CIENA (CIEN)

Q2 2012 Earnings Call

May 31, 2012 8:30 am ET

Executives

Gregg M. Lampf - Vice President of Investor Relations

Gary B. Smith - Chief Executive Officer, President and Director

James E. Moylan - Chief Financial Officer and Senior Vice President of Finance

Thomas Mock - Senior Vice President of Corporate Marketing & Communications

Analysts