Ciena Corp. (NASDAQ: CIEN) started an optical communications stock price avalanche yesterday when it reported results from its fiscal third quarter of 2012. The fact that the company lost $29.8 million on a GAAP basis was bad enough. But when Ciena, which previously had done a better job than most of its competitors in increasing revenues despite the overall slowdown in the global economy, issued a down forecast for the upcoming quarter, many investors took that as a sign to head for the exits.
The optical transport systems vendor’s stock lost 20% of its value yesterday, closing at $13.46, after it reported $474.1 million in revenue for the quarter ended July 31. While that figure was essentially flat versus the previous quarter’s $477.6 million, it marked an 8.9% improvement year-over-year. Yet that bit of good news could not stand up to the disappointment created when Ciena management said they expect revenues for the current quarter to fall between $455 million and $480 million. This range fell well short of consensus forecasts of $501 million. Taking Ciena’s guidance as a sign that an expected rebound in carrier spending will not be as robust as hoped (if it happens at all), investors hammered both Ciena and other stocks in the sector. (To follow the performance of optical communications stocks, bookmark the Lightwave Optical Index.)
Speaking to analysts on an earnings call yesterday morning, CEO, President, and Director Gary Smith said that growing weakness in Europe and the fact that North American carriers were taking longer than expected to “operationalize” networks for which the company has supplied equipment offset comparative success in Asia Pacific and CALA in the third quarter. He said that he expects these trends to continue as well, which led to the disappointing forecast for fiscal 4Q12.
While he offered no predictions on when the situation in Europe would turn, he said that he expects North American carriers will indeed continue to buy and install Ciena equipment based on previously shared plans.
“In the dialogue that we're having with our major customers in North America, I would say that none of them are backing off from their strategic deployments and adoption of their infrastructure,” Smith asserted on the call. “That is not, I think, what is affecting the rollout of those new networks. I think it is more around the ability to operationalize those wins.
“And our assumption going into 2013 is the macro doesn't get appreciably any better,” he added.
Nevertheless, Smith expressed confidence that Ciena could continue to grow in such an environment by taking market share, particularly in such relatively new areas for the company as metro networking.
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