We probably should have seen the strong earnings report from Ciena (Nasdaq: CIEN ) coming when Alcatel-Lucent (NYSE: ALU ) said late last month it was betting on telecom operators to increase the amount they spend on building out their networks. Now it looks as if Ciena has confirmed the trend, with a 76% increase in revenue allowing it to sharply narrow its losses.
The growth the communications-equipment provider saw wasn't all organic, however, as revenue from its acquisition of Nortel Network's Metro Ethernet Networks business injected six weeks worth of sales into the mix. Yet Ciena still saw a 14% sequential improvement in its pre-acquisition portfolio, which amounted to a 39% jump over last year's numbers, indicating that the telco spending boom was real and the mobile Internet is where the revolution is taking place.
Can you hear me now?
AT&T (NYSE: T ) was spending money at a furious pace last year to bolster its network and stem the rising complaints about dropped calls. It spent $17 billion last year on both wireline and wireless networks in 2009 and plans to spend another $19 billion or so this year, including a $2 billion bump for a wireless-network buildout. Makes sense. If there was one thing holding someone back from switching to an iPhone, it was complaints about dropped calls and sketchy service.
With Apple (Nasdaq: AAPL ) said to be (still) working on an iPhone that would be compatible on Verizon's (NYSE: VZ ) and Vodafone's Verizon Wireless network, the increased investment becomes essential for Ma Bell, not least because Sprint Nextel (NYSE: S ) just introduced the first 4G smartphone, the HTC Evo.
Timing is everything
And that works to Ciena's advantage, as AT&T accounted for 20% of its revenue last year -- which is where some of the risk comes in. In the latest quarter, Ciena's top two customers were responsible for 42% of all of its revenue, suggesting that when telco spending does get reined in -- it can't go on like this forever, after all -- Ciena will suffer from its customer concentration.
But the trends are heading in Ciena's favor right now, and CAPS member DeclanPhillips sees the integration of the Nortel MEN business into Ciena's fold as the key lever that lifts it to additional movement ahead.
Ciena is a great company that recently did a great job of purchasing, as well as integrating, Nortel into their corporate structure. With the combined technological sophistication, equipment, patents, and dark fiber added to the expert salesmanship and customer list of Nortel, Ciena is positioned extremely well for growth.
Where's a cop when you need one?
An investor interested in Ciena might also want to look at Cisco (Nasdaq: CSCO ) , or vice versa. Cisco's purchase of CoreOptics has the two competing in the optics arena, but Ciena is confident it will be the preferred provider, since it will offer a full optical system, as opposed to having an optical component bolted onto a router.
I've already marked Ciena to outperform the broad market averages for the next year or so, based on seeing AT&T still heavily investing in its network. Why not drop a dime on the Ciena CAPS page and let us know whether the equipment maker's call will go through?
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