Ciena (CIEN) +11.9% thanks to its FQ2 beat, which follows months of investor fretting over telecom capex. FQ3 guidance is for revenue of $515M-$545M, above a $509.5M consensus. Ciena sacrificed margins a bit - while revenue rose 12% Q/Q, gross margin fell 210 bps to 42.5% - but given the size of its revenue beat, investors don't mind. Sales of integrated Ethernet/optical networking hardware (Ciena is a leader here and recently announced a refresh) +10% Y/Y and 57% of revenue. Ethernet switches +91% and now 11% of revenue; optical networking -32%, software/services +3%. Two customers (AT&T/Verizon?) made up 31% of sales. INFN +6.7%. JDSU +5.1%. FNSR +5.9%. JNPR +2.5%. ALU +4.2%. SONS +3.8%. (PR)
A few Cisco rivals and suppliers are up premarket after the networking giant beat estimates while reporting strong data center switch/server sales and service provider orders (albeit while cautioning the SP capex environment remains tough). Some others might move higher following the open. JNPR +3.6%. FFIV +3.2%. CIEN +3.9%. EZCH +1.2% - Cisco mentioned on its earnings call sales of its ASR 9000 edge routers, which EZchip supplies network processors for, were up 40%+ Y/Y.
Cisco (CSCO) guides on FQ3 call (webcast) for FQ4 EPS of $0.50-$0.52 and revenue growth of 4%-7%, which compares with a consensus of $0.51 and 6.9%. Revenue growth will take a 1% hit from the Linksys sale. Gross margin is expected to drop to 61%-62% from FQ3's 63%. Shares +7.9% AH. JNPR +1.6%. BRCD +1.1% CIEN +1.5%.
Evercore launches coverage on Ciena (CIEN +2.1%) with an Overweight and $20 PT, giving a lift to the telecom equipment maker. The move comes a day after Ciena announced new Ethernet modules for its 6500 Packet-Optical Platform, which combines Ethernet and optical networking capabilities in the same box. The upgrade adds support for Ciena's SAOS operating system, long a staple of Ciena's Ethernet-only gear. Integrated Ethernet/optical products made up 53% of Ciena's FQ1 revenue.
IDC cuts its 2013 IT spending growth forecast to 4.9% from 5.5%, citing macro issues and weak PC demand; 2012 growth was 5.6%. Gartner, which includes a bigger array of products/services in its numbers, forecast 4.1% growth last month. IDC now sees U.S. software spending (MSFT, ORCL) growing 6%, down from a prior 7%. Storage hardware revenue (EMC, NTAP) is only expected to grow 2.4%, down from 2012's 6.1%, and carrier spending on networking gear (CSCO, JNPR, ALU, CIEN) is expected to grow just 1.1% vs. 5.8% in 2012. Recent earnings reports and warnings (I, II, III, IV) help explain the subdued outlook.
A Q1 beat and strong 2013 guidance lead Infinera (INFN +22.8%) to surge to 52-week highs. Industry peers are up in sympathy, a day after many declined thanks to AT&T: CIEN +3%. FNSR +2.8%. JDSU +1.5%. ADTN +2.2%. CALX +1.5%. On its earnings call, Infinera guided for Q2 revenue of $130M-$140M and EPS of -$0.04 to $0.01, above a consensus of $124.3M and -$0.05. Gross margin (an issue going in) is expected to rise to 37%-39% from Q1's 36%. 2013 revenue growth is now pegged at the the high end of a guidance range of 10%-20% (consensus is 17%). Purchase commitments for the advanced DTN-X optical transmission system grew by 6 to 27. Needham has upgraded shares to Buy.
Adtran's (ADTN +13%) Q1 beat is contributing to strong gains in telecom equipment, chip, and component stocks, as investors take it as another sign of improving telecom capex going into earnings season. Adtran's remarks about strong demand from both U..S. and international carriers can't be hurting. CSCO +2.5%. CIEN +6.4%. JDSU +4.6%. ALU +4.6%. FN +4.8%. FNSR +6%. PKT +4.2%. RKUS +4.2%. JNPR +3.9%. CAVM +3%. INFN +2.9%. OCLR +4%. SONS +2.5%. 2013 has seen a string of rallies (I, II, III) tied to capex hopes.
Telecom equipment upstart Cyan files for a $75M IPO under the symbol CYNI. Cyan sells both a line of integrated Ethernet switching/optical transmission systems for carrier edge networks (the Z-Series), and a software-defined networking platform for managing carrier networks (Blue Planet). The company had revenue of $95.8M (+137% Y/Y) in 2012, and a net loss of $16.6M. Hardware rivals include Ciena, Fujitsu, Juniper, and Huawei; Cisco and Alcatel-Lucent are arguably competitors on both the hardware and software fronts. (S-1)
Telecom equipment/optical component names underperform following FBR's Cisco/Juniper downgrades, as investors mull the impact of lower demand for switches/routers among service providers and enterprises on demand for complementary hardware and the parts that go into it. Given software-defined networking (the main reason for FBR's downgrade) will have a limited impact on hardware use on many carrier networks, is the Street overreacting? JDSU -4.2%. FNSR -3.3%. CIEN -3.8%. ADTN -3.1%. ALU -2.7%. ADTN -3.1%. SONS -4.7%. INFN -2.6%. FFIV -2.3%.
Telecom equipment and component makers trade higher after China Mobile (the world's largest carrier) forecasts a 49% Y/Y increase in capex in 2013 to a hefty RMB190.2B ($30.6B). Vodafone and France Telecom's plans to build a fiber network in recession-hit Spain might not be hurting either. FNSR +6.6%. ALU +2.9%. JNPR +2%. OCLR +4.8%. CIEN +1.5%. JDSU +1.5%. ALLT +3.3%. ERIC +1.2%.