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
Thu, Mar. 3, 9:15 AM
Thu, Mar. 3, 7:02 AM
- Ciena (NYSE:CIEN): FQ1 EPS of $0.18 beats by $0.04.
- Revenue of $573.12M (+8.3% Y/Y) misses by $3.18M.
- Shares -3.38% PM.
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.
Tue, Jan. 12, 10:42 AM
- Believing the company is undervalued relative to peers and that its recent selloff spells a buying opportunity, Morgan Stanley's James Faucette has upgraded Ciena (NYSE:CIEN) to Overweight. His target has been cut by $2 to $23.
- Faucette: "Many 100G metro builds are set to kick-off in 2016, with major investment lasting into 2018. We would expect Ciena's revenue and EPS growth to accelerate as this upgrade gains strength...with the macro concerns that have sent the stock down an additional 10 percent since January 1st, we now think that the stock is attractive."
- He adds improved operational efficiency could also boost Ciena's bottom line. High customer concentration - AT&T and Verizon have long accounted for a major % of sales - is seen as a risk.
- Jefferies upgraded Ciena on Dec. 21, while citing a reasonable valuation and several top-line catalysts. Shares nosedived on Dec. 10 in response to the soft FQ1/FY16 guidance accompanying Ciena's FQ4 beat.
Dec. 30, 2015, 5:43 PM
- Though a fan of optical networking hardware vendors Ciena (NYSE:CIEN), Infinera (NASDAQ:INFN), and Xtera (NASDAQ:XCOM), Needham's Alex Henderson thinks many component makers have more 2016 upside. "We see more upside to revenues, better margin leverage, and more room for valuation improvements with the component names. We point out the current supply constraints on broad classes of Optical components at the end of CY15, which we expect to persist through CY16."
- He sees 2016 as a good year for optical, and 2017/2018 even better ones. "The driver of this should be the continuing strong growth in the [data center interconnect] market and the substantial ramp-up of the Metro Core Market. We strongly believe CY16 is the beginning of the Metro 100G/200G cycle, which should last through CY2020."
- Lumentum (NASDAQ:LITE), formerly JDS Uniphase's component arm, is one of Henderson's favorites. "LITE has roughly 50% of its optical product line in sold- out conditions well into CY16. The Industrial laser business is also likely to accelerate ... [supply constraints] reflect strong demand across numerous segments ... including Long-Haul and [data center interconnect] with Coherent modulators, Metro with ROADMs, and Access Metro with the T-XFP 10G transceivers. LITE is currently trading at 13x [enterprise value/EPS] on CY16 estimates and just 1.1x [enterprise value/sales]."
- He also likes Fabrinet (NYSE:FN), citing a valuation of 0.7x EV/sales and 9x EV/EPS, and Oclaro (NASDAQ:OCLR). “[T]he primary reason we are recommending [Oclaro] is the ACO 100G Coherent pluggable [transceiver]. Oclaro is first to market in this emerging category and if they ramp production smoothly we think they can sell whatever they can produce.”
- Looking at networking hardware firms, Henderson likes data center switch vendor Arista (NYSE:ANET) and networking visibility/monitoring hardware firm Gigamon (NYSE:GIMO). Arista is expected to benefit from 25G Ethernet adoption and the rollout of Broadcom's Jericho switching chip, which contains a 720Gbps packet processor and will allow Arista's gear to support edge routing functionality at much lower costs than rivals (read: Cisco). "We think Arista could pick up 3-5 points of market share, which we calculate could drive over 30% top-line growth."
- Regarding Gigamon: "After a strong year in CY15, Gigamon is likely to produce a more 'normalized' year with growth in the 20% plus vicinity against tough comps with a gradual upward bias to Gross Margins driven by increasing security-driven transactions."
Dec. 21, 2015, 9:18 AM
- Believing shares are reasonably priced at 11.4x estimated calendar 2017 EPS, Jefferies' George Notter has upgraded Ciena (NYSE:CIEN) to Buy, and hiked his target by $2.50 to $25.
- Notter thinks Ciena, hammered two weeks ago due to its FQ1/FY16 guidance, is on track to hit its ~7% FY16 (ends Oct. '16) organic revenue growth target. He cites Verizon's 100G metro rollout, health long-haul/metro WDM market share at AT&T, renewed Comcast spending, and new project wins via Ciena's Ericsson alliance as catalysts. Beyond that, Notter expects last-mile fiber investments to drive higher spending on the optical transport networks servicing last-mile networks.
- CIEN +1.1% premarket to $20.02.
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, 12:46 PM
Dec. 10, 2015, 9:14 AM
Dec. 10, 2015, 8:22 AM
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."
Oct. 27, 2015, 10:05 AM
- Independent research firm Off Wall Street has issued a Strong Sell rating for Ciena (NYSE:CIEN). The optical transport/packet-optical hardware vendor's shares have fallen below $24.
- RBC upgraded Ciena post-earnings last month, while Deutsche downgraded. Shares currently trade for 14x an FY16 (ends Oct. '16) EPS consensus of $1.61.
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."