Ciena: An Always-Volatile Play On Telecom And Data Center Spending
Stephen Simpson, CFA
Stephen Simpson, CFA
Ever-Volatile Ciena Doing Well In 100G
Stephen Simpson, CFA
Stephen Simpson, CFA
Ciena Goes Back Into The Penalty Box
Stephen Simpson, CFA
Stephen Simpson, CFA
Wed, Apr. 27, 5:41 PM
- Infinera (NASDAQ:INFN) has guided on its Q1 call for Q2 revenue of $255M (+/- $5M) and EPS of $0.17 (+/- $0.02), below consensus estimates of $272.2M and $0.22.
- The optical transport hardware vendor reports seeing "spending lumpiness" and uncertain investment timings among some clients. Rival Ciena (NYSE:CIEN) issued soft guidance in March, while blaming macro pressures and EMEA weakness. Juniper and Ericsson, which also have strong telecom capex exposure, have provided disappointing numbers this month.
- Infinera is now down 15.2% after hours to $13.20, after initially falling moderately in the wake of its mixed Q1 results. Ciena, which often goes in the same direction as Infinera, hasn't yet traded after hours since Infinera issued its guidance.
Thu, Mar. 3, 10:34 AM
- In addition to missing FQ1 sales estimates (while beating on EPS), Ciena (CIEN -20.6%) is guiding for FQ2 revenue of $615M-$645M, mostly below a $644.6M consensus. The company also used its earnings call to lower its FY16 (ends Oct. '16) revenue growth guidance to 5-8% from 8%-9%; consensus is for 8.4% growth.
- Fellow optical networking hardware firms Infinera (INFN -4.7%) and Adtran (ADTN -2.5%) are also lower. As are optical component firms NeoPhotonics (NPTN -9%), Fabrinet (FN -2.4%), Oclaro (OCLR -3.1%), and Lumentum (LITE -2.1%). NeoPhotonics jumped yesterday in response to strong earnings/guidance; Fabrinet and Oclaro did the same in February.
- Ciena reports seeing "some recent volatility in the broader macroeconomic environment." On the call, the company mentioned its EMEA sales are soft, and that it's making changes to deal with the issue.A strong dollar is also cited as a headwind. Ciena nonetheless expects to post above-market growth outside of EMEA.
- Ciena's top-line performance: Networking platforms revenue (packet-optical systems, optical transport systems, and Ethernet switches) rose 9% Y/Y in FQ1 to $449.5M. Software and software-related service revenue (inc. the Blue Planet SDN platform) rose 8% to $25.4M. Global services revenue rose 7% to $98.2M. One customer (AT&T?) accounted for 22% of revenue, and the U.S. overall accounted for 63.7% of revenue.
- Financials: Adjusted gross margin was 44.7% vs. 44.9% in FQ4 and 44.1% a year ago; GM is expected to be in the mid-40s once again in FQ2. Controlled spending helped adjusted op. margin rise 150 bps Y/Y to 8.3%. Ciena ended FQ1 with $995M in cash and $1.26B in long-term debt.
- JPMorgan is defending Ciena: The firm considers the FY16 revenue guidance cut reasonable given macro pressures, and thinks shares don't deserve to sell off more than a few percent. (source: Notable Calls)
- Ciena's FQ1 results, earnings release
Thu, Mar. 3, 7:02 AM
Wed, Mar. 2, 5:30 PM
Wed, Feb. 3, 1:32 PM
- Though the Nasdaq is down 1.5%, many telecom equipment and optical component firms are rallying after network test equipment/telecom software provider Viavi (VIAV +17.6%) and optical component vendor Oclaro (OCLR +11.4%) beat calendar Q4 estimates and issued strong Q1 guidance.
- The list includes optical networking hardware firms Ciena (CIEN +3.9%) and Infinera (INFN +4.9%), component vendors Finisar (FNSR +5.3%) and Alliance Fiber (AFOP +2.2%), Wi-Fi hardware provider Ruckus (RKUS +3.5%), and VoIP and 4G signaling hardware/software firm Sonus (SONS +2.5%).
