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NEW YORK ( TheStreet) -- With the recent moves being made by Alcatel-Lucent(ALU), it's become hard to ignore the spotlight that now shines on rivals like Ciena(CIEN - Get Report), which is in the midst of a pretty remarkable turnaround of its own.
The last time I discussed Ciena, I questioned the
company's competitive position against larger rivals like
Juniper(JNPR), especially amid the weak carrier spending environment. In that article I said:
"If Ciena can show that it can innovate and leverage its existing technological advantage to fight off pricing pressure, then it certainly has a chance. Also, with so much R&D spending of late, the company needs to show investors the fruits of their support."
Since that article Ciena has done exactly what I've outlined and more. In response, the stock has soared close to 30%. With a rebound in spending from large carriers like
AT&T(T), I'm not ready to bet that Ciena's stock is done climbing.
I'm not suggesting that investors should dive in blindly. But after a solid second-quarter earnings report, I'm convinced that Ciena's worst is over.
Given Cisco's strong
third-quarter performance and excellent guidance, there were plenty of reasons to be optimistic ahead of Ciena's results. With second-quarter revenue jumping up 6% year over year and beating expectations by 5%, the company didn't disappoint.
Ciena showed tremendous growth in packet networking, which was up a stunning 91% year over year. I've said on more than one occasion that the company's strength in networking along with its best of breed packet-optical business, which was up 10%, makes Ciena a prime acquisition candidate.
Oracle(ORCL)put up $2.1 billion for
Acme Packet(APKT) earlier in the year, I sensed this was the first domino of a list of telecom companies that were going to get picked off.
The fact that Ciena has remained an independent for this long is surprising. But investors shouldn't discount this possibility, which makes the stock even more interesting, especially given the premium that Oracle was willing to shell out for Acme Packet.
As I noted recently,
Alcatel-Lucent is aware of this potential domino effect and is therefore (in my humble opinion) fixing its books to appear more attractive. However, unlike Alcatel-Lucent, Ciena has not had issues with cash flow and is in much better shape to immediately produce a return to any suitor.