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Optical/IP

Ciena Offers Hope

Is the worst of the downturn over?

Ciena Corp. (NYSE: CIEN) today reported a sequential increase in sales that beat Wall Street's expectations, and although it reported a loss, the damage to its bottom line wasn't as bad as expected. (See Ciena Reports Q3.)

The Linthicum, Md.-based optical, Ethernet, and access equipment vendor generated fiscal third-quarter (ended July 31) revenues of $164.8 million, and a net loss, under GAAP (generally accepted accounting principles), of $26.5 million, or 29 cents per share.

Compared to how the company did during the same period a year ago -- revenues of $253.2 million and a net profit of $11.7 million -- the numbers look disastrous.

But carrier spending patterns have altered significantly during the past year, despite the best efforts of Gary Smith, Ciena's CEO, to scare off the recession with some fighting talk. (See Ciena: Carriers Need to Spend Soon, Ciena: This Ain't No 2001!, and Ciena CEO: Slowdown Looks Shortlived.)

The good news for Ciena is that its revenues have at least risen sequentially, as the company said they would, compared with the miserable second-quarter total of $144.2 million. (See Charges Drag Ciena Deep Into the Red.)

Even better for Smith and his team is that sales were better than the average forecast of the analyst community, which expected fiscal third-quarter revenues of $152.6 million.

Those analysts also expect Ciena's non-GAAP net loss (the loss after one-time costs and charges) to come in at 13 cents per share, but Ciena did better than that, with a non-GAAP net loss of 5 cents per share.

Ciena's gross margin also improved sequentially, coming in at 45.3 percent, slightly better than in the previous quarter.

All of this gave the company's stock a boost early Thursday. In pre-market trading, Ciena's share price added $0.83, nearly 6.8 percent, to rise to $13.10.

But it's not all positive news.

In the company's initial earnings statement, CEO Smith noted that "industry sentiment has improved somewhat over the first half of the calendar year as a result of what seems to be a stabilizing macro environment combined with continued pressure on service providers to increase network capacity and deliver more services."

However, he's not anticipating a sudden rush of increased capital expenditure by carriers. "Customers in general continue to spend cautiously. As result, we expect our fiscal fourth quarter revenue will be roughly flat with our fiscal third quarter level."

So the worst might be over, but better times are still over the horizon, it would seem.

Smith and his team are set to provide further insights into the company's results and outlook during a conference call early Thursday.

— Ray Le Maistre, International News Editor, Light Reading

materialgirl 12/5/2012 | 3:57:07 PM
re: Ciena Offers Hope

the most interesting part of the call was the veiled comments about a packet optical network and how a new Core Director would fit into this world view.  They spoke about "containerized" networks and how containers similarly helped physical transport.  They plan to achieve this nirvana through their collective archtecture rather than through just one component.


 


Notably, they plan to achieve this INFN-ization of their network at 100Gbps.


 


So, the race seems to be between the ability of INFN to increase speeds and the ability of CIEN to packetize their OTN.  In other words, the upside is not expected to be universal by any means.

mellonHead 12/5/2012 | 3:57:00 PM
re: Ciena Offers Hope

>So, the race seems to be between the ability of INFN to increase speeds and the >ability of CIEN to packetize their OTN.  In other words, the upside is not expected >to be universal by any means.


and one might add the ability of Huawei to drop prices.  They are following a proven strategy of getting into Tier 2 and 3 carriers in N.A. and moving up the food chain.





^Eagle^ 12/5/2012 | 3:57:00 PM
re: Ciena Offers Hope

Material,


I do not see it as a race between IFN and Ciena.  Well, it could be a race for best of the T2 players.  


Neither of them are what I would call a T1 player.  Long discussion on that, but saying the race is between them, is like saying the race is between two bicyclists way back in the middle of the peleton when the real action is happening up front.  


IFN position is in my mind relatively weak.  The technology base is not as strong as they would have you believe in my opinion.  Someone could duplicate or do a new PIC for probably 1/3-1/2 what IFN invested.  The only thing stopping it is the dismal investment climate (IFN got lucky in raking cash off the table when the getting was good).  The PIC is not so tough. It is really a co-packaging play.  The real money was in the ASIC and software they developed. I do not think that IFN has any monopoly on smart ASIC designers.


Stay tuned on the technology front over the coming 24 months.  Might be some merchant players out there that lower the barrier to PICs, so that the other big players could have a PIC without developing one.  Then all they would have to do is then do the software and ASIC development.


Personally, I think that if IFN were a real threat, then the big players, the real T1's, could get into this type of architecture fairly quickly (Huawei, ALU, NSN, Fuji, NT).


sailboat

mellonHead 12/5/2012 | 3:56:59 PM
re: Ciena Offers Hope

I don't think anyone can say getting VC money in 2002+ for a Long Haul product was the right time or luck.


INFN has a long haul product that they want to move more into metro.  Wavelengths and 10/40/100Gb running over it are a commodity that is destined to command only very low margins.  I would think this is more the reason why Tier I suppliers may not be all that interested;  any money to be made will be outside the core.


 


mh


 

^Eagle^ 12/5/2012 | 3:56:57 PM
re: Ciena Offers Hope

Infinera started raising money almost immediately after the founders sold Lightera to Ciena.  Years before the 2002 dates you mention.  Yes, some of the funds were closed after the 9/11 events, but they started well before that.


Second, you missed the main point.  IFN is kind of like the nuclear bomb.  Cost the first guy loads of money to make one.  Second guy made one for a LOT less money.  


My main point was that IFN's technology platform would not be too hard (relatively) to duplicate or make something similar.  Especially now, 10 years later.  


sailboat

paolo.franzoi 12/5/2012 | 3:56:57 PM
re: Ciena Offers Hope

 


Sailboat,


The thing I would add is that Infinera has the double development cycle.  They have to develop the components before they can develop the system.  This leads to either delays or extra R&D.  If you look today, Infinera has a 10G solution.  Competitors in various spaces are already at 40G or 100G.


The problem is that the market used to welcome fast followers much more than it does today.  It just costs too much money to qualify and operationalize products to bring in new sources.  So that means Infinera gets in with smaller operators who are not pushing the technology or in a range of applications for the technology that show up later in the life cycle.  The challenge with this is that the technology is commoditized before their system is available.  So, the current model they have will get them a new 40G product just as prices fall through the floor. 


It is tough model to execute on.


seven


 

mellonHead 12/5/2012 | 3:56:55 PM
re: Ciena Offers Hope

re the timeline,  I think you are forgetting an intervening venture (OnFiber).


 


I do think there is some merit in looking at this as a packaging victory.  There has been other competing work on waveguides, laser diodes & modulators in InP.  Clearly INFN has been successful in increasing density and commercializing it.


 


mH


 


 

nelson3748 12/5/2012 | 3:56:42 PM
re: Ciena Offers Hope in the last Q conference call the CEO said INFN comes late to market, but it is ok b/c they can compete on price-- right after he announced he was quitting, for no particular reason. does not look good IMO

N
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