- Component maker NeoPhotonics (NPTN +14.7%) is posting double-digit gains, aided by an upgrade to Strong Buy from Raymond James. RJ says its checks point to strong sales fueled by Chinese demand and 100G metro optical buildouts.
- Oclaro guided for calendar Q1 (FQ3) revenue of $97M-$100M, soundly above a $90M consensus. The FQ2 beat was fueled by a 21% Y/Y increase in 100G product sales (53% of total revenue), which offset a 7% drop in sales of 10G and lower-speed products (35% of revenue). (earnings release)
- Viavi's beat was aided by a 5.7% Y/Y sales increase for the company's core network enablement (test instrument) business. The unit delivered Y/Y sales growth for the first time in five quarters. (earnings release)
- Viavi and Oclaro's numbers came shortly after optical component contract manufacturer Fabrinet soared in response to an FQ2 beat and strong FQ3 guidance. Fabrinet's revenue from 100G programs nearly tripled Y/Y in FQ2.
Dec. 10, 2015, 2:11 PM
- Ciena (CIEN -16.8%) has tumbled after issuing light FQ1 guidance to go with an FQ4 beat. In addition, the optical networking hardware vendor has guided for 8%-9% FY16 (ends Oct. '16) revenue growth, below a 13.8% consensus.
- With Ciena's outlook raising new fears about telecom capex (under pressure for a while), rival Infinera (INFN -3.3%) is also off, as are optical component vendors Lumentum (LITE -2.2%) and Alliance Fiber (AFOP -1.9%), VoIP/4G signaling infrastructure provider Sonus (SONS -1.6%), and network test equipment/software provider Viavi (VIAV -2%). The Nasdaq is up 0.7%.
- Northland Securities' Tim Savageaux has gone contrarian and upgraded Ciena to Outperform. He notes the company's FY16 outlook still implies an acceleration in organic sales growth (accounts for the Cyan acquisition) to over 7% from FY15's 3%, and calls the selloff an attractive entry point for buying an industry leader.
- Wells Fargo's Jess Lubert (Outperform rating) is also defending Ciena. "While we are disappointed by Ciena’s FQ1 and F2016 outlook, we sense the company’s forecast likely embeds conservative assumptions surrounding the Cyan business and the timing of revenue recognition on several large opportunities. That said, with Ciena having secured 100G metro deployments with many of the world’s largest carriers and likely to see improved mix further benefit margins, we remain positive regarding the company’s 2016/2017 prospects and see the potential for the current forecast to prove conservative if execution remains strong."
Earnings/guidance details: Ciena's FY16 op. margin is expected to be in a range of 11%-12% vs. 10.9% in FY15 before rising to ~15% in the next 3-4 years. Gross margin (non-GAAP) is expected to be in the mid-40s; it was at 44.9% in FQ4, -40 bps Q/Q and +700 bps Y/Y.
The company had two 10%+ customers in FQ4 (possibly AT&T and Verizon) that collectively made up 29.6% of revenue. Non-U.S. customers were 34.5% of revenue, and Cyan contributed $84.4M (12% of total revenue), primarily via its Z-Wave packet-optical (integrated optical networking/Ethernet switching) platform. Altogether, packet-optical products made up 70% of revenue, packet networking (Ethernet switches) 9.2%, optical transport 2.4%, and software/services 18.4%. (earnings release)
Dec. 10, 2015, 7:01 AM
- Ciena (NYSE:CIEN): FQ4 EPS of $0.42 beats by $0.04.
- Revenue of $692M (+17.1% Y/Y) beats by $8.44M.
Dec. 9, 2015, 5:30 PM
Oct. 28, 2015, 1:42 PM
- Optical component vendors NeoPhotonics (NPTN +12.6%), Oclaro (OCLR +9.4%), Viavi (VIAV +6.9%), Finisar (FNSR +3.8%), Alliance Fiber (AFOP +4%), and Fabrinet (FN +3.1%) are rallying after optical transport hardware vendor Infinera (INFN +14.6%) beat Q3 estimates and issued strong Q4 guidance. Infinera rival Ciena (CIEN +3.4%) hit yesterday by a bearish Off Wall Street report, is also doing well.
