Seeking Alpha
Profile| Send Message|
( followers)  

Ciena Corp. (NYSE:CIEN) is scheduled to release its first quarter 2012 earnings results before the opening bell on March 7, 2012. In the run-up to the earnings release, we noticed analyst estimates being revised downward.

Prior-Quarter Recap

Ciena reported fourth quarter loss per share of 7 cents, worse than the Zacks Consensus Estimate of a loss of 5 cents. However, revenues of $455.5 million did not only increase on a year-over-year basis, but were also at the higher end of management’s guidance range of $440.0 million to $460.0 million. Additionally, revenues moved past the Zacks Consensus Estimate of $455.0 million.

Moreover, in the fourth quarter, Ciena witnessed growth across its business segments, as well as a favorable product mix and lower operating expenses.

Current Quarter Expectations

For the first quarter, management expects revenues of $415 million, down from the company’s previously-estimated range of $435 to $455 million. Delays in revenue recognition from new customers from the international market led to the deflated revenue expectations. The Zacks Consensus Estimate was pegged at $422.0 million.

Moreover, non-GAAP gross margin is expected to be in the low 40s percent range, similar to the previous guidance. Projected non-GAAP operating expense is expected in mid $170s million range, down from the low $180 million range that was expected earlier.

Estimate Revision Trend

In the last 30 days, out of the six analysts covering the stock, four analysts have revised their estimates downward, while no upward revision was noticed from the remaining analysts. Therefore, estimated loss per share widened from 9 cents to a loss of 17 cents per share.

Analysts covering the stock opine that favorable product mix and increased adoption of 40/100G systems, OTN switching and wireless backhaul solutions will drive Ciena’s top-line growth and margins in the long run. Analysts are also hopeful that factors such as Ciena’s leading technology, existing relationships and product pipeline will favorably impact the company.

However, weak spending patterns from its customers and revenue recognition delays due to new project ramp ups are the headwinds in the near term.

Conclusion

Ciena has posted a positive average earnings surprise of 25.36% in the trailing four quarters, implying that the company either surpassed or was in line with the Zacks Consensus Estimate over that period. The company is expected to post another positive surprise in the upcoming quarter.

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

Despite the near-term headwinds, 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 2012.

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

ALCATEL ADS: Free Stock Analysis Report

CIENA CORP: Free Stock Analysis Report

CISCO SYSTEMS: Free Stock Analysis Report

Source: Ciena Corp: Earnings Preview