September 3, 2015
News of "short term" implementation delays by "three to four" North American Tier 1 customers put a damper on Ciena's fiscal third-quarter earnings, and left revenue for the quarter below estimates.
However, the packet optical vendor still delivered a profit increase, and insisted the revenue miss is not indicative of a trend, as underlying demand remains strong.
Ciena Corp. (NYSE: CIEN) President and CEO Gary Smith said on Thursday morning's fiscal Q3 earnings call that the customer implementation delay was "purely a timing issue" and "temporary in nature," adding, "There is no change in what they want to do."
He further described the delays as being specific to the customers involved and related in varying cases to capex timing, merger-related tasks and back office issues, and not having any connection with Ciena product performance or network architecture problems.
So, who are "they"? Well, it doesn't include AT&T Inc. (NYSE: T), Ciena's biggest customer, as Smith said the vendor had a "good quarter" with AT&T and expects to have a good fiscal fourth quarter with the telco giant.
What about Verizon Communications Inc. (NYSE: VZ), which awarded Ciena a metro optical deployment deal earlier this year? Ciena officials did say it already has done some early shipping on Verizon's order and that the business is expected to ramp up throughout Ciena's fiscal second half. (See Verizon Taps Cisco, Ciena for Next-Gen 100G US Metro Network.)
In response to specific analyst questions on the call, Smith said, "We're cautious around calling out specific customers." But asked about who Ciena classifies as a Tier 1 customer, Smith agreed with suggestion that Comcast Corp. (Nasdaq: CMCSA, CMCSK) and CenturyLink Inc. (NYSE: CTL) would fit the classification, "as well as one other."
"One other"? In a brief conversation with Light Reading immediately following the call, Smith acknowledged when asked directly that he would consider Sprint Corp. (NYSE: S) a Tier 1 customer, and Sprint sounds like a company that could be facing some of the headwinds Smith outlined above. Asked directly if Sprint was one of the customers with an implementation delay, Smith declined to comment.
In any case, the customer delays caused Ciena to miss its revenue guidance and analyst revenue estimates for the quarter. The vendor posted revenue of $602.9 million, well below guidance of at least $610 million, and even further off of analyst estimates, many of which ranged between $629 million and $635 million. (See Ciena Sales Lower Than Expected.)
Want to know more about the packet optical sector? Check out our dedicated packet optical content channel right here on Light Reading. The revenue shortfall overshadowed otherwise positive numbers, including an adjusted gross margin of more than 45%. Ongoing, Ciena's gross margin is expected to be robust, as sales of high-margin packet gear and especially software (bolstered by the acquisition of Cyan) are expected to increase. Revenue from converged packet optical products, which represented about two thirds of Ciena's overall revenue from the quarter, was about $408 million, well above the $382 million reported for the same quarter last year, but below the Q2 2015 figure of roughly $432 million. (See Ciena Absorbs Cyan for New IP Onslaught.) Also, year-over-year, Ciena's adjusted net income was up about $10 million to $50.7 million, with the company reporting adjusted earnings per share of 37 cents for the quarter, against 32 cents a year ago. Those numbers helped placate any nervous investors, as Ciena's share price gained more than 3% to $23.18. Another big announcement that didn't get much air time amid the revenue discussion: Ciena has elevated Senior Vice President Francois Locoh-Donou to the role of COO, a job that Ciena has not had occupied in several years since Smith himself was promoted from COO to the top job in the company. (See Ciena Names Locoh-Donou COO.) — Dan O'Shea, Managing Editor, Light Reading
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