Ciena Finds Sweet Spot
By Scott Moritz
Senior Writer
3/2/2006 12:52 PM EST
URL: thestreet.com
With a big check coming from British Telecom (BT:NYSE ADR) , Ciena (CIEN:Nasdaq) has reason to be encouraged about the future.
Gary Smith, CEO of the Linthicum, Md., networking gearmaker, says BT's far-reaching network upgrade plan figures strongly in the company's expected sales growth this year.
Ciena posted solid fiscal first-quarter numbers and raised guidance slightly, calling for 7% sequential revenue growth in the current period, up from the 5% analysts were looking for.
While not all the upside for Ciena is coming from BT's 21st Century Network construction plan, some observers wonder if there is more than one big gear buyer in Ciena's future.
Smith says BT's business is huge -- but also offers a glimpse at emerging spending trends across the industry.
"BT has the larger and more aggressive plan," says Smith, adding that "all the major carriers are looking to create a network architecture with lower costs and that [is] more efficient from an operating perspective."
Ciena shares have doubled in the past three months, riding optimism about telecom tech trends. That gave investors fairly lofty expectations going into the earnings report, says one Wall Street analyst. "But the top line was only up $2 million from last quarter, not exactly Mount Olympus," says the analyst.
After an early 7% tumble, Ciena shares rebounded by midday Thursday, up 24 cents, or 5%, to $4.59.
Fans say Ciena's product combination of optical gear and Ethernet transport systems puts it in a good position as telcos look for new equipment to merge increasing Net traffic volume onto more accommodating pathways. Meanwhile, Ciena looks like a challenger as gear peers like Lucent (LU:NYSE) and Nortel (NT:NYSE) remain mired in the soggy demand for old-line products. At this stage, new orders for next-generation equipment at Lucent and Nortel have yet to offset the drag of stale products, say analysts.
Lehman Brothers analyst Marcus Kupferschmidt points out in a note Thursday that Ciena is likely to get in on contracts with AT&T (T:NYSE) and Verizon (VZ:NYSE) , which could support CEO Smith's order growth story.
Though Smith declined to name any specific customers, he says that every phone company is experiencing the same pressure. "There's an overall increasing demand for bandwidth," says Smith. "And that's likely to continue."
Smith says he sees some parallels today to a few of the initial assumptions -- like new applications leading to greater bandwidth needs -- that fueled the original Internet enthusiasm a decade ago. But he points out that the companies involved this time around have more stable business models.
"It's not like the boom in the late '90s," says Smith. "And that's probably a good thing." |
