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Ciena rises on strong earnings, upbeat outlook

    Ciena topped earnings and revenue estimates Thursday with a strong first quarter. CEO Patrick Nettles said he expects Ciena's business will continue to grow faster than the overall market, and he raised revenue projections for 2001.

    Shares in Ciena (Nasdaq: CIEN) were up $10.81, or 14 percent, to $87.63 in afternoon trading Thursday. Ciena makes fiber-optic equipment for telecommunications firms.

    Ciena's results boosted the confidence of investors, who have been worried about telecom equipment vendors' prospects amid an industrywide slowdown. Ciena rivals Sycamore Networks (Nasdaq: SCMR) and ONI Systems (Nasdaq: ONIS) also recently confirmed their outlooks for 2001.

    The company's revenue of $352 million came in above First Call's estimated $315.36 million. It was also up 22 percent over fourth-quarter revenue of $287.6 million, and up 130 percent as compared to last year's first-quarter revenue.

    Adjusted net income for the first quarter, exclusive of payroll tax on stock option exercises, was $54.1 million, or 18 cents a share, topping First Call's estimate of 15 cents a share. That's a slight increase over the fourth-quarter earnings of 14 cents a share, and well above last year's first-quarter earnings of 3 cents a share.

    The company also revised its guidance for upcoming quarters. Including the acquisition of Cyras Systems. Ciena said it now expects 2001's revenue growth to be between 95 percent and 105 percent over last year's. That translates into a revenue range of between $1.67 billion and $1.76 billion for fiscal year 2001. The company had said it expected annual revenue growth from 75 percent to 85 percent over 2000's last quarter.

    On a conference call with analysts, officials said the company expects sequential revenue growth of 14 percent to 16 percent in its second quarter, up over previous expectations of 11 percent to 13 percent. Officials also said Ciena was raising projections for 2002; it now expects annual growth of 45 percent to 65 percent over 2001, compared to the previous forecast of 35 percent to 65 percent.

    Ciena noted a slowdown in carrier spending, but wasn't complaining.

    "There is no question that economic factors are causing service providers to more carefully scrutinize where they spend their budget dollars," president and chief operating officer Gary Smith said in a release. But it's a dynamic that actually helps Ciena by accelerating the shift from cumbersome, network architectures to cheaper, more efficient, optical networks, Smith added.

    Nettles emphasized that Ciena sees strong growth and increasing visibility as it takes advantage of the shift from legacy to next-generation networks. The company's new customer, Level 3 (Nasdaq: LVLT) is "another example of where a new generation of products is being adopted by carriers whose focus is on data-centric architecture," said Nettles in a phone interview. He also said he doesn't see competitors like Nortel (NYSE: NT) or Sycamore benefiting from the switch to next-generation equipment.

    "Ciena's exclusive focus on next generation equipment puts us right on the sweet spot of (a) shift," Nettles said.

    Analysts' reactions to the quarter were overwhelmingly positive; most raised their estimates and reiterated ratings.

    SG Cowen analyst John Butler reiterated a "strong buy" and $77 target price on the stock Thursday. He also raised his revenue estimate for 2001 from $1.54 billion to $1.7 billion based on the company's revised growth estimates.

    Salomon Smith Barney analyst Alexander Henderson reiterated a "buy" and said the first-quarter numbers "should refocus investors' attention back to Ciena's enviable market position and away from non-core issues." He also noted the company's outlook could bode well for the photonics market and JDS Uniphase (Nasdaq: JDSU).