DOShea
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DOShea,
User Rank: Blogger
10/31/2013 | 3:12:54 PM
Re: Let's hope this is a blip....
Hard to tell if this is an end-of-the-year, business-as-usual drop-off in expectations or something more, but analysts certainly seem taken aback. Some of these vendors were talking very hopefully going into Q3, and for the most part delivered.
Ray@LR
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[email protected],
User Rank: Blogger
10/31/2013 | 2:02:11 PM
Let's hope this is a blip....
Oh boy, we just had two years of 'things will get better soon' talk - let's hope Q4 is a blip and that 2014 can show some solid business -- not every company could survive another dip in the market, IMHO.
DOShea
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DOShea,
User Rank: Blogger
10/31/2013 | 10:49:59 AM
JDSU
Optical components company JDSU can be added to this list, lowering guidance for its current quarter after I filed this post--even though the optical part of its business is improving. In response, Needham & Company cuts its price target for JDSU from $18 to $16.
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