Ciena's Quiet Confidence Speaks Volumes
By
Anders Bylund (TMF Zahrim)
March 10, 2008
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Networking equipment continues to be a hot commodity, as telecom infrastructure specialist Ciena (Nasdaq: CIEN) proved on Friday. Fueled by a better-than-expected first-quarter report, the stock price shot up by 5% since the earnings announcement, taking rivals such as Ericsson (Nasdaq: ERIC), and Cisco (Nasdaq: CSCO) along for a positive ride.
Fellow Fool Rich Smith wanted me to keep you current on Ciena's strong margin trends, and the company didn't disappoint on that measure. Gross margins widened by 6.6 percentage points over the year-ago quarter to 51.2%, the operating take leapt from 1.6% last year to 8.1% this time, and the net margin was 12.7%, nearly twice as fat as the 6.7% take seen a year ago. Yes, net income is bigger than the operating line -- that's one of the advantages of a strong, interest-producing balance sheet.
Rich was also curious about how Ciena and its rivals were going to slice the market-share pie this time, and if you ask the management team, the company grabbed a larger slice than usual. The bottom layers of the network model for telecommunications providers these days are moving away from the traditional telecom-specific hardware and converging onto IP-based Ethernet networks, explains CEO Gary Smith, and that happens to be what Ciena does best. Cisco and company may be larger and have more resources at their disposal, but Ciena is small and nimble and can move with this trend faster than an Alcatel-Lucent (NYSE: ALU) or Juniper Networks (Nasdaq: JNPR) could.
It's always dangerous to dismiss a formidable competitor like Cisco, of course, but the rundown of Ciena's competitive advantages was done with appropriate tact and modesty. Listening to this conference call, you got the feeling that Ciena is in good hands, without the bombast and bluster you'd see after a decent quarter for Oracle (Nasdaq: ORCL) or Micron (NYSE: MU). And that's a good thing.
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