(Wire)Although telecommunications-equipment supplier Ciena Corp. reported better-than-expected earnings for its fiscal first quarter, the company upset investors by warning that profit for the current quarter could be less than expected because of reduced orders from WorldCom.Inc.
The announcement, made after U.S. markets closed Thurs.,sent Ciena's shares tumbling Fri. In afternoon trading on the Nasdaq , shares of Linthicum, Md.-based Ciena were off $14.313, or 25% at $43.813. Volume was heavy at about 20 million shares, compared with average daily turnover of 1.9 million shares.
Ciena makes so-called dense wavelength division multiplexing systems for long-distance telecom networks. The equipment boosts the capacity of existing fiber-optic lines by a magnitude of 16 without adding new fiber or upgrading network equipment.
Ciena, which had a spectacular initial public offering last year and saw its stock price soar afterward, said a shift by WorldCom to just-in-time ordering will result in a substantial reduction in system requirements from Ciena during fiscal year 98'. Ciena wouldn't quantify how the reduced WorldCom orders will affect future earnings. Company executives acknowledged that the WorldCom decision, relayed to Ciena earlier this week, puts the earnings outlook, in doubt.
We're comfortable with consensus revenue expectations of $603 million for fiscal year 98', but the $1.47 a share (First Call) is uncertain given the new news from WorldCom, said Ciena.
John Sidgomre, Worldcom's chief operating officer, said, "During 97', Ciena delivered more capacity and at a faster rate than we frankly thought was possible. As a result, our long-distance capacity deployment is ahead of schedule."
Ciena said it plans to make up for the expected lost revenue caused by the WorldCom shift by increasing revenue from existing and potential customers. The company also said that "significant purchasing" from WorldCom could resume in the latter part of the year.
For the quarter ended Jan.31, Ciena said net income jumped to $39.8 million, or 37 cents a share on a fully diluted basis, from $13.1 million, or 13 cents a share, in the year-ago period. Revenue more than doubled to $134.3 million.
Ciena shares have shown strength in recent weeks, despite a new-product introduction from competitor Lucent Technologies Inc. that some say could hurt Ciena. Separately, AT&T Corp. is considering purchasing Ciena's gear, although the size and timing of any purchases remain unpredictable. AT&T is not a current customer of Ciena.
Ciena recently announced the acquisition of closely held ATI Telecom Internationoal of Norcross, Ga., for $52.5 million in stock. The company said the deal is expected to add moderately to 98' earnings.
Fiber-optic systems break data into quick burst of light representing the zeros and ones of computer language-when the light is off, it represents a zero and when on, represents a one. Ciena's gear places a prism of sorts in front of the light to split it into 16 virtual fibers that can travel down one line. Exploding Internet usage is driving the demand for increased line capacity. Building new "trunk" lines is expensive and major carriers prefer to increase the capacity of existing systems.
However, shares of Ciena fell last month after its much bigger rival Lucent said it has developed a dense wavelength division multiplexing system that can split certain fibers into as many as 80 virtual fibers that can travel down one line, or five times the bandwidth of Ciena's and other systems. AT&T has said it plans to deploy Lucent's system to double the capacity of its 40,000-mile fiber-optic network by year end.
Ciena's warning also led to investor concerns about Uniphase which provides products used in Ciena's gear. However, Uniphase declined to speculate on any possible impact that the company might experience. |
