Ciena Sinks as Revenue Forecast Disappoints

Ciena (CIEN Quote) narrowed its loss and improved its revenue in the fiscal third quarter, and the company disclosed plans for a new acquisition, saying it must get bigger in order to compete. But the suggestion that revenue could decline sequentially had investors selling the networker's stock in premarket trading.

For the quarter ended July 31, revenue totaled $68.5 million, an increase of 37% from $50 milllion in the same period a year ago. When calculated using generally accepted accounting principles, Ciena lost $88.9 million, or 20 cents a share. Excluding items, the company would have lost 9 cents a share. Ciena lost $160 million, or 42 cents a share, last year.

The company projected that fourth-quarter revenue will come in anywhere from 5% below to 5% above its third-quarter top line, depending on the timing of certain orders.

"We continue to win new customers and to expand the solution set sold to existing customers," Ciena said. "However, the timing of revenue recognition, particularly with incumbent carriers, remains difficult to predict with certainty."

Analysts expected Ciena to lose 10 cents in the third quarter with revenue of $71 million. For the fourth quarter, Wall Street is looking for sales of $78 million.

Shares of Ciena were dropping 63 cents, or 11%, to $5.19 in Instinet action before the opening bell.

"If Ciena is going to thrive in today's telecom environment, we must get bigger, not smaller," the company said in a press release. "We continue to believe that we cannot simply cost-cut our way back to sustainable profitability. We believe restoring growth and profitability to our business will require the combination of expanding our addressable markets while simultaneously reducing and realigning our spending with the opportunities we see."

Along that line, Ciena agreed to acquire Akara, a privately held company with development facilities in Ottawa, Canada, and about 50 employees. Akara's products are designed for SONET/SDH-based extended storage-area networking. Ciena will pay $45 million in cash and stock for Akara, and the company expects to close the transaction in the fiscal fourth quarter.