Ciena Delivers a Stunning Quarter
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The second quarter results of communications equipment maker Ciena (NASDAQ: CIEN) don’t surprise me at all. I had already given you a lowdown on the company’s prospects when it had released its first quarter results three months back. Although the company had failed to meet the market’s expectations then, its outlook was good enough to signify better times ahead.
Following up on its guidance issued in the first quarter, Ciena delivered outstanding results this time. It thumped analysts’ expectations handsomely and stunned the Street by posting a profit (after adjusting one-time items) instead of a loss as expected. The result; Ciena’s stock spiked a massive 14%.
Let’s now take a deeper look inside Ciena’s quarter and more.
An improved top line
Revenue jumped 14% from last year to $478 million in the quarter. The bump in revenue was driven by increased demand for Ciena’s solutions, which were used by clients across various domains such as public research, education and transport. Ciena didn’t exactly point out its revenue generators on the conference call, but contracts with Tier 1 service providers also had an important role to play.
These revenue streams helped Ciena to overcome the sluggish performance of its switching business, which dropped a bit in the quarter. Switching is reeling under concerns of a macroeconomic slowdown as carriers are putting off their spending plans.
Swimming against the current
The muted performance of switching is quite understandable as industry bellwether Cisco (NASDAQ: CSCO) had also hinted towards an industry slowdown when it released its quarterly results early last month because of the uncertain economic scenario. Cisco said that it is facing difficulty in penning new contracts as telecom companies are keeping their wallets closed, waiting for the economy to turn up. Ciena’s performance in the quarter is certainly worth applauding as it came up with a strong showing despite the odds stacked against it.
Ciena’s outlook was again a talking point. It projects revenue in the range of $455-$485 million, which is almost at par with the Street’s expectation of $471.1 million at the mid-point. This is again remarkable since Cisco had predicted a downturn in its own business and sent out a weak guidance, spooking investors along the way and sparking fears of a technology slowdown.
The takeaway
Even Ciena said that the global environment is a dampener for its business. However, it is optimistic about markets such as Latin and North America, Asia Pacific and the Middle East. It is counting on these regions to help it tide over the European softness. In addition, it is recording design wins at large OEMs and gaining market share in the process. Management believes that Ciena will come up with an even better performance in the second half of the year, again not a surprise when you are penning new contracts and moving up the ladder in the market share race.
Undoubtedly, Ciena left the Street in a daze this time. None had expected the company to post a profit after Cisco’s guidance but Ciena surprised one and all. The company did well even though the switching segment is under pressure. Once the industry starts looking up and technology spending rebounds, Ciena will probably do even better.
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