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Ciena Corp. (CIEN) is scheduled to release its third quarter 2011 results before the opening bell on September 1, 2011. We do not see any major variation in analysts’ estimates in the run-up to the earnings release.

Prior-Quarter Recap

The company missed the Zacks Consensus Estimate on both top and bottom lines, primarily due to lower sales and lower margins.

Despite the miss, the company recorded year-over-year growth across all of its business segments driven by higher customer engagements, design wins and strong order flows.

Third Quarter 2011 Expectations

Ciena expects third quarter 2011 revenues in the range of $435.0 million to $455.0 million. The Zacks Consensus Estimate is pegged at $442.0 million

Going forward, management expects the industry's transition to optical transport network (OTN) and the strong alignment of Ciena’s solutions to customer priorities to drive future growth and operating leverage.

Adjusted gross margin is projected to be in the low 40% range, consistent with the company’s near-term expectation. However, management expects adjusted operating expenses to be below the second quarter levels and will be roughly around the low to mid $180 million range.

Management expects third quarter total diluted share count to be approximately 150 million, assuming the conversion of all 4 issues of convertible debt.

Estimate Revision Trend

None of the six analysts covering the stock revised their estimates in the last 30 days, so there were no changes to the EPS estimate of a loss of 21 cents.

For fiscal year 2012, one positive revision was witnessed in the last 30 days, while for fiscal 2012, the EPS estimate remained at a loss of 70 cents.

With greater transport product visibility, 40/100G optical capabilities, OTN switching and wireless backhaul requirements, analysts continue to view the company to be well positioned to benefit from growth areas of carrier spending in 2011 and 2012. The long-term upgrade cycle to facilitate the demand for bandwidth-intensive services provides the company an advantage.

However, lingering integration risks along with inconsistent orders for optical systems pose challenge.

Conclusion

Ciena posted a positive average earnings surprise of 24.6% in the trailing four quarters, implying that the company either beat or was in line with the Zacks Consensus Estimate over the same period. The company is also expected to post another positive surprise in the upcoming quarter.

Near-term results are expected to remain under pressure due to increased expenses, slowdown in carrier spending, continued losses, and intensifying competition from Cisco Systems Inc. (CSCO) and Alcatel-Lucent (ALU).

Although the guidance for the third quarter remains weak, we anticipate a recovery based on favorable operational execution and the new product line up. These are expected to lead to a gradual improvement in results in 2011.

We have a long-term Neutral recommendation on Ciena shares. Ciena currently has a Zacks #3 Rank, implying a short-term Hold rating.

Source: Ciena: Earnings Preview