Back With a Bang, This Tech Stock Is Set to Get Better

After a sluggish start to the year, this tech company has made a solid comeback, and things could get even better.

Jun 9, 2014 at 4:30PM

Ciena (NYSE:CIEN) has finally come out of its slump. The networking equipment company was in the doldrums a couple of months ago due to several factors. Uncertain infrastructure spending, an analyst downgrade, and negative vibes from industry bellwether and rival Cisco (NASDAQ:CSCO) dampened the mood in the industry, pressuring Ciena's shares. Now, it has made a terrific comeback.

Back with a bang
When Ciena posted its second-quarter results in the first week of June, it shot up 18%. Revenue was up 10% over the prior-year period, while adjusted net income jumped to $19.4 million from just $2.2 million in the year-ago period.  The company's top and bottom lines thrashed analysts estimates comprehensively, and a sizzling outlook helped matters further.

Ciena expects revenue of $585 million to $615 million in the current quarter, way ahead of the $583 million consensus. The mid-point of its guidance in the current quarter is up 11.5% over the year-ago period, indicating that Ciena expects its top line to improve at a better rate this quarter. Now, if we look at the different trends in the industry, it isn't surprising to see why Ciena expects its business to pick up going forward.

Optical-networking growth
The company is seeing strong demand in the optical-gear networking market as its biggest client, AT&T (NYSE:T), is rolling out a fiber network. AT&T accounts for almost a fifth of Ciena's revenue, so its optical products should be in good demand going forward. 

Recently, AT&T announced that it is preparing to roll out high-speed fiber Internet connectivity in around 100 cities across 21 metropolitan areas.  The service will be known as AT&T U-verse With GigaPower, and puts Ma Bell in direct competition with Google, which is already busy rolling out a fiber network. 

AT&T aims to deliver broadband speeds of up to 1 gigabit per second, around 100 times faster than current broadband speeds across the U.S. This sounds like an aggressive deployment, and since Ciena has a history of supplying optical networking gear to AT&T, it should benefit from the GigaPower initaitive. AT&T uses Ciena's 6500 packet-optical platform for the deployment of its metro services already, and this product should gain more traction with the fiber-to-the-home infrastructure build-out. 

Ciena is seeing a shift in the spending pattern. According to the company, carriers are allocating more budget toward optical solutions in order to create new revenue generating services. As such, Ciena has been able to expand its relationship with Tier 1 customers since it provides solutions such as carrier managed services, and applications such as cloud services, data center interconnection, etc.

SDN moves
Ciena is also looking at software-defined networking (SDN) for growth. The company is in partnership with several key players in the industry to develop an open ecosystem of virtualized resources. For example, it is working with Ericsson to develop SDN control software and with Brocade to enable on-demand provisioning in data centers. 

If Ciena succeeds in the SDN market, it can hit gold. According to Transparency Market Research, the SDN market is expected to be worth $3.5 billion by 2018, growing at an annual rate of almost 62%. Success in this market will help Ciena go one-up against Cisco, which is trying hard to combat the SDN threat. 

As reported by Forbes, Cisco has been simplifying its enterprise marketing model in order to attract more customers. The networking giant is bundling its services into four categories to counter other SDN platforms promoted by the likes of VMware and Juniper Networks. The adoption of software-based networks is threatening sales of Cisco hardware, as SDN can be implemented on cheaper networking equipment. 

Cisco is now trying to bring its own standard, OpFlex, for SDN applications. However, because the rest of the industry is already on the OpenFlow protocol, Cisco is going against the stream. Ciena's products support the OpenFlow protocol, so it is on the right team and can do better than Cisco in this department going forward. 

The takeaway
After a period of sluggishness, Ciena is back with a bang. The trends in the optical-networking industry are positive and Ciena's attempts to make a move into the SDN market are laudable. As such, the networking gear maker should continue doing well going forward and rise to new highs.

Your credit card may soon be completely worthless
The plastic in your wallet is about to go the way of the typewriter, the VCR, and the 8-track tape player. When it does, a handful of investors could stand to get very rich. You can join them -- but you must act now. An eye-opening new presentation reveals the full story on why your credit card is about to be worthless -- and highlights one little-known company sitting at the epicenter of an earth-shaking movement that could hand early investors the kind of profits we haven't seen since the dot-com days. Click here to watch this stunning video.

Harsh Chauhan has no position in any stocks mentioned. The Motley Fool recommends 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers