Ciena Drops 16% on Sales Warning

Updated from Feb. 3

Ciena (CIEN Quote) plunged 16% early Wednesday after the networking outfit warned that an order delay would cause a steep sales shortfall.

The Linthicum, Md., maker of optical gear for telecom networks said it expects first-quarter revenue of $66.4 million. That's some $9 million short of the Wall Street analyst consensus, a gap CEO Gary Smith attributed to "timing associated with a single order."

The setback indicates that Ciena continues to lack a hot product that big telco customers are eager to expend their scarce capital dollars on. Ciena rivals such as Nortel (NT Quote) and Juniper (JNPR Quote) have surged this year as investors bet their gear will be snapped up as big telcos like Verizon (VZ Quote) boost capital spending.

Meanwhile, Ciena's industry-leading optical switch, the CoreDirector, is losing traction as phone companies shift toward rival products from Sycamore (SCMR Quote) and new equipment from Alcatel (ALA Quote).

"Although we have delivered the equipment to fulfill this order and the customer is pleased with its performance, it has taken longer than we anticipated to work through the formalities and processes associated with revenue recognition," Smith said. Ciena doesn't recognize revenue until its gear is installed and tested by the customer.

The company expects to lose 8 to 10 cents a share for the quarter on a pro forma basis, excluding certain charges. That's a shade more than the 8 cents analysts surveyed by Thomson First Call expect Ciena to lose. Based on generally accepted accounting principles, Ciena expects to lose 17 to 18 cents a share.

Ciena hopes to make it back in the second quarter, though. "We are confident we will work through these formalities in our fiscal second quarter, and while the environment remains challenging, we currently anticipate fiscal second quarter revenue growth of up to 20% sequentially," said Smith. That would still be below current estimates, which call for second-quarter revenue of $84 million -- some $5 million above Ciena's target.

On Wednesday, Ciena slid $1.14 to $6.15.