- For Oclaro, the shoe is now on the other foot: Infinera rallied last week after Oclaro pre-announced strong calendar Q3 sales.
- On the earnings call (transcript), CEO Tom Fallon stated Infinera saw "a substantive increase" in sales of its Cloud Xpress data center interconnect platform. Cloud Xpress customers now stand at 14 (up from 12 as of July), and growing machine-to-machine traffic within data centers is expected to boost demand for 100G interfaces. Infinera's core long-haul system sales were also healthy.
- Fallon did admit Infinera is seeing "some conflicting signals" regarding market demand. "On one hand, we are seeing some pockets of slightly softening demand. On the other, we're seeing positive indications in the industry, such as lead-times extending for optical components and continued capacity expansion from cloud providers." The optical component remarks might be contributing to today's rally in component makers.
- Needham's Alex Henderson, who upgraded Infinera earlier this month, is reiterating a Buy rating today. "Infinera reported a strong quarter and offered a strong guide in its first quarter with Transmode partially in the base and fully in the CY4Q guidance. Negative commentary on the Street on INFN and CIEN regarding industry price pressure has set-up a solid entry point and we expect investors will take advantage of this recent weakness."
Sep. 11, 2015, 12:45 PM
- Finisar (FNSR -18.4%) has plunged to its lowest levels since 2012 after missing FQ1 estimates, providing soft FQ2 guidance, and announcing chairman Jerry Rawls is replacing Eitan Gertel as CEO.
- Optical component/module peers Alliance Fiber (AFOP -4.6%), Lumentum (LITE -2.3%), and Oclaro (OCLR -6%) are also off, as are equipment vendors Infinera (INFN -3.8%), Ciena (CIEN -2.8%), Adtran (ADTN -2.3%), and Calix (CALX -2.5%). The Nasdaq is nearly flat.
- During Finisar's earnings call (transcript), Rawls noted his company continues to "see a high level of competition," and is aiming to cut operating expenses to ~20% of revenue from FQ1's 21.8%. CFO Kurt Adzema mentioned wireless and legacy 100G datacom component sales were soft in FQ1, and that Finisar is now seeing "some lumpiness" for 40G data center sales.
- Adzema insisted the competition (much of it around low-end/10G products) is business as usual. "The lower end products always [face] competition from non-tier 1 companies and in some period of time, it just takes whether it’s a one year or a three year or whatever the period, tier 2 competitors always catch up." Rawls promised 25G/100G Ethernet data center upgrade cycles would drive growth next year.
- MKM and B. Riley have downgraded Finisar to Neutral, and several other firms have cut targets. MKM's Michael Genovese cites datacom competition/price pressure, and states he's "becoming less convinced that there is an easy path to industry consolidation that will help alleviate ... significant Optical component industry challenges,"
- At the same time, Genovese defends Ciena, Infinera, and Lumentum (formerly JDS Uniphase's component unit). "Ciena and Infinera actually slightly benefit from more [component] competition and lower prices since they are customers ... we believe the negative revisions in Finisar's outlook are much more on the Datacom side than on the Telecom side ... Finisar is an incumbent that derives 75% of overall revenues from Datacom, while Lumentum is a relatively new challenger with only 20% of revenues from Datacom ... we are much more confident in the demand and pricing environments for 100G Telecom (Metro and [long-haul]) components than we are for Datacom, and Lumentum has significantly more exposure to 100G Telecom than Finisar."
Sep. 4, 2015, 9:28 AM
- Deutsche has downgraded Ciena (NYSE:CIEN) to Hold after the company posted mixed FQ3 results. Shares have dropped to $22.46 premarket. Nasdaq futures are off 1.4%.
- Several firms provided positive reactions yesterday. Wells Fargo's Jess Lubert (Outperform rating): "With Ciena having secured 100G metro deployments with many of the world’s largest carriers and likely to see improved mix further benefit margins, we remain confident in the company’s ability to deliver C2016 EPS of at least $1.70 following FQ3 results. As such, we would recommend investors take advantage of any weakness on Ciena’s softer than expected FQ3 sales results to buy the stock, which we believe remains attractively valued at less than 14X our C2016 EPS estimate."
