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Burnt Ciena: Optical Stock Falls After a Tough Quarter

Phil Harvey
8/30/2012

Ciena Corp. (NYSE: CIEN) shares were down $3.26 to (19.56 percent) to $13.46 at 4:00 p.m. EDT today on news that being a supplier of optical systems to service providers is almost as thankless as being a components supplier.

That realization, though not really uttered by executives, seemed to be implied by investors as they reacted to the company's numbers and its lowered revenue expectations.

The vendor reported a fiscal third quarter net loss of $29.8 million, or $0.30 a share, on revenues of $474.1 million. "We are experiencing the effects of ongoing macroeconomic challenges and slower than expected rollouts of new design wins," CEO Gary Smith said. He said some other stuff, too, but investors were too busy clacking their keyboards and selling shares to hear him.

Ciena expects its fiscal fourth quarter to yield revenues in the range of $455 million to $480 million. Wall Street analysts were expecting revenues of $499 million in the fourth quarter. Clack, clack, clack, clack.

After noting weak packet optical transport gear sales for the quarter, Raymond James analyst Simon Leopold, in a note to clients, wrote: "Also, pricing remains intense and our checks have suggested that aggressive pricing has crept into the 100Gbit/s market along with other product categories."

Indeed, even the highest end of the optical networking space is slipping down market. Next thing you know we'll have long-haul DWDM systems adorned with fuzzy dice and those damned Evergreen air fresheners.

And then there's Ciena's balance sheet, which CLACK, CLACK, CLACK, CLACK ... Oh, never mind.

Here are some previous Ciena financial announcements and stories. If you see the word "profit" it's probably a typo:

— Phil Harvey, Editor-in-Chief, Light Reading

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ninjaturtle
ninjaturtle
12/5/2012 | 5:22:24 PM
re: Burnt Ciena: Optical Stock Falls After a Tough Quarter


I think investors are more concerned about their ugly balance sheet. The cost of servicing their debt will be larger than any profit they can squeeze out. Either way CIEN and ALU are both hosed. They are both like a Las Vegas home...underwater. 

Pete Baldwin
Pete Baldwin
12/5/2012 | 5:22:24 PM
re: Burnt Ciena: Optical Stock Falls After a Tough Quarter


"Aggressive 100G pricing" doesn't sound like it bodes well for anybody in the sector.

gtchavan
gtchavan
12/5/2012 | 5:22:24 PM
re: Burnt Ciena: Optical Stock Falls After a Tough Quarter


Now come guys, I like you all try to sell exclusively to these Telco Dinasaurs and have a half a billion dollar quarter.   In a couple of months there will be 50 million iphone 5's roaming the US alone and it will look like a massive denial of service attack by Apple on all of these networks.  That is when the rubber meets the road.

Cromwell
Cromwell
12/5/2012 | 5:22:23 PM
re: Burnt Ciena: Optical Stock Falls After a Tough Quarter


That is just a stupid comment.

neyo
neyo
12/5/2012 | 5:22:22 PM
re: Burnt Ciena: Optical Stock Falls After a Tough Quarter
"state funded" - there we go again. Losers..
hyperunner
hyperunner
12/5/2012 | 5:22:22 PM
re: Burnt Ciena: Optical Stock Falls After a Tough Quarter


>> "Aggressive 100G pricing" doesn't sound like it bodes well for anybody in the sector.


I remember reading a Light Reading article a couple of days ago that said photonic integration isn't necessary for 100G.


Maybe it's only necessary if you want to make a profit when you're competing with state-funded companies from China who can charge whatever they like.


hR.


 

Pete Baldwin
Pete Baldwin
12/5/2012 | 5:22:21 PM
re: Burnt Ciena: Optical Stock Falls After a Tough Quarter


> I think investors are more concerned about their ugly balance sheet.


I'd agree. For this particular 20% stock drop, though, I think it was more a matter of high hopes for Ciena to give good guidance, especially after the positive NeoPhotonics report.


Pete Baldwin
Pete Baldwin
12/5/2012 | 5:22:20 PM
re: Burnt Ciena: Optical Stock Falls After a Tough Quarter


hR - So, you think Huawei/ZTE are the main factors contributing to tough 100G pricing? 


That very well could be.  But you've also got a lot of 100G coherent coming out at roughly the same time (higher supply vs. fixed demand) ... and a macro-economy that doesn't have many bright spots for wireline (i.e., desperation for an opportunity like 100G).

paolo.franzoi
paolo.franzoi
12/5/2012 | 5:22:19 PM
re: Burnt Ciena: Optical Stock Falls After a Tough Quarter


Craig,


I think one missed element has been the transition of the business over the last 20 years based on answering this question:


When was the last time a Tier 1 carrier did a replacement/second source RFP that amounted to anything?


What we see now is the transition of the network and the adoption of new technologies (or better stated enhanced technologies) has been relatively quick.  My favorite example of this is the joint DSL RFP in 1996 followed by the BPON RFP in 2003 - only seven years later (and before the US Tier 1s had even talked about deploying ADSL2+).  


What this means for equipment vendors is that winning the initial RFPs is the only winning that will be done.  This implies that the tail on wins is long and in that tail is where the money is made.  This is a significant change in the return on investment model and means that new products do not command premium pricing.  It also means that one has to judge the continued investment in expanding an existing product has to be thought through carefully.  Will there be an upgrade cycle or a replacement cycle?


Answering these questions correctly are huge for equipment vendors who might build fine products that target the wrong cycle and go nowhere.  On top of that, the carriers themselves are big enough to send mixed messages and so confuse the choices that the equipment vendors can make.


The upfront pricing is just one of the many impacts here.  It means that people will dive for the bottom up front and cost reduce over time to make their money back.


seven


 

hyperunner
hyperunner
12/5/2012 | 5:22:19 PM
re: Burnt Ciena: Optical Stock Falls After a Tough Quarter


Hi Craig,


I guess I'm saying that if the 100G market was only contested by companies with multi-billion dollar debts (ALU, Ciena, NSN) then there would be a lot more hesitation on their part about price cutting.  They have to report quarterly, and the object is to make a profit.


But if your "debt" comes in the form of state loans that you never have to repay then it's probably a lot easier to hit the "discount" button.


 


To neyo:  Sorry if I sound like a loser.  Maybe I misread the press releases?


http://www.bloomberg.com/news/2011-04-25/huawei-counts-on-30-billion-china-credit-to-open-doors-in-brazil-mexico.html


As somebody who recently retired from the carrier space I am very sad at the loss of so many companies who provided significant competition and innovation in the past.


But at the same time I'm very happy to be typing this on a low cost, Chinese-made Android tablet :-)  So I guess you win some and you lose some.


hR.


 


 


 

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