Mixed Bag for Ciena's Q3

Ciena Corp. (NYSE: CIEN) today reported fiscal third-quarter revenues of US$435.3 million, right at the low end of its forecast range of $435 million to $455 million and below the $443.25 million that analysts, on average, had expected. (See Ciena Reports Fiscal Q3.)

But while that number was disappointing, the Carrier Ethernet and optical equipment vendor surprised itself and the financial market with better-than-expected margins. Analysts had expected a non-GAAP loss (after one-time items such as restructuring costs) of 8 cents per share, but Ciena actually posted a non-GAAP net profit of 8 cents per share.

The company attributed this to "a favorable product mix and reduced operating expense" -- meaning it sold more higher-margin products than expected and cut its costs. Its gross margin for the quarter was 42.5 percent, way better than the 37 percent of a year ago and an improvement on the 39.7 percent reported for the fiscal second quarter.

Including all costs, Ciena reported a GAAP third-quarter loss of $31.5 million, though this is a significant improvement on the $109.9 million loss reported a year ago.

Initial investor reaction was positive. In pre-market trading Ciena's share price rose by 7.4 percent to $13.15, though as this article was published the company had yet to hold its investor and analyst conference call.

The big question for Ciena is whether it can increase its revenues and become a consistently profitable company during the next couple of years. Market indicators suggest there's a chance that will happen, as long as the company can capitalize on its 100Gbit/s capabilities and continue to keep its costs under control. (See Is Ciena on the Rebound? and Packet-Optical Switching Market to Grow by 66.5%.)

In the short term, the company isn't expecting spectacular sales growth in its fiscal fourth quarter, which closes at the end of October. It forecasts revenues in the range of $440 million to $460 million, below the $474.5 million that analysts had been expecting.

— Ray Le Maistre, International Managing Editor, Light Reading

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