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Is Ciena on the Rebound?

Following a brutal past few months that has seen its share price slump by nearly 60 percent, Ciena Corp. (NYSE: CIEN) and its investors can look forward to a less bumpy ride for the remainder of 2011 and through 2012, according to MKM Partners analyst Michael Genovese.

Three months ago, Ciena's share price stood at $25.74, not far off its average for 2011 to that point. The company was continuing to integrate the former Nortel optical and Carrier Ethernet assets it had acquired in 2010, hadn't caused too much concern with its fiscal first-quarter results (announced in early March) and was at the forefront of 100Gbit/s developments. (See Ciena Still Having Some MEN Issues , Ciena Beats NSN to Buy Nortel's MEN and Verizon Readies 100G Launch in US.)

Then came its fiscal second-quarter report in early June that included worse-than-expected revenues and earnings and a warning for the three months to the end of July. (See Ciena Slumps, Reorganizes Team .)

That news and outlook sent Ciena's stock into a free fall from which it has yet to recover. The transport equipment vendor's share price closed Monday at $10.70, down 58.4 percent from three months earlier and valuing the company at just $1 billion.

But there's hope on the horizon, believes Genovese. In a research note issued Tuesday, he writes that Ciena's results for its fiscal third quarter (ended July 31), which the company reports on Sept. 1, should be "surprisingly solid given the macro level worries."

He expects Ciena to report revenues of $445 million -- in the middle of the company's stated range and slightly higher than the $443 million average expected by analysts -- and a non-GAAP loss of 8 cents (in line with the Wall Street consensus).

In addition, Genovese doesn't expect Ciena's fiscal fourth-quarter guidance "to be overly weak," though he believes it "may be a bit softer than the 8% sequential revenue growth" generally expected by analysts. What Genovese doesn't expect, though, is a "JDSU-like miss where the company guides down versus expectations for growth."

What Genovese is expecting, though, is a better market for Ciena in its next financial year, which starts in November. "We continue to forecast strong earnings acceleration in FY12 driven by solid demand for Optical Transport and strong growth in OTN/Optical Switching," with the first six months of calendar 2012 "as the likely strong positive inflection point for core OTN switching at key Tier 1 customers such as AT&T and BT," notes the analyst.

And that should coincide with a number of years of dramatic growth in the packet-optical sector, according to a new market tracker report from Heavy Reading . (See Packet-Optical Switching Market to Grow by 66.5%.)

— Ray Le Maistre, International Managing Editor, Light Reading

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