Ciena Suffers Margin Squeeze in Q4

Ciena reported a strong end to its fiscal year in terms of sales, but its margins raised a few eyebrows and sent its stock slipping Thursday. (See Ciena Reports Q4 Revenues of $583.4M .)

The optical and Ethernet equipment specialist reported revenues of $583.4 million for the three months ended October 31, up 25.3 percent from a year ago. Its net loss was $9.8 million, better than the $38.8 million net loss of a year earlier.

The vendor's adjusted, or non-GAAP, net profit (after one-time costs) also improved to $18.3 million from an adjusted loss of $6.7 million a year ago. But that adjusted profit was not as good as Wall Street was expecting, and the company's gross margin slipped to 40.8% from 42.7% a year earlier.

That's not a one-off either. Ciena Corp. (NYSE: CIEN) noted that it expects the gross margin for its fiscal first quarter ending January 2014 to be in the "low 40s range," while its revenues are expected to be in the range of $515 million to $545 million.

That margin pressure didn't please investors, as Ciena's share price sank more than 7% to $21.19.

CEO Gary Smith is expecting revenues to rise again in fiscal 2014, and seasoned telecom equipment sector analysts had been expecting Ciena to further build on its 100G momentum in North America and even start to pick up more of such business in Europe. Now, though, there may be concerns about the margin value that business can bring.

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— Ray Le Maistre, Editor-in-Chief, Light Reading

sterlingperrin 12/13/2013 | 4:58:17 PM
Re: 100G Dan, that's definitely part of the 100G story. This remains incredibly competitive and the competition doesn't seem to be subsiding. You have Huawei, Alcatel-Lucent, Ciena, Cisco, and Infinera all strong in 100G, with comptition also coming from Coriant, Ericsson, ZTE, Fujitsu, even tiny companies like Xtera, and others too.

Reginal barriers that used to exist in the Sonet/SDH era seem to have eroded with Ethernet and so competition has become more global. That's just one factor. In any case, anyone winning 100G deals has to be pushing the limits on pricing. Operators have the upper hand.

DOShea 12/12/2013 | 8:54:18 PM
100G Is this the other side of the 100G economics story rearing its head? As it continues to become more affordable for carriers, does it make sense that it's because vendors are not just taking cost out of the technology, but also eating some of their own margins?
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