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Ciena tops estimates, names new CEO

The fiber-optic equipment company handily beats Wall Street estimates with second-quarter earnings of $65.4 million and promotes Chief Operating Officer Gary Smith to CEO.

Ciena handily topped Wall Street estimates Thursday with second-quarter earnings of $65.4 million, or 20 cents a share, excluding one-time items. The company said it was comfortable with Wall Street estimates for future quarters and promoted Chief Operating Officer Gary Smith to CEO.

Ciena's earnings easily topped First Call estimates of 16 cents a share. Revenue for the quarter was $425.4 million, up 20 percent from the first quarter and 129 percent from a year ago.

The Linthicum, Md., company posted a net loss of $50.7 million, or 17 cents per share, including $75.7 million in charges related to the acquisition of Cyras Systems, as well as charges for payroll taxes on stock options and amortization of goodwill.

Ciena makes fiber-optic telecommunications equipment and competes with Nortel Networks, ONI Systems and Sycamore, among others.

Ciena also announced Thursday that Smith would take over as CEO, replacing Patrick Nettles. Nettles, who serves as chairman as well, will become executive chairman and focus on long-term strategy for the company.

Perhaps more importantly, the company said it expects to see sales continue to grow 95 percent to 105 percent in 2001 compared to the preceding year. Ciena said it could hit First Call's 2001 earnings estimates of 73 cents a share, provided that it can continue to execute and that "macro economic conditions do not change dramatically."

While company officials said that they have seen some "desperate" pricing moves by at least one competitor, they added that they believe their products are good enough to "mitigate" the impact.

Still, Chief Financial Officer Joseph R. Chinnici said gross margins could slip up to 100 basis points in the third quarter based on those pressures, as well as product and customer mix.

Looking ahead to the fourth quarter, Chinnici said they would be "plus or minus a little bit versus third quarter," depending on how well the company's new MetroDirector K2 switching system does. He also advised analysts, "If you model revenue growth at the high end of (the) range, you (should) also model expenses at the high end of the range."

The comments about pricing pressure and gross margins were enough to stop Ciena shares in their tracks. Ciena's stock had risen by as much as $5 in pre-market trading, but the stock was down 47 cents to $58.43 shortly after the opening bell.

The telecom-equipment market has been hammered of late, as telecom companies cut back on spending amid the harsh economic climate. In that market, the mere absence of bad news has been enough to boost a stock, as Ciena recently found out.

But while some companies have suffered, Ciena has managed to hold its head above water. WitSoundView analyst Kevin Slocum said Ciena appears to be gaining market share from rivals including Nortel Networks and Lucent Technologies.

"The environment is tough, but we believe the company is grabbing market share at a number of accounts," said Slocum. "Among those is lead customer Qwest, where the outlook is for continued strong spending with Ciena throughout the year."

Indeed, the company recently saw its stock bump up after announcing a deal to supply equipment to TyCom for an undersea optical network.

"While service providers have clearly become more cautious with where they spend scarce (capital expenditure) dollars, we believe Ciena's strength offers further evidence of a shift in carrier spending--from costly, hard-to-scale legacy networks to more capital-efficient, operationally effective, intelligent next-generation optical networks," Nettles saiD.

This is the second quarter in a row Ciena has topped estimates; in February, it reported first-quarter earnings of 18 cents a share on revenue of $352 million. The company also upped its outlook for future quarters.