- Prior Ciena coverage
- Update: Deutsche's Brian Modoff states checks point to weak U.S. telco and cable demand. "Our latest round of channel checks correlate well with color we gathered from our post call with CIEN on the potential for modest headwinds to carrier network upgrade activity at the US telcos and cablecos (outside of T; where CIEN is seeing strength in 100G metro and in broadband fiber access). Infinera (NASDAQ:INFN), we note, has revenue exposure at the major Web 2.0 and Cloud portals, ISPs, Telcos such as CenturyLink and a handful of cablecos, and “zero” exposure currently at T, Verizon Communications, etc. We therefore prefer INFN to play the double-digit intensity in 100G Datacenter Optical rollouts and 100G in the Metro and Long Haul during 2H15 and into FY16/17
Sep. 3, 2015, 12:16 PM
- Initially down sharply following its mixed FQ3 results, Ciena (CIEN +2.8%) has reversed course.
- Possibly helping: On the earnings call, CEO Gary B. Smith downplayed the carrier project delays blamed for Ciena's FQ3 sales miss, stating overall demand remains healthy and that top customer AT&T isn't among the delaying firms. ""It is three or four carriers, and I think it is temporary in nature."
- Also: Ciena says it now expects FY15 (ends in October) op. margin to exceed 10%, predicts the Cyan acquisition will be accretive to FQ4 results, and states the revenue contribution for Cyan's packet-optical hardware and SDN software is "strong." Adjusted op. margin rose 170 bps Y/Y in FQ3 to 11.8%.
Ciena's FQ3 results, guidance/details/COO announcement
Sep. 3, 2015, 10:00 AM
- Ciena (NYSE:CIEN) has sold off after missing FQ3 revenue estimates and beating on EPS. The company suggests "short-term revenue headwinds related to the timing of network implementations at certain large service provider customers" are to blame for the top-line miss.
- FQ4 guidance is for revenue of $665M-$700M, above a $662.8M consensus. However, the outlook reflects a full quarter's contribution from the Cyan acquisition (closed in early August), something that might not be accounted for by all analyst estimates.
- Along with the numbers, Ciena has appointed Francois Locoh-Donou, the SVP of its Global Products Group since 2011, to the newly-created position of COO, effective Nov. 1. Locoh-Donou will "assume responsibility for Ciena's Global Field Organization, including the global sales and services functions, while retaining his existing responsibility for research and development, product line management, supply chain and network integration functions."
- CEO Gary B. Smith states the COO position was "created to facilitate greater organizational alignment between our product and customer teams." The move comes shortly after Ciena announced sales chief Philippe Morin is stepping down.
- Segment performance: FQ3 converged packet optical (integrated Ethernet/optical networking gear) revenue +7% Y/Y to $408M. Packet networking (Ethernet switches) -18% to $57.2M. Optical transport -44% to $17.5M. Software/services -1% to $120.2M. The U.S. was 59.8% of revenue, and one customer (AT&T?) made up 20% of revenue.
- Financials: Boosting EPS: Adjusted gross margin was 45.3%, up 90 bps Q/Q and 100 bps Y/Y, and above guidance of 43%; FQ4 guidance is at 44%. Also helping: Adjusted operating expenses fell 2% Y/Y to $202.1M. Ciena ended FQ3 with $927M in cash/investments, and $1.46B in long-term debt.
- FQ3 results, PR
- Update (12:17PM ET): Ciena is now up 3% post-earnings. Earnings call commentary could be helping.
Sep. 3, 2015, 7:03 AM
- Ciena (NYSE:CIEN): FQ3 EPS of $0.37 beats by $0.03.
- Revenue of $602.93M (-0.1% Y/Y) misses by $26.94M.
Sep. 2, 2015, 5:30 PM
Ciena Corp. engages in the provision of network and communication infrastructure. It operates through the following segments: Converged Packet Optical, Packet Networking, Optical Transport and Software and Services. The Converged Packet Optical segment develops and sells optical processors,... More
Industry: Communication Equipment
Country: United States
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