Ciena CEO cites network convergence, flexibility as key market trends

March 2, 2006 Linthicum, MD -- Ciena today announced first quarter 2006 revenues totaling $120.4 million, up 27.1% over the same period a year ago. This marks the company's eighth quarter of sequential revenue growth, noted Ciena CEO and president Gary Smith in an interview with Lightwave senior news editor Meghan Fuller.

March 2, 2006 Linthicum, MD -- Ciena today announced first quarter 2006 revenues totaling $120.4 million, up 27.1% over the same period a year ago. This marks the company's eighth quarter of sequential revenue growth, noted Ciena CEO and president Gary Smith in an interview with Lightwave senior news editor Meghan Fuller.

According to Smith, "across-the-board growth" has been driven by increased bandwidth demand. He believes Ciena is well positioned in the high growth areas, including converged metro Ethernet. Moreover, some of the company's key acquisitions in the 2003-2004 timeframe--including WaveSmith, Catena networks, Internet Photonics, and ONI--are driving growth in 2006.

"If not the products, then certainly the technologies we are now putting across multiple platforms," reports Smith. "We're now seeing convergence at the product level, where we're putting Ethernet features into all the products so they can transport and speak to each other. We're seeing more and more of that," he adds. "Convergence and Ethernet is finally beginning to happen."

Smith also reports convergence in terms of network segmentation. Ciena's metro transport platform, for example, is capable of long-haul transmission. Similarly, its long-haul optical platform can serve as a metro regional system. "You are seeing a blurring of the lines between core and metro from a product portfolio point of view and also from a network architecture point of view," he says. "The lines are less sharply drawn between segments."

For his part, Smith believes that carriers today are interested in one thing: Flexibility. Because carriers cannot predict where or when traffic will grow, they are looking to hedge their bets with an architecture that is agnostic to traffic type or service mix. Ciena is focused on delivering a flexible portfolio, he says, and the best example of that is the company's patented FlexSelect architecture, which is software configurable at the port level. "What that allows you to do is to make an investment in an architecture that today might be carrying Ethernet and IP ports, but tomorrow might need to switch to T1, TDM, or storage technology," explains Smith. "I think that's one of the things we're very focused on: Allowing the carriers to be wrong. What this technology does is take some of the guesswork out of planning."

The CN 4200 FlexSelect Advanced Services Platform fared well in 2005, earning contracts from Swisscom, Slovenia's T-2, and Progress Telecom, not to mention a high-profile win with BT.

BT boost

Among Ciena's first quarter 2006 highlights was the successful completion of contract negotiations with BT, solidifying Ciena's role as a preferred supplier for the carrier's 21st Century Network (21CN). BT will deploy Ciena's CN 4200 FlexSelect Platform, the CoreDirector Multiservice Switch, and the CoreStream Agility Optical Transmission System.

"It's a key win for us," acknowledges Smith, "and a very public articulation by BT about putting in a next-generation network based on converged Ethernet and IP. All the carriers around the world are at various stages of evaluating a move toward next-gen converged Ethernet-type architectures, and they are looking at [21CN] as well. Everybody is looking at this converged Ethernet, how do they reduce their operating expenses, how do they increase their efficiencies on the network?"

Ciena already has received its first orders from BT, confirms Smith. "In recent weeks, we have seen an increase in order flow, which seems to validate signs of improving overall market strength," he says. "Depending on the timing of revenue recognition associated with orders from several larger customers, we expect our fiscal second quarter revenue could increase by as much as 7% sequentially from our fiscal first quarter revenue and will likely include initial revenue associated with BT's 21CN project."

Looking ahead, Smith anticipates increased traction from European customers. "They didn't get caught up in some of the large builds of the early 2000s, the bubble builds," he notes. "They didn't build as much, so I think with the traffic growth they have and 3G and the rest of it, expect strong growth out of Europe for us."

--Meghan Fuller

More in Earnings Statements