Ciena reported a mixed second-quarter fiscal 2014 with earnings
beating the Zacks Consensus Estimate and revenues missing the same.
The company provided a positive third-quarter revenue guidance as
order growth is expected to grow at a healthy rate. We believe that
increasing spending on optical upgrades and higher number of orders
from international customers will boost top-line growth for the
rest of 2014. Moreover, the company's Tier 1 contract wins strong
backlog and improving operating leverage are expected to boost
near-term results. Additionally, the partnerships with Ericsson and
Equinix are also major positives. However, higher operating expense
and stiff competition are the primary headwinds going forward.
Further, overdependence on few customers for majority of revenue
coupled with the macroeconomic crisis in Europe may pose concern
for the company going forward. Thus, we downgrade to Neutral from
Outperform and set a price target of $20.00.
Founded in 1992 and based in Linthicum, MD., Ciena Corp. (CIEN)
is a provider of optical networking equipment, software and
services. Effective Dec 23, 2013, the company shifted its listing
from Nasdaq to the New York Stock Exchange.
Ciena's Packet-Optical Transport, Packet-Optical Switching and
Carrier Ethernet Solutions enable network operators to offer
efficient transmission of communication services to businesses and
consumers. The company's technology aims at addressing key issues
such as scalability, increased services, capital expenditure
minimization and rising operating costs faced by service
Ciena earned revenues of $2.1 billion in fiscal 2013. Beginning
first quarter of fiscal 2013, the company reorganized its reporting
segments into (1) Converged Packet-Optical (2) Packet Networking
(3) Optical Transport and (4) Software and Services.
The Converged Packet-Optical (57.0% of 2013 revenues) segment
includes networking solutions optimized for the convergence of
coherent optical transport, Optical Transport Network (OTN)
switching and packet switching. Its principal products include the
6500 packet-optical platform, CoreDirector multiservice optical
switches, 5430 reconfigurable switching system and OTN
configuration for the 5410 reconfigurable switching system.
The Packet Networking (10.7% of 2013 revenues) segment includes
the 3000 family of service delivery switches and service
aggregation switches, the 5000 series of service aggregation
switches and Carrier Ethernet packet configuration for the 5410
service aggregation switch.
The Optical Transport (11.2% of 2013 revenues) segment includes
optical transport solutions that add capacity to core, regional and
metro networks and enable cost-effective and efficient transport of
voice, video and data traffic at high transmission speeds. Its
principal products include the 4200 advanced services platform,
Corestream agility optical transport system, 5100/5200 advanced
services platform, Common Photonic Layer (CPL) and 6100
multiservice optical platform.
The Software and Services (21.1% of 2013 revenues) segment
includes unified service and network management software
facilitating planned network maintenance, outage detection and
identification of customers or services affected by network
troubles. The segment includes sales of ON-Center Network &
Service Management Suite, integrated network and service management
software and the Preside and OMEA software platforms acquired from
the MEN Business. The segment also includes services related
offerings such as installation and deployment, maintenance support,
consulting, network design and training activities.
The company's largest customer AT&T accounted for 17.9% of
fiscal 2013 revenues. Revenues from customers in the United States
comprised 58.5% of 2013 revenues, while International revenues
accounted for the remaining 41.5%. The company operates in the
United States and Canada, Caribbean and Latin America, Europe,
Middle East and Africa (EMEA) and Asia Pacific.
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