Ciena, Customers Just Can't Get Together

Collecting customers is one thing. Now Ciena (CIEN Quote) investors are getting antsy about when the cash will start tumbling in.

After posting slightly weaker-than-expected third-quarter sales and warning of a possible fourth-quarter slide, the networking gearmaker on Thursday had its fans pondering once more when Ciena might fulfill its considerable promise.

The question arises because Ciena remains the rare telecom shop hoping to pursue success through growth. Where many rivals have jettisoned promising but unprofitable businesses, Ciena has been acquiring. And having compiled an impressive list of telco customers over the past year -- AT&T (T Quote), Telmex (TMX Quote) and British Telecom (BTY Quote) come to mind -- Ciena has "potential" written all over it.

But Thursday wasn't the day for realizing Wall Street's dreams, as a glaring absence of big orders fed Ciena's second-straight quarterly sales decline. After sliding 7% early, the stock was unchanged around midday at $5.82.

"We're not where we want to be," said CEO Gary Smith in an interview after the earnings call. He added that the company is working on "translating wins into revenues."

And that's exactly what concerns the investment crowd that once fancied Ciena as a strong upstart poised for breakaway sales success at the expense of larger rivals Cisco (CSCO Quote), Lucent (LU Quote) and Nortel (NT Quote).

Instead, Ciena is now facing a three-quarter top-line losing streak.

Smith says the buying process is a fickle one, a chain of events that's determined entirely by the whims of major customers. In part, it's a matter of timing, says Smith. The orders will come, he says, but they are subject to the "lumpiness of large carriers."

But while Smith predicts orders are being lumped, others predict they are being dumped.

"I like Ciena. I don't think it's necessarily their fault," says Telecom Pragmatics' analyst Sam Greenholtz, referring to the shifting fortunes of telco customers and competing products edging into Ciena's turf. That said, "I think they believe these revenues are coming, but there are a lot of other things going on."