Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Strike Three: Is Ciena Out?

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

The news could hardly have been worse. For the third time in a row, Ciena (Nasdaq: CIEN  ) "missed earnings" yesterday, reporting a "pro forma" loss of $0.25 and an actual loss of $5.53 per share -- or about half of the stock's own market cap. And that was just the start.

The mini Maryland maker of telecom equipment missed not just on earnings, but also on revenues (which came in at $144 million for the second quarter, down 40% year over year, and 8% below expectations.) Turns out, phone company clients like Verizon (NYSE: VZ  ) , AT&T (NYSE: T  ) , and Sprint Nextel (NYSE: S  ) aren't all too eager to spend on capital improvements in the middle of the worst recession in recent memory. (Shocking, I know.) And with the future uncertain (and the end not always clear), Ciena confides that although it hopes to do better next quarter, its "visibility remains limited."

Emphasis on "remains"
I have to say, folks, that I'm starting to get just a wee bit weary of Ciena's blurred vision here. While it's all well and good to say "we haven't a clue when the economy will get better," I would like to see Ciena get a little better itself at how it deploys shareholder capital. Management used a $456 million "goodwill impairment" to completely wipe goodwill off the balance sheet; this ballooned its loss from a quarter to over five bucks. It's apparent that at some point in the past, Ciena management made some seriously boneheaded acquisitions, overpaying for prizes that weren't worth the price of admission.

The good news
Nor is that my only beef with Ciena. Through the past months of ceaseless bad news, I've clung to two faint hopes:

  • First, that if Ciena's doing badly, its competitors were doing worse. But as today's numbers show, Ciena may still be beating Alcatel-Lucent (NYSE: ALU  ) on gross margin, but it's making little progress closing the gap with higher quality shops like Cisco (Nasdaq: CSCO  ) or Juniper Networks (Nasdaq: JNPR  ) .
  • Second, despite all the bad "earnings" news, Ciena has historically done a fine job at what I really want to see companies accomplish -- generating cash. Last May it reported free cash flow of over $67 million and held on solidly through the summer. Sadly, it flubbed that job last quarter. Free cash flow for the first six months of this year now stands at negative $10.6 million.

Foolish takeaway
Granted, Ciena still has lots of cash on its balance sheet -- but lots of convertible debt, too. If it keeps going the way it's heading, the company could quickly end up with more debt than cash. That, Fools, could be the strike that finally gets Ciena called out.

To track the course of Ciena's downfall, follow the sienna brick line:

Fool contributor Rich Smith does not own shares of any company named above. Sprint Nextel is a Motley Fool Inside Value recommendation. The Motley Fool has a disclosure policy.

Read/Post Comments (1) | Recommend This Article (17)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 914607, ~/Articles/ArticleHandler.aspx, 10/25/2016 8:20:04 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 11 hours ago Sponsored by:
DOW 18,223.03 77.32 0.43%
S&P 500 2,151.33 10.17 0.47%
NASD 5,309.83 52.43 1.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/24/2016 4:01 PM
CIEN $20.05 Up +0.12 +0.60%
Ciena CAPS Rating: **
ALU.DL $0.00 Down +0.00 +0.00%
Alcatel-Lucent CAPS Rating: ****
CSCO $30.46 Up +0.31 +1.03%
Cisco Systems CAPS Rating: ****
JNPR $23.66 Up +0.53 +2.29%
Juniper Networks CAPS Rating: **
S $6.92 Up +0.37 +5.65%
Sprint CAPS Rating: **
T $36.86 Down -0.63 -1.68%
AT and T CAPS Rating: ****
VZ $48.21 Up +0.01 +0.02%
Verizon Communicat… CAPS Rating: ****