Ciena Guidance and SIV Exposure not as Serious as Market Perception

My gosh - talk about a new risk. Ciena (CIEN) reported earnings, and the stock is off 10% due to guiding for 20% revenue growth instead of 21%. (they beat analysts by .06 - shows you how much that matters). While that guidance is simply under promising and over delivering, investors are so trigger happy in this sector because of the thinking of how enterprise spending could be slowing. More alarming is a trend that I hope does not begin showing up ... Ciena is reporting a $13 million loss due to SIV exposure. Are you kidding me?

I had a minor position in Ciena (0.9% of fund), and there customer base is quite different from a Cisco - Ciena sells into telcos and they are rushing to outdo each other (AT&Ts, Verizons of the world) so I am not as worried about a near term slowdown in that space as I am in normal corporate America (routing). But now we have to forecast SIV exposure on a company by company basis? C'mon now. I said earlier this web of credit junk would spin into places we had no inkling of, but I certainly was thinking more along the lines of state governments, perhaps county governments, but not individual non financial companies. Ouch.

I did sell half of my smallish position in Ciena - not so much on that bad guidance or even the SIV exposure but near term perception about the stock. Again its a small position and I have some decent gains in this name - when I have more time to read into the earnings report and guidance I will decide if I will hold the remaining 125 shares. Today I sold 125 of 250 remaining shares in this name (which was once a major position in the fund). But if this is a new era where individual companies are going to report SIV exposure - well that just is going to be something altogether bad.

• Ciena Corp. on Thursday said profit more than doubled in the fiscal fourth quarter amid strengthening demand for its networking products.
• Yet shares of Ciena fell more than 8% in U.S. trades after Ciena issued a 2008 sales estimate slightly below Wall Street's forecast and reported a $13 million loss on a short-term investment known as an SIV.
• In the quarter ended Oct. 31, Linthicum, Md.-based Ciena reported net income of $30.4 million, or 30 cents a share, up from $13.1 million, or 14 cents a share. Revenue jumped 35% to $216.2 million from $160 million.
• Excluding the cost of stock options and other special items, Ciena would have earned $50.3 million, or 48 cents a share, compared with adjusted income of $22 million, or 24 cents a share, a year ago.
• On that basis, Ciena beat Wall Street's forecast. The company had been expected to earn 42 cents a share on sales of $211.3 million, according to the average estimate of analysts surveyed by Thomson Financial.
• For fiscal 2008, however, Ciena Chief Executive Gary Smith forecast that sales would rise 20% above the $779.8 million in revenue generated in fiscal 2007. Wall Street was expecting sales to rise 21% to $945.4 million.
• Aside from the conservative forecast, some investors may have been alarmed by the company's $13 million loss in so-called structured investment vehicles. Many SIV-related investment have gone sour in 2007 amid a widespread credit crunch earlier this year. On a conference call, executives assured analysts that the company's exposure to SIVs was "limited" to two specific investments and that the $13 million loss represented just 1% of Ciena's total cash on hand.
• The vendor has benefited from sales of equipment to big customers such as AT&T Inc., which are upgrading their networks to offer faster Internet connections and meet a surge in the number of music and video downloads.

  Disclosure: Long Ciena in fund; no personal position