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Q3 Preview: Ciena (CIEN) May Suffer from Weaker Carrier Spending; Analysts Cautious into Results

Shares of communication equipment maker Ciena Corp. (Nasdaq: CIEN) ended about 3 percent lower Wednesday afternoon ahead of its expected third-quarter earnings.

Before the market opens Thursday, Ciena should report a loss of 8 cents per share, on revs of $443.25 million. The loss would be 67 percent worse than the 24 cent loss reported last quarter, and a slight gain from a loss of 9 cents in the same period last year.

Ciena shares lost 45 percent in the quarter and are down 22 percent since. The stock is off 42 percent since the start of 2011. Ciena has traded in a range of $10.33 to $29.24 over the last 52 weeks.

Amid the drop in share price through the quarter, Ciena still has 16 analysts with a Buy rating, 10 at Hold, and one suggesting to Sell, according to data from Bloomberg. The price target consensus is $22, with a low of $12 and high of $34.

Analyst Comments

  • JPMorgan sees a loss of 9 cents per share on revenue of $442.2 million. JPMorgan is cautious into the report, citing weakening carrier spending. "The silver lining is that overall optical demand remains robust (+15% Q/Q in Q2'11), but this is largely due to strength from Huawei and ZTE in APAC and EMEA in our opinion." Checks indicate weaker revs in Long-Haul DWDM and Metro WDM. Data also suggests Ciena gained 0.8 percent market share sequential in optical switching.

    JPMorgan sees "strong cost discipline in light of the macro uncertainty to lead to improved operating margin."

  • Kaufman Bros. sees a loss of 7 cents on revenue of $440.3 million. Kaufman thinks Ciena is gaining some "traction in its 40G and 100G optical product segments in the U.S. and in some overseas carrier markets, driven by continued increases in demand for bandwidth tied to consumer wireless data growth, as well as enterprise connectivity. However, we currently see no data points that would reverse the current 'show-me' investor psychology on shares, which have recently sold off in line with the group."

    Kaufman sees management's goal of low- to mod-30 percent operating expected levels at the end of fiscal 2011 as "challenging," considering second-quarter levels were 44.5 percent of sales. Another negative into the report is Ciena "is still facing a series of post-M&A operational challenges, and a difficult opex structure."

  • Wells Fargo is looking for a loss of 9 cents per share in the quarter, with revenue of $445 million. "We believe Ciena's FQ3 results benefited from healthy carrier spending on 40/100G transport, greater revenue recognition on the 5430 switch and improved CESD sales to AT&T...Ciena maintains little to no exposure to China which has been a source of weakness in the optical supply chain."

    The firm is modeling for gross margins of 41.5 percent and operating margins of 0.5 percent. "We expect Ciena's gross margin to benefit from an improved mix of higher margin switching and CESD sales, while we believe operating expenses should benefit from initiatives to rationalize the supply chain and streamline backend processes post completion of the Nortel deal."

  • Miller Tabak sees Ciena reporting roughly in-line with views. Tabak believes, "Ciena's:40G/100G Product line should be up roughly 15% Q/Q to $150 million adding roughly $20 million to the quarterly forecast...and is expecting a decline of roughly 5% or $7 million in the 10G line to roughly $135 million."

Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of the release.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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