Updated from 3:57 p.m. EST on March 6.Ciena
(CIEN)
reported strong numbers this morning with earnings of 47 cents per share vs. expectations of 40 cents per share (non-GAAP basis) and revenue of $227 million vs. consensus of $226 million. GAAP earnings were 40 cents per share, ahead of Street consensus of 32 cents per share share as well.
Good beat, indeed. About 3 cents per share of the beat can be attributed to better-than-expected margins and the balance to better-than-expected other income and higher-than-expected interest income. Sure looks like the company's exposure to subprime is also in the past now.
The gross margin came in at 51.6% vs. guidance of high 40%s. The operating margin climbed to 16.7% vs. management guidance of 15%. The service gross margin checked in at 25% vs. 12.7% last quarter and 13.4% year over year, which was a major contributor to the overall gross margin. It definitely looks like the issues at BT Group
(BT)
that were affecting the Ciena's services gross margin are now pretty much in the rearview mirror.
Operating expenses were $78.1 million, up $2.2 million quarter over quarter and, at almost 35% of revenue, checking in at the higher end of guidance.
On the call, the company said that organic growth would be 22%, which is higher than what the Street was anticipating (20%). This is the major reason that the shares have been handsomely rewarded this morning.
Ciena also stated that the company is not seeing the same weakness that Cisco
(CSCO)
and Nortel
(NT)
have been talking about, and the raised organic guidance, from 20% to 22%, reflects that statement.
I think that Ciena's product lines generate a lot of interest from customers and the company has formed a strong customer base at the expense of its rivals.
I also think that Ciena shares are undervalued at the moment and I expect most of the cheerleaders (even those bearish on the company) to raise their estimates going forward.
I took a good guy shot at the opening bell.
CIEN Preview: Will Winning Streak Continue?
Ciena
(CIEN)
will report earnings before the market opens tomorrow morning.
The Street expects the company to report earnings of 40 cents per share on revenue of $225.6 million for the January quarter. For the April quarter, current Street consensus is at 40 cents per share in earnings on revenue of $233 million. For the full year (ending October 2008), current estimates are at earnings of $1.61 per share on revenue of $948 million. For fiscal 2009, current consensus is at $1.93 per share in earnings based on $1.1 billion in revenue.
Ciena has blown away Street consensus for the past three quarters and especially in the last two, when it beat by 14.3% and 32.3%, respectively.
Here are some lingering questions to keep in mind during the earnings release and conference call:
How is demand for the company's optical products doing?
How is demand for the Core Director line?
Any clarity on the chatter that has been making the rounds regarding the potential Verizon
(VZ)
account win?
What does the company say about revenue growth going forward from BT Group
(BT)
and AT&T
(T)
?
How is the company's business with Nortel Networks
(NT)
and Alcatel-Lucent
(ALU)
coming along given the troubles at the two telco equipment providers?
What is the outlook/guidance on revenue, gross margins, operating margins and earnings?
Is the company seeing any delays in carrier spending?
What does the company see in terms of carrier demand going forward?
What are the competitive issues at present and going forward?
How much exposure does Ciena have to the troubled asset-backed securities sector?
The company did take a $13 million Structured Investment Vehicle related charge in the last quarter. How much exposure is left as far as the company's investments in SIVs?
Cisco
(CSCO)
recently said that it was seeing a slowdown in European carrier spend. Is Ciena seeing the same thing regarding its European customers?
What is the company saying regarding the World Wide Packets acquisition (which could be dilutive to current consensus for 2008 but could be accretive for current 2009 numbers)?
I am looking for in-line numbers and guidance at best. I think that, given the uncertain times, Ciena could reiterate guidance with an outside chance of any deviations.
Good luck going into earnings whichever way you are positioned, good guy or dark-sider.
At the time of publication, Somaney was long Ciena stock and Ciena calls, although positions may change at any time without notice. Jay Somaney is a partner and fund manager with TSG Capital Partners, a hedge fund based in Plano, Texas, and founder of GlobalTechStocks.com, a subscription site that focuses on technology and Indian stocks (including ADRs), providing information, news and chatter. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Somaney appreciates your feedback; click here to send him an email.
