Today looks like a great time to buy optical networking expert CIENA (NASDAQ:CIEN).
The stock is down more than 11% after last night's fourth-quarter report, and I think it's for all the wrong reasons. Ciena beat its own revenue forecast soundly with a 7% sequential increase to $176 million. One large customer, probably AT&T (NYSE:T), ordered more networking equipment this quarter than anybody had expected.
The bottom line did look thin with an adjusted loss of $0.12 per share, worse than the quarter before or the year-ago period, and $0.05 worse than analyst expectations. You had to tune into the analyst call to get a picture of that shortfall. Operating expenses ballooned partly because the sales were so strong: Ciena's sales staff collects commissions. Building prototypes for an upcoming product launch added to the operating costs as well. None of this sounds like a long-term disaster, and should be quite forgivable.
So the real reason Ciena is dropping like it's hot today is probably a lack of guidance on the acquisition of Nortel'soptical and long-distance networking division. When that deal closes early next year, Ciena will more than double in size -- whether you count by revenues or by employees. Due to a bidding war between Ciena and Nokia Siemens -- the joint networking venture of Nokia (NYSE:NOK) and Siemens (NYSE:SI) -- Ciena ended up paying 48% more than its initial bid for the Nortel assets. Some might say that Ciena overpaid, and the report didn't say much about Nortel.
That sends us back to the conference call, where CEO Gary Smith noted that Ciena has been talking to Nortel about how to mesh the two companies together for more than a year now. Customers like AT&T and Verizon (NYSE:VZ) are reportedly happy to see Nortel's products and support services backed by Ciena's strong balance sheet, and this quarter's strong Ciena sales seem to tell the same story.
I'm not saying that Ciena is about to leapfrog Alcatel-Lucent (NYSE:ALU) or Cisco Systems (NASDAQ:CSCO) anytime soon, but the combination of Nortel and Ciena will maintain a strong customer list in a networking market that looks poised for another decade of growth. That makes today's drop a buy-in opportunity in my eyes.
Whether you agree or disagree, we can discuss the matter in the comments below.
