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
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."
Sep. 9, 2015, 9:58 AM
- RBC has upgraded Ciena (CIEN +1.6%) to Outperform in the wake of last week's FQ3 report, and upped its target by $2 to $28. The firm argues margin/cash flow growth can drive multiple expansion, and also praises Ciena's customer diversification, new data center-focused products (e.g. Waveserver), and lack of China exposure.
- RBC: "On a steady base of optical switching and transport, Ciena is likely to see upgraded metro and data center projects next year ... Our bottoms up analysis shows resilience in data-center projects and the emerging [data center infrastructure] market is expected to grow from the low-hundreds of millions to a $4B within the next few years, increasing Ciena's [addressable market]."
- Deutsche downgraded last Friday, citing checks pointing to weak U.S. telco/cable demand. Ciena currently trades for 15x an FY16 (ends Oct. '16) EPS consensus of $1.59.
- Prior Ciena coverage
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
Aug. 26, 2015, 11:05 AM
- "Our checks indicate that Ciena (NYSE:CIEN) has taken share from Fujitsu and Coriant at its top customer AT&T for its long haul and metro deployments, and will continue to do so," writes Raymond James' Simon Leopold, upgrading to Outperform. "We see upside from improved diversity, specifically with non-telco customers, which drove strength in F1Q15 at over 30% of sales."
- Leopold also sees IP networking initiatives from the likes of Comcast acting as a positive, and expects demand from Web/cloud customers to pick up again, aided by the ramp of Ciena's Waveserver data center interconnect solution (competes against Infinera's Cloud Xpress). The recent Verizon 100G metro deal is considered a nice reference win, but "a modest sales contributor."
- Separately, Ciena has announced Korea's SK Telecom is deploying its new 5430 packet-optical (integrated Ethernet/optical networking) system. Ciena claims the 5430 delivers "up to five times more port density, four times switching capacity and 60 percent reduction of power consumption per switched Gb/s" than the prior-gen 5410.
Aug. 20, 2015, 12:09 PM
- With investors fleeing to safety and asking questions later - Chinese macro concerns have been playing a role - tech stocks with high betas (and sometimes also high multiples and big 2014/2015 gains) are among the biggest losers as the S&P drops 1.1%, and the Nasdaq 1.7%.
- Noteworthy decliners include action camera leader GoPro (GPRO -6%), security tech plays Palo Alto Networks (PANW -4.9%), FireEye (FEYE -4.5%), CyberArk (CYBR -5.7%), Qualys (QLYS -5.1%), Imperva (IMPV -6%), and Vasco (VDSI -4.2%), and driver-assistance tech leader Mobileye (MBLY -6%).
- Others include optical networking hardware vendors Ciena (CIEN -5%) and Infinera (INFN -7.3%), optical component vendors NeoPhotnics (NPTN -5.9%) and Oclaro (OCLR -6.7%), data management software firm Varonis (VRNS -5.5%), programmatic ad-buying platform Rocket Fuel (FUEL -7.4%), DNS/IP address hardware vendor Infoblox (BLOX -5.1%), haptic tech developer Immersion (IMMR -6.2%), and solar microinverter maker Enphase (ENPH -7.2%).
- Many Chinese tech stocks are also seeing heavy losses.
Aug. 13, 2015, 5:38 PM
- Philippe Morin, Ciena's (NYSE:CIEN) SVP of worldwide sales and field operations, is stepping down at the end of October. No word yet on his replacement.
- Morin joined Ciena through its 2010 acquisition of Nortel's metro Ethernet unit, and has been its sales chief since 2011.
Jul. 23, 2015, 2:56 PM
- Application delivery controller/security hardware vendor F5 (FFIV +6.9%) beat FQ3 estimates on the back of strong software sales, and provided above-consensus FQ4 EPS guidance (revenue was in-line). With growing 100G long-haul optical deployments serving as a tailwind, optical networking hardware vendor Infinera (INFN +9.6%) beat Q2 estimates and provided strong Q3 guidance.
- Also: Optical component vendor Alliance Fiber (AFOP +16%) beat estimates and offered healthy guidance. Strong datacom component demand from cloud service providers was cited.
- A slew of telecom/networking equipment, component, and chip vendors are higher on a day the Nasdaq is down 0.4%. The list includes Infinera rival Ciena (CIEN +1.6%), F5 rival Radware (RDWR +3.3%), and Alliance Fiber peer NeoPhotonics (NPTN +4.7%). Others include Ciena acquisition target Cyan (CYNI +1.8%) and chipmakers Cavium (CAVM +3.6%), PMC-Sierra (PMCS +3%), EZchip (EZCH +2.8%), and InPhi (IPHI +3.7%).
- Broader gains for chip stocks - the Philadelphia Semi Index is up 1.7% after selling off hard yesterday - are likely helping the chipmakers. Cisco, meanwhile, is up 2.2% after striking a deal to sell its share-losing set-top unit to Technicolor.
- During F5's earnings call, new CEO Manny Rivelo stated F5 now leads the virtual (software-based) ADC market, which has sometimes been seen as a major long-term threat to its ADC hardware business, and noted the company saw a 20% Y/Y increase in its deferred revenue balance (driven by services/subscription growth) to $743M. He also disclosed sales chief Dave Feringa is stepping down on Oct. 1; his successor will be named shortly.
- On Infinera's call, CEO Tom Fallon mentioned the company has now invoiced 12 customers for its new Cloud Xpress data center interconnect platform, up from 7 three months ago. For now, long-haul optical still makes up over 90% of revenue - Cloud Xpress growth, the pending launch of a metro aggregation product, and (provided it's approved) the Transmode acquisition should change that. 3 customers accounted for over 10% of Q2 revenue.
Jun. 4, 2015, 2:07 PM
- Though the Nasdaq is down 1%, Ciena (CIEN +1.4%) remains higher after beating FQ2 estimates on the back of strong packet-optical (integrated Ethernet/optical networking) hardware sales. FQ3 revenue guidance is at $610M-$640M, in-line with a $632.2M consensus.
- Financials: Boosting FQ2 EPS: Gross margin was 44.4%, +30 bps Q/Q and +130 bps Y/Y, and above guidance of 42%-43%; FQ3 GM guidance is at 43%. Also helping: Operating expenses (non-GAAP) only rose by $1.6M Y/Y (less than 1%) to $207.9M. On a GAAP basis, R&D spend totaled $105.2M, sales/marketing $82.5M, and G&A $30.3M. Adjusted op. margin rose to 10.9% from 6.8% in FQ1 and 6.2% a year ago.
- Business performance: Converged packet optical revenue (69.6% of total) +21% Y/Y to $432.9M. Packet networking (Ethernet switches) -20% to $53.3M. Optical transport -44% to $16.5M. Software/services +11% to $118.9M.
- Georgaphic/customer performance: North America was 63.9% of revenue (U.S. was 59.1%), EMEA 16.4%, Asia-Pac 12%, and Caribbean/Latin America 7.7%. AT&T accounted for 19% of sales, and was the sole 10%+ customer. UBS likes the fact North American sales rose 20% Q/Q in spite of AT&T revenue (recently under pressure) remaining roughly flat.
- Shares made a new 52-week high of $25.49 this morning before pulling back a bit.
- FQ2 results, PR
Jun. 4, 2015, 7:01 AM
- Ciena (NYSE:CIEN): FQ2 EPS of $0.35 beats by $0.11.
- Revenue of $621.6M (+11.0% Y/Y) beats by $15.07M.