Red Ink Doesn't Faze Ciena

Updated from 10:05 a.m.

Losses schmlosses. Ciena (CIEN) will brave a surge of red ink using a hefty cash supply and its leading technology, leaving it to investors to decide whether or not they're on board.

The optical networking shop is selling a mere third of the gear it needs to sell to turn a profit, but with nearly $2 billion in the bank, executives aren't panicked.

"While others are slashing and burning, there's an opportunity for us to hold the course," said Ciena Chief Executive Gary Smith in a postearnings call interview Thursday. "We are one of the few players that can sell our way back to profitability."

Ciena's bold stance differs greatly from some of the larger equipment-making rivals like Lucent (LU) and Nortel (NT), which continue to slash workers and products in an urgent attempt to return to profitability. The three-year slump in telecom gear sales and heavy debts has forced suppliers to cut their operations to the bone. Nortel and Lucent are nearing sizes roughly one third that of their peak levels during the Net boom era.

Not so with Ciena. With fewer employees, fewer products and little debt, Ciena vowed last year to capitalize on its relative strengths during the telecom recession and continued to invest in new areas. Last year, for example, the company bought metro optical equipment maker ONI to add local network products to its portfolio.

"Clearly they have enough cash to last them until they return to break-even. The last time I did the math, I figured they have about four years' worth of cash at this rate," said Lehman Brothers analyst Steve Levy, who has a sell rating on the stock. Lehman has no underwriting ties to Ciena.

"The issue is not whether they can spend their way out of this," said Levy, "it's an issue of how long it takes them to get there."