Nettles complains when DWDM revenues are lumped together with SONET revenues because the combined optical transport figure always shows Nortel gaining market in the total optical transport market. He doesn't like to mention that Nortel is #1 is DWDM revenue. Furthermore, Nortel can combine and integrate its metro OPTera with Passport and Succession for a complete network upgrade. Ciena's product is a niche product without data switches and voice call tecnology.
"Ciena: What Slowdown?
Like a beacon lancing the darkness of recent earnings reports, Ciena Corp.
(Nasdaq: CIEN - message board) today announced strong earnings and no
slowdown in carrier demand, particularly in the long-haul space (see Ciena
Chalks Up $352M First Quarter ). And to underscore the point, it revised its
revenue expectations for the remainder of the fiscal year upward -- bucking a
marked trend in the opposite direction.
"Legacy suppliers are reporting spending slowdowns. Our numbers speak to the
growth of this market," CEO Patrick H. Nettles said in an exclusive interview with
Light Reading following today's announcement.
Nettles says carriers worldwide, under pressure to make money from broadband
services quickly, are accelerating their buildout of next-generation optical
switches that replace Sonet add/drop multiplexers and crossconnects.
Nettles has no truck with those who claim carriers are unwilling to make the shift.
"That ten customers this quarter decided to replace their Sonet gear with
[Ciena's] CoreDirector -- a radical change in architecture -- shows that they're not
only willing to change to next-generation equipment, they're openly embracing the
change," he says. "The combination of runaway [expenses] and diminishing
revenues [from existing infrastructure] is driving them to use new solutions."
Installing next-generation optical gear is a no-brainer for these carriers, he says.
"We're not talking about 5 to 10 percent savings on capital expenditure, but 50
percent savings compared to legacy equipment," he asserts. He says
next-generation kit, once installed, can provide 50 percent more savings in
operational expenses for carriers -- while substantially increasing revenue.
Nettles criticizes market researchers who've failed to recognize or publicize the
shift he describes, largely because they glom together new DWDM switches with
Sonet gear in making their counts. "Legacy suppliers list everything they make
as optical networking," he says. "If all the data is stirred together, it's very hard to
separate out [the next-generation gear]." It's a complaint Ciena's reiterated before
to suppliers and market research firms (see Nortel Spins Past Ciena ).
Here are the highlights of today's announcement:
Revenues were $352 million for the first fiscal quarter of 2001 -- growth of
22 percent over fiscal fourth quarter 2000 and more than 130 percent over
last year's figures.
For the first time ever, sales of Ciena's high-capacity CoreDirector switch
surpassed 10 percent of revenues.
Four CoreDirector customers were added this quarter, Broadwing
Communications (NYSE: BRW - message board), Genuity Inc. (Nasdaq:
GENU - message board), Level 3 Communications Inc. (Nasdaq: LVLT -
message board), and McLeod USA (Nasdaq: MCLD - message board)
(see Ciena Lands $200M Deal With McLeod ), bringing total customer
count to 43, 30 of which contributed to revenues in Q1 2001.
Five of Ciena's long-haul customers have adopted its OC192 (10 Gbit/s)
interfaces, and the company expects OC192 channel connections to
"predominate" in product sales of long-haul gear in 2001.
Adjusted net income was $54.1 million, or 18 cents earnings per diluted
share, compared with $41.3 million or 14 cents per share the previous
quarter.
Gross margins were 45.5 percent for the quarter. And while inventory
levels were slightly higher than those of the previous quarter, Ciena said
it's all because of a backlog related to stronger demand, particularly in
North America.
All of this, Ciena says, has encouraged the company to revise its earnings
guidance upward for the remainder of the fiscal year. Instead of expecting to see
earnings per share (EPS) of about 67 cents for 2001, it expects to see EPS
closer to 75 cents. And for fiscal 2002, the company says it expects revenues to
grow in a range from 45 to 65 percent above 2001 levels, versus previous
expectations of 35 to 65 percent.
The lion's share of growth, Nettles says, should come from sales of long-haul
CoreDirector gear. In contrast, business in the metropolitan area networking
market, which some other companies and industry sources emphasize as key to
the optical segment, will represent a much smaller opportunity. "The metro
market is smaller in scale than long haul," Nettles says. "We expect it to be
$900 million in 2001, and we expect to get our fair share of that." Indeed, Nettles
thinks the metro market is shaping up to be "a three-horse race" between Ciena,
Nortel Networks Corp. (NYSE/Toronto: NT - message board), and ONI Systems
Inc. (Nasdaq: ONIS - message board).
In contrast, Nettles says he expects Ciena to dominate the market for long-haul
DWDM gear, which Ciena predicts will be close to $4 billion in 2001. Chief
competition in this space will come from Nortel, which according to Nettles has
linked its optical solutions too closely to its existing Sonet kit. "They're a tough
competitor, but they're going to be hamstrung by not having the right products at
the right time."
Ciena says its acquisition of Cyras Systems Inc. (see Ciena To Buy Cyras for
$2.6 Billion ) will help its penetration in the metro space, since customers
reportedly are looking to use Cyras gear to aggregate links at the network edge
for delivery to the CoreDirector. That merger is on track and expected to be
finalized shortly, executives said this morning.
While analysts universally applauded Ciena's news, the main question seems to
be whether it can continue as planned. What happens, for instance, when the big
North American buildouts that represent the bulk of Ciena's revenues, are built
out?
Not to worry, Nettles told Light Reading. Demand is going to continue to be
fueled by the growth of Internet traffic. "The fact that the dotcom bubble has burst
doesn't mean e-commerce is dead by any means. More and more applications of
e-commerce are going to become mainstream."
-- Mary Jander, senior editor, Light Reading lightreading.com"
lightreading.com |
