Ciena Stuns the Street

Earlier this month, networking and optical equipment provider Ciena (Nasdaq: CIEN  ) posted its third-quarter results. The report was a real barn burner. The company witnessed growth in a majority of its segments, improved its product mix, and curbed expenses.

Ciena earned adjusted net income of $8.3 million, or $0.08 per share. Analysts had expected the company to post a loss of $0.08 per share. Indeed, the company surprised with its results and its shares jumped 20.2% on the announcement.

Into the numbers
Ciena reported revenues of $435.3 million, up 11.7% from a year ago. Net loss narrowed to -$31.5 million, from -$109.9 million last year. Ciena benefited from a better product mix. Its packet-optical transport segment contributed 61% of total revenue. However, other segments such as packet-optical switching and carrier Ethernet service delivery increased their contribution to sales from the previous quarter. This helped out Ciena's gross margin.

Ciena already has a bunch of prized, revenue-driving customers such as AT&T (NYSE: T  ) and Verizon Communications (NYSE: VZ  ) , but during the quarter it bagged some more good clients. Customer growth of 10% contributed 17% of total revenue.

Industry peek
Both Internet traffic and the demand for increased bandwidth are on the rise. This is positive for the company as it supplies 40G and 100G optical transport products. However, this environment is equally favorable for industry rivals such as Finisar (Nasdaq: FNSR  ) and JDS Uniphase (Nasdaq: JDSU  ) .

Let us not forget Cisco System's (Nasdaq: CSCO  ) recently launched carrier routing system CRS-3, which enables data transfer speed up to 322 terabits per second, which is multiple times the speed provided by competitors. Also adding to competition is Infinera's (Nasdaq: INFN  ) new optical switching platform, which could take a bite out of Ciena's revenues. Ciena could be a victim of cutthroat competition. Like other technology companies, it must innovate or die.

The Foolish bottom line
Ciena has shown growth in numbers and efficiency in managing its costs. Also, the communication equipment industry looks bright due to future demand. However, industry giants are improving their offerings every day. To be profitable, Ciena has to innovate and stay ahead of rivals.

If you are interested in this up-and-coming industry, click below:

Fool contributor Navjot Kaur does not own any shares in the companies mentioned above. The Motley Fool owns shares of Infinera. The Fool owns shares of and has created a bull call spread position on Cisco Systems. Motley Fool newsletter services have recommended buying shares of Infinera, AT&T, and Cisco Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On September 30, 2011, at 10:23 AM, beryl67 wrote:

    Clearly the person who wrote this article doesn't understand the industry. Finisar and JDSU are suppliers to Ciena and stand to gain from its success, assuming that translates to high volume sales.

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