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Ciena Hopes Sales Growth Trumps Risk

NEW YORK ( TheStreet) -- An improving top line should take care of the bottom line, says Ciena (CIEN - Get Report) chief Gary Smith.

Ciena disappointed investors Thursday with a big miss on net losses. The whiff sent shares down 10% as the surprising losses compound concerns about Ciena's ability to manage expenses while integrating Nortel's optical networking business.

But Ciena deflected some of the biggest concerns by delivering solid sales for its fiscal fourth quarter. The firm also cited order growth as it predicted a 5% sequential revenue increase in its fiscal first quarter.

Still, clouds hang over the integration challenges facing Ciena and its pending $769 million cash and stock deal for Nortel assets acquired through a bankruptcy process. Ciena expects to close the deal by April.

The move would nearly double the size of the networking specialist. And though many of Nortel's customers are Ciena customers, there's no certainty that the pairing will revive slumping sales and restore profits.

"We've got our arms around it, and we've proven in the past we can do it," says Smith, referring to Ciena's ability to stem its losses while adding new businesses.

However, this time the challenge is considerably larger.

Some investors have been placing bets that Ciena's Nortel transformation won't be all sweetness and light. Short interest in Ciena -- the percentage of its shares being shorted or borrowed with the hope of returning them at a cheaper price -- was among the biggest of all the stocks in the S&P 500 last month, according to Bloomberg.

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