What's that on the horizon? A glimmer of light? Yes, folks, it's Ciena (NASDAQ:CIEN), about to break the horizon and reveal its earnings numbers for fiscal Q1 2006. The telecom equipment maker reports tomorrow.

Wall Street Wisdom:

  • General consensus. Twenty-four analysts track Ciena, but only a handful of them have an opinion on it. Six say sell, one says buy, and everyone else says hold for the turnaround.
  • Revenues. Forecasts call for a 27% increase in sales over fiscal Q1 2005, to $120.5 million.
  • Earnings. The company's losses are expected to narrow from last year's $0.05 per share to just $0.02 this quarter.

Margin watch:
Ciena's far from healthy, but the company does appear to be recovering -- at least at the top of the income statement. Gross margins have been on a steady rise over the past 18 months, and operating and net margins, while consistently negative, are gradually becoming less so. That said, over the past year, the company still booked more than a dollar in losses for every dollar's worth of telecom equipment it sold.

Margins %

10/04

1/05

4/05

7/05

10/05

Gross

24

23.1

26.5

28.9

31.9

Op.

(90.1)

(79.1)

(68.5)

(55.3)

(43.6)

Net

(264.3)

(235.4)

(215.7)

(173.3)

(102)

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

Foolish lookout:
Three months ago, in making its report on fiscal 2005, Ciena predicted flat to slightly improved revenues for the fiscal first quarter (hence, analyst estimates of a couple million-dollar sequential gain in sales), and continued gross margin improvement. It also made the grammatically questionable prediction of "profitability on an as-adjusted basis during a quarter prior to the end of fiscal 2006."

Translation: Expect to see the trend, reflected in the above chart, continue tomorrow. Gross margins should rise, but operating and net margins will remain well within the red. Further down the line, we may see Ciena attain "pro forma profitability" sometime this year, but not even management knows when, precisely, that might happen. And as for profitability under GAAP -- don't hold your breath.

Competitors:
The big ones include Lucent (NYSE:LU), Nortel (NYSE:NT), and Cisco (NASDAQ:CSCO).

Fool contributor Rich Smith does not own shares of any company named above.