Ciena surges on strong 1st quarter, beefed-up outlook

CEO Patrick Nettles said he expects Ciena's business will continue to grow faster than the overall market and raised revenue projections for 2001.

Shares in Ciena were up $12.19, or almost 16 percent, to $89 by market close Thursday, after closing up about 10 percent Wednesday. Ciena makes fiber-optic equipment for telecommunications companies.

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

For the quarter ended Jan. 31, 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 with 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 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 projections 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 said it expected annual revenue growth of between 75 percent and 85 percent.

On a conference call with analysts, executives said the company expects sequential revenue growth of 14 percent to 16 percent in its second quarter, up from previous expectations of 11 percent to 13 percent. The executives 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, based in Linthicum, Md., 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," Gary Smith, chief operating officer, said in a release. But that dynamic actually helps Ciena by accelerating the shift from cumbersome network architectures to cheaper, more-efficient optical networks, he 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, 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 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.