) reported a loss of 16 cents per share (including stock based
compensation) that widened from the Zacks Consensus Estimate of a
loss of 14 cents and was much worse than the 7 cents loss
reported in the year-ago quarter.
Total revenue increased 2.2% year over year to $465.5 million,
which was within management's guided range of $455.0 million to
$480.0 million, but missed the Zacks Consensus Estimate of $470
million. The quarterly revenues edged up on the back of higher
demand for Ciena's services.
Product revenue, which accounted for 78.0% of the total
revenue, slipped 1.3% from the year-ago quarter to $363.2
million. Services revenue, which contributed 22.0% to the total
revenue, jumped 17.2% year over year to $102.4 million.
Adjusted gross profit (including stock based compensation)
inched up 1.0% year over year to $197.6 million in the quarter.
Gross margin contracted 60 basis points (bps) on a year on year
basis to 42.4%, primarily due to unfavorable product mix.
However, gross margin exceeded management's guidance of 40.0%
primarily due to robust performance of the Carrier Ethernet
Solutions software and service.
Operating expenses (including stock based compensation) were
up 5.2% year over year to $199.7 million and as a percentage of
revenue expanded 120 bps during the quarter. The year-over-year
upside was primarily attributed to a 5.0% increase in research
and development expenses coupled with 4.0% rise in selling and
marketing expenses and 9.2% jump in general and administrative
expenses. Moreover, restructuring costs went up from $0.6 million
in the year-ago quarter to $1.9 million.
The sharp rise in expenses dragged down profitability in the
quarter. Ciena reported an operating loss (including stock based
compensation) of $2 million compared with a profit of $6 million
in the year-ago quarter.
Non-GAAP net loss (excluding stock based compensation) for the
quarter was $6.7 million or 7 cents per share, which worsened
from the year-ago net profit of $3.3 million or 3 cents per
share. Including stock based compensation, net loss came at $15.5
Ciena exited the quarter with $642.4 million in cash and cash
equivalents, up from $617.2 million in the previous quarter. The
company had $10.6 million in cash from operations versus $23.1
million in the previous quarter.
Ciena expects fiscal first quarter 2013 revenue to range
between $435 million and $460 million. Adjusted gross margin
(excluding one-time operating items) is projected to be at the
lower range of 40%, while adjusted operating expenses is expected
to remain in the high $180 million range. Ciena expects to incur
restructuring expenses in the range of $3 million to $5
Ciena expects a tepid first quarter due to reductions in order
volume and deployment activity owing to the holiday season. For
2013 management remains optimistic and expects to gain market
share driven by continued spending from telecom carriers, who
remain focused on upgrading their networks. Moreover, favorable
product mix is expected to expand top-line growth in 2013.
However, management hinted at subdued gross margins due to
startup costs related to new orders and its deployments.
Ciena continues to disappoint with its inconsistent execution
as losses widened in fiscal 2012. The company provided a dismal
first quarter outlook, although revenue is expected to increase
in the range of 4.4% to 10.4% on a year-over-year basis.
However, gross margin is forecasted to contract approximately
190 bps, while operating expenses are expected to increase
approximately 3.0% year-over-year, which may hurt profitability
in the first quarter. Currently, the Zacks Consensus Estimate is
pegged at a loss of 9 cents per share.
Although we believe that increasing spending on optical
upgrades will help the company to counter sluggish macroeconomic
conditions over the long term, the company may lose market share
due to stiff competition from
Cisco Systems Inc.
Currently Ciena has a Zacks #4 Rank (Sell).
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