Sales Progress Continues to Elude Ciena

Tech investors hoping to see sales momentum shouldn't hold their collective breath for Ciena's (CIEN Quote) Thursday morning comments.

The networking gearmaker has shown steady improvement of late, riding its unusual acquire-through-the-dark-days strategy. But demand for new equipment remains stubbornly soft as phone companies continue to make do with less. And that could mean some setbacks in coming quarters for the Linthicum, Md., company.

Most analysts expect Ciena to hit fiscal third-quarter targets Thursday, so the question on Wall Street is what execs will say about the rest of the year. Bulls have grown more voluble in recent days about the prospect of hopeful guidance. But one industry watcher warns that investors' wishes, however fervent, won't necessarily make it so.

"They'll probably bring it down a bit," optical-gear analyst Sam Greenholtz says of Ciena's fourth-quarter outlook. Greenholtz, of networking research shop Telecom Pragmatics, thinks the company's many fans may have overestimated how quickly Ciena can deliver on promising sales leads. "They're just not getting the contracts they thought they were going to get," he says.

Off the Bottom

Analysts are looking for Ciena to lose 10 cents a share on $71 million in sales in the third quarter, according to a Multex tally. That is roughly flat with the previous quarter and a 42% improvement from sales levels a year ago.

What really intrigues some investors and analysts, though, is the prospect that Ciena might report progress with large buyers like British Telecom (BTY Quote) and the U.S. government. The latter in the midst of contract decision-making for a four-phase network construction project.

But Greenholtz says government money for the government's so-called GIG BE data-networking project isn't expected to start flowing until midyear 2004, so any near-term excitement may be jumping the gun a bit.

Even so, Ciena fans like the company's chances of emerging as one of the stronger players in the industry once healthy gear-buying returns. Over the past two years, Ciena has used the success of its industry leading CoreDirector optical switch to win new customers.

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