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.