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Ciena Loses Out on MEN Deferrals

Ciena Corp. (NYSE: CIEN) says the value of deferred product revenues it can't recognize from the Nortel Networks Ltd. Metro Ethernet Networks (MEN) division it now owns will total US$90 million, higher than it had previously expected.

The vendor reported fiscal second-quarter revenues that included just $53.5 million from the former Nortel unit, with Ciena saying it was unable to recognize deferred revenues that, if the MEN acquisition hadn't taken place, would have shown up on Nortel's top line. (See Ciena's Q2 Let Down by MEN.)

CFO Jim Moylan noted on Wednesday's earnings call that Ciena can only recognize revenues from products that it has shipped, and that, in total, there is $90 million of deferred revenues from the MEN division that it won't see, $38 million of which fell into the three-month period just reported.

That means there's a further $52 million of MEN proceeds that Ciena can't recognize to come in the next two reported quarters -- more than the company had anticipated.

Ciena CEO Gary Smith, though, was at pains to point out that the MEN business is stable, and that "customer sentiment" toward the former Nortel division, now that it's safely in Ciena's arms, is "very positive."

He also suggested that a lack of understanding among non-North American customers about Nortel's ability to trade while under bankruptcy protection had also been holding back orders. That, though, is no longer an issue, and Smith is confident that what's left of MEN -- the Metro Ethernet Routing Switch (MERS) 8600, for example, is not being developed further -- will "absolutely grow." (See Ciena/Nortel Product Plans Revealed.)

Growth (for the whole portfolio) will take longer to come in Europe, where the market is "still volatile," and where Ciena is cutting around 130 staff. North America, though, is going from strength to strength, while Asia/Pacific and Central and Latin America (CALA) are showing signs of some pick-up, said Smith.

But doubts persist about whether Ciena can make a real success of the acquisition. Jefferies & Co. Inc. analyst George Notter still believes Ciena will struggle to generate the savings it needs, and doesn't see the MEN business generating $1 billion in annual sales during the next few years. In 2009, when Nortel was in bankruptcy protection and the business was in free fall, the MEN division managed annual revenues of $1.18 billion.

— Ray Le Maistre, International Managing Editor, Light Reading

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