Ciena Cutting Deeper

"I think it indicates that the larger buyers would rather deal with bigger, healthier equipment vendors," says Bechter, who has a hold rating on Ciena.

That would explain why Ciena's once-promising toehold at some big phone companies is now slipping.

According to one source, Ciena has cut its entire Verizon (VZ Quote) sales team and most, if not all, of its AT&T (T Quote) sales staff. Those are two of the industry's largest buyers -- and two places where Ciena has had difficulty turning equipment trials into repeat orders.

"I think these recent cuts are the sorts of reductions they should have been doing last year," says one industry strategist who asked not to be named. "But instead, it seems like they just kept hoping that the market comes back."

While Ciena's troubles are largely a function of its upstart status in a highly competitive industry, its larger peers haven't exactly sailed through the postboom recovery period without hitting a few rocks.

Lucent (LU Quote) was hit with a $25 million penalty Monday by the Securities and Exchange Commission for hindering a three-year investigation into sales misdeeds. Nine current and former sales staffers were also charged with crooked sales practices.

And a widening accounting scandal at telecom-equipment giant Nortel (NT Quote) helped get its CEO and several top financial officers fired for cause.

Ciena shares were up 17 cents, or 4%, to $3.84. The company is due to report its second-quarter earnings Thursday morning, before the market opens.