Ciena Sees More Gloom Ahead
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May 20, 2002 -- cover
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    February 21, 2002
    Ciena Sees More Gloom Ahead
    Last-minute capex adjustments put a crimp in second-quarter sales estimates.

    Offering additional indications that a recovery in the telecommunications industry is not lurking around the corner, optical-networking leader Ciena revealed today that it expects revenues in the second quarter of this year to plummet to around $100 million.

    The news of a continued downturn in Ciena’s fortunes was delivered in a morning analyst conference call to discuss first-quarter earnings. For the quarter ending Jan. 31, Ciena turned in revenues of $162.2 million, less than half of the sales the company generated in the year-ago quarter.


    While the first-quarter plunge was predicted a few months ago, guidance for the second-quarter declines were apparently based on news the company received from its customers in the past day or so.

    Ciena chief executive Gary Smith said that the figures for the second quarter were based on the fact that two of the company’s historically largest customers recently revealed that they would purchase significantly less equipment than they had expected. Smith would not identify the customers, although Qwest Communications, which recently cut its 2002 capital expense budget for a third time, is one of Ciena’s largest customers.

    Smith’s revelations are likely to be followed in the near future by announcements from the carriers involved of adjustments to their capital-spending budgets.

    Struggling to put a positive spin on the news and the prospect of a recovery, Smith said that a steady demand for bandwidth assures the company that the market eventually will turn around.

    “Clearly, we are very disappointed with the short-term revenue outlook,” said Smith. “I cannot predict when, but we do believe that it [the market] will get healthy again.”

    Another indication of the severe austerity of service providers and carriers is the fact that, of the $162 million Ciena recorded in sales for the first quarter, more than 50 percent came from only two customers, according to the company’s chief financial officer, Joseph Chinnici. He also revealed that Ciena sold goods and services to 40 service providers during the quarter. That means that about $80 million in sales was split between 38 separate customers, an average of around $2 million per customer.

    In terms of products, Smith said that long-haul transport systems still accounted for the highest percentage of sales, but that revenues from the CoreDirector optical-switching family were almost equal. One of the few bright spots in Ciena’s quarter was a large contract to supply AT&T with optical switches for its next-generation network. Smith, however, suggested that the uncertainty attached to the coming quarter would threaten to end the continue upswing in the sales of CoreDirector products. Smith would only point to the K2 metro next-generation Sonet device as a product line that was likely to grow in revenue in the coming quarter. He acknowledged, however, that K2 sales are currently small.

    Ciena officials are likely counting on the announcement made early this week of plans to purchase ONI Systems to take the sting out of the predictions for the next quarter. During a conference call to discuss the ONI acquisition, Smith made it clear that opportunities, especially with incumbent carriers, exist primarily in the metro portion of the network. ONI’s metro-transport gear could provide some needed revenue by early next year, giving Ciena more time for the long-haul portion of the market to recover.

    Smith expressed uncertainty about the timing of a recovery in response to questions from analysts about the prospects of the two customers eventually making good on commitments to purchase gear.

    “We are confident that that will eventually happen,” says Smith, adding that it was unlikely to happen in the short term.


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