Ciena Looks to Shake Off Capex Concerns

Ciena is due to report its fiscal fourth-quarter earnings Thursday morning, its first quarterly report since AT&T, one of Ciena two biggest customers, said last month that its overall 2015 capex would be lower than this year's total.

Even before AT&T's announcement, Ciena Corp. (NYSE: CIEN) already had dampened analyst expectations for its own fiscal fourth quarter. After its third-quarter report in September, Ciena said fourth-quarter revenue likely would be in the range of $570 million to $610 million, a lower range than the consensus analyst estimate. (See Ciena Ramps in Q3, Dampens Q4 Expectations.)

The stock values of Ciena and several other vendors took a hit after AT&T's early November capex statement, and the news looked especially bad for Ciena and other vendors that for months been suggesting that 2015 would bring a carrier capex bonanza. Verizon followed up with its own capex comment this week, saying it would increase wireless capex next year, but cut wireline capex. (See AT&T's Mexican Capex Dance and Ciena's Smith: Revenue Dip Short-Term.)

AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ) together account for as much as 30% of Ciena's revenue, according to Michael Genovese, managing director of MKM Partners. However, Genovese wrote in a recent research note that Ciena still can take advantage of demand for its products that is "strong and broad-based," from customers outside of those top two telcos, including cable TV firms, corporate enterprises and overseas service providers.

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Ciena also recently upped its ability to compete amid the virtualization revolution, announcing a virtual network function software platform and marketplace. (See Ciena Amps Up Software Play, Attacks VNF 'Agility Gap'.)

Ciena's share price is down nearly 1.4% today to $17.35.

— Dan O'Shea, Managing Editor, Light Reading

TomNolle 12/11/2014 | 8:54:08 PM
Re: Classic Price Pressure I couldn't agree more, Seven.  Revenue augmentation strategies I've seen tend to be "wing and a prayer" in nature; no business plan, no target prospects, no value propositions, nothing but what's essentially a hope.  You have to have services in mind, or at least market targets.  On the opex side, the big problem I see is that we presume that sticking a couple-percent change in a trillion-dollar global network is going to bring massive changes in operations.  If you want to change opex you have to automate everything end to end.  On the capex side the problem is that operators know that the top-end potential for something like SDN or NFV is about a 23% savings; they could get that much by beating Huawei up on price and taking no risks.

I think SDN and NFV can revolutionize networking but not by just blowing kisses at the issues.  This is going to be hard, requiring considerable thought and planning, and we need to take the problem seriously.
brooks7 12/11/2014 | 8:37:02 PM
Re: Classic Price Pressure Tom,

Excellent Post!  I generally see folks want to talk about things in a way that makes sense for their business not the carriers business.  There are 3 basics around products and why to deploy them:  More revenue or Reduced CAPEX or Reduced OPEX.  I am going to do some pontificating around each of these.

More Revenue - What I normally see is a product that adds a capability only after lots of the product is deployed.  That capability has a unknown market size and profitability.  What needs to happen is incremental spending for services.  Instead of replacing the Packet Core augment it for a specific service.

Reduced OPEX - What I normally see is a pitch around reducing the cost to implement a new service that the carrier might sell in the future.  What needs to happen is that the product does that as well as reduces the cost to implement existing services.  Tying an OPEX reduction to something that might not happen is a good way to fail.

Which leaves everyone with Reduced CAPEX.  Which means pricing pressure on the products.  So, I think the right way solve the pricing pressure is to think of things in terms of value to the carrier.


TomNolle 12/11/2014 | 7:59:21 PM
Re: Classic Price Pressure That would be a tough one, Seven.  Most of the SDN stuff I've seen is both a relatively contained domain and integrated through something like BGP with adjacent legacy elements.  In that mixture I've not seen much opex savings, so no real change in labor requirements.  If operators took SDN and NFV in combination, orchetrated services and service management, they'd expect to cut opex significantly.  That would mean cutting the labor force, since most of the cost is people cost.  I don't think we're there yet, though.
brooks7 12/11/2014 | 6:44:32 PM
Re: Classic Price Pressure Tom,

Does an SDN implementation give an operator a chance to lay off a significant group of people?


TomNolle 12/11/2014 | 9:39:31 AM
Classic Price Pressure Operators' revenue per bit is falling dramatically, and when that happens to a buyer they put pressure on the seller to deliver more at a lower price.  The only way out of this trap for Ciena and other optical players is to exploit SDN to rise up the food chain a bit.  They have to displace costs incurred elsewhere in the OSI stack--at Level 2 and 3--and they have to promise to reduce opex.
sowen557 12/11/2014 | 7:09:27 AM
Time to go skiing CIEN 5 and 10 year chart is a fantastic ski run into the village. 


Mr. Short.
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