Red Ink Doesn't Faze Ciena

Ciena needs to grow by at least 10% a quarter for the next 10 quarters to reach its current break-even level, according to Levy.

Ciena helped its case a little Thursday, delivering better-than-promised sales growth in the first quarter. The Linthicum, Md., gearmaker said that it expects to do as well or slightly better in the second quarter.

But despite a strong top-line performance, Ciena had a whopping $170 million in net losses, or about 25 cents per share on sales of $70.5 million. While the revenue jumped 14% sequentially, it was well below half the $162 million level a year ago.

On a normalized basis, Ciena had a net loss of 11 cents, which was 2 cents narrower than analysts' expectations, according to a Multex tally.

Ciena says it still expects to show year-over-year sales growth, but will come up far short of its quarterly revenue break-even level of about $200 million. And though that is some three times greater than the current revenue level, the company showed no signs of starting another round of cost cutting.

Investors cheered Ciena's sales performance, sending the stock up more than 3% to $5.68 in midday trading Thursday.

Analysts say Ciena needs to sell more gear to large phone companies in order for its strategy to succeed. This presents a bit of a Catch-22 for Ciena, since it needs to have a sizable sales and support staff to bag the big customers.

For observers like Levy, there's lots of short-term risk involved with going that route.

"The company is patient and they have good products," said Levy. "Our advice to investors is come back in a year."