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Optical/IP

Oh, Ciena... analysts impressed by Q2 beats

Ciena's revenue and earnings-per-share (EPS) beat analyst consensus, and the book-to-bill ratio exceeded one. It means more orders were received than filled, indicating strong demand. Michael Genovese at MKM Partners called it a "great quarter."

Ciena CEO Gary Smith, speaking on the company's earnings conference call, heartily concurred. "We delivered outstanding financial performance in Q2," he said. "Revenue in the quarter was strong, at $894 million, and gross margin exceeded expectations, at almost 47%. It was also a great quarter for cash generation."

James Moylan Jr., Ciena's CFO, was in a similarly upbeat mood. "Many of our customers took the opportunity to place their orders on us for the full year, or for more than just the current quarter, because we encouraged them to do so, so that we would have visibility to their needs and we could make sure that our supply chain was capable of delivering them," he said. "One of the reasons why we have such strong visibility into Q3 is because of those orders, but some of those were orders ahead of the normal schedule."

Smith emphasized "full" commercial availability, starting in Q2, of Ciena's "WaveLogic 5 Extreme" coherent optical solution. It can deliver up to single-carrier 800Gbit/s throughput over short-reach distances.

"We've now shipped [WaveLogic 5 Extreme] to more than a dozen customers, and the technology is operational and proven in some of the world's leading Tier 1 service providers," claimed Smith. "In fact, we've made public announcements with Internet2, Telia, Verizon, Comcast, Southern Cross and, most recently, Deutsche Telekom."

Revenue for Q2 (ended May 2), at $894 million, was up 3.4% year-on-year. Impact from coronavirus was approximately $30 million, in line with expectations.

Gross Q2 margins, at 46.9%, was 3.8% ahead of MMK Partners' estimate. "The quarter was characterized by strong capacity demand from existing customers and lower new footprint activity due to the virus," said Genovese in a research note.

EPS came in at $0.76, well above MKM Partners' $0.50 estimate.

MKM Partners reiterated its buy rating on Ciena in light of Q2 results. "In our view, the trends look very positive even though the company lowered FY20 revenue growth expectations to 2%-4%, from ~6%, due to timing issues created by COVID-19 impacting 4QFY20 [October]," remarked Genovese.

— Ken Wieland, contributing editor, special to Light Reading

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