5/17 CIEN ( $59 run $65)Earnings Triple Before Items
By Ben Klayman
CHICAGO (Reuters) - Ciena Corp. (NasdaqNM:CIEN - news) on Thursday reported a second-quarter net loss of $50.68 million, but earnings before items more than tripled to beat Wall Street forecasts, and the communications equipment maker said it can continue to dodge the economic slowdown thanks to strong demand for its next-generation optical networks.
The Linthicum, Maryland-based company, which makes equipment that increases the capacity of fiber-optic telecommunications networks, also said it promoted Chief Operating Officer Gary Smith to chief executive. Smith, 40, will retain his title of president.
Chairman and CEO Patrick Nettles, 57, will immediately assume the role of executive chairman, focused on long-term strategic direction. No reason was given for the management change, but Wit SoundView analyst Kevin Slocum called it an ``orderly transition.''
Ciena shares surged almost 6 percent and were still up about 2 percent, or $1.10, at $60 in Thursday morning Nasdaq trading. Over the past year, the stock has outperformed the Nasdaq 100 index by about 50 percent.
Ciena said its net loss, including $75.7 million in charges for its recent acquisition of Cyras Systems and for payroll taxes on stock option exercises, was 17 cents a diluted share for the three months ended April 30, compared with year-earlier net income of $18.41 million, or 6 cents a share.
Revenues more than doubled, to $425.4 million from $185.7 million.
For the second quarter, adjusted earnings, excluding Cyras and the payroll taxes, topped Wall Street's expectations, increasing to $65.4 million, or 20 cents a diluted share, from $19 million, or 6 cents a share, in the year-ago period.
Analysts surveyed by Thomson Financial/First Call had on average expected earnings of 16 cents a share, with a range of 15 cents to 18 cents.
``We've said all along that we didn't expect Ciena would be immune to the impact of the larger macroeconomic conditions and that in fact has proven true,'' Smith told analysts on a conference call after the results were released. He added that several customers have cut spending since the last quarter and orders have been delayed.
Nevertheless, Smith said carriers are spending more on next-generation gear to cut costs, which will allow Ciena to weather the slowdown better than its competitors.
In the short-term, however, Ciena executives said they have seen ``desperate pricing tactics'' from some unnamed competitors that could squeeze gross margins in the third quarter by 1 percentage point from the second quarter rate of 45.6 percent.
Ciena's inventories at the end of the second quarter rose to $276 million from $207.2 million in the first quarter, but officials said that was in line with expected shipments of Ciena's CoreDirector optical switch product.
While Ciena's sales have remained strong amid curtailed customer spending, other tech giants -- including Cisco Systems Inc. (NasdaqNM:CSCO - news), Lucent Technologies Inc. (NYSE:LU - news), JDS Uniphase Corp. (Toronto:JDU.TO - news)(NasdaqNM:JDSU - news), and Nortel Networks Corp. (NYSE:NT - news)(Toronto:NT.TO - news) -- have slashed earnings forecasts and cut jobs.
Ciena has ``done a fabulous job of navigating very difficult waters and executing their business,'' said Robertson Stephens analyst Paul Silverstein.
``They have broadened their product base and customer base. They now have five different product segments within optical infrastructure, versus one product segment just over a year ago,'' he added.
Ciena had revenue from eight new customers in the second quarter, including initial revenues from recently announced customers Genuity Inc. (NasdaqNM:GENU - news), Level 3 Communications Inc. (NasdaqNM:LVLT - news), and TyCom Ltd. (NYSE:TCM - news) Two unidentified customers accounted for 52 percent of revenues in the second quarter, down from 63 percent a year ago.
Ciena's total revenue-generating optical networking customer base now totals 49, of which 33 contributed to revenues in the second quarter.
Its success has been driven in part by CoreDirector, an optical switch that can adapt to handle changing network capacity needs, analysts said. Sales of CoreDirector, which continues to gain market share, surpassed 10 percent of Ciena's total revenues in the second quarter, Ciena said.
Even though Ciena's second-quarter earnings topped Wall Street expectations, its guidance for the full year remained unchanged from its previous forecasts on Feb. 15, when it reported first-quarter results.
Ciena said it believes it can achieve 2001 revenue growth of 95 percent to 105 percent over 2000. It said it is possible to hit full-year adjusted earnings per share of 72 cents to 75 cents, compared with analyst expectations of 73 cents.
The company also said fiscal 2002 revenues are expected to grow between 45 percent to 65 percent, in line with analysts' current estimates.
``Since they just came in 3 cents above, and 4 cents above some expectations, some analysts are going to perceive this (the full-year guidance) as negative,'' Silverstein said. ``It's effectively saying that second-half numbers are going to have to be trimmed modestly. I think this is Ciena being prudent, rather than something amiss with their business.''
Ciena's cash on hand at the end of the second quarter was $1.8 billion. |
