We recently upgraded our recommendation on
) from Neutral to Outperform following the better-than-expected
third quarter results.
In the third quarter of 2012, Ciena's top line ($474.1 million)
increased 8.9% on a year-over-year basis and was also ahead of the
Zacks Consensus Estimate of $473.0 million driven by robust demand
for its products. Product revenue, which accounted for 78.8% of the
total revenue, increased 6.7% from the year-ago quarter to $373.4
million. Services revenue, which contributed 21.2% to the total
revenue, jumped 18.1% year over year to $100.7 million.
Though, Ciena reported a loss per share of 11 cents, it was
lower than the Zacks Consensus Estimates of a loss of 13 cents per
share. Going forward, Ciena's cost-cutting initiatives are expected
to drive its bottom-line growth. This is reflected in the 11.4%
decline in its operating expenses in the first nine months of
fiscal 2012 from the comparable period last year. Moreover,
operating expenses as a percentage of revenue was down from 51.8%
to 43.1% over the same period of time.
Ciena has been ramping up its product portfolio. The new product
offerings beyond its core optical networking expertise has expanded
its customer base and grown its addressable market. Ciena's
revenues are benefiting from growth in most of its business
segments. Revenue has been benefited by the strong demand for
Packet-Optical transport and switching products, integrated network
and service management software
In the nine months of fiscal 2012, the company has reported a
6.9% year-over-year increase in its Packet-Optical transport
revenue, 4.7% year over year increase in its Packet-Optical
Switching revenue and 13.7% increase in its revenue from software
and services segment. These revenue improvements also helped to
offset the decline in Carrier-Ethernet Solutions revenue (down
15.3% year over year) over the same period of time.
We believe that pent-up demand for Ciena's products will boost
the top-line going forward. Moreover, we expect multi-year optical
upgrades to act as a positive catalyst for the company over the
long term. We believe that increasing spending on optical upgrades
will help the company to counter sluggish macroeconomic conditions
Moreover, we anticipate a continuing recovery based on favorable
operational execution, strong product pipeline and new deal wins
from Tier 1 service providers. However, unfavorable product mix and
Cisco Systems, Inc.
) remains a concern in the short term.
Currently, Ciena has a Zacks #3 Rank, which implies a Hold
rating in the short term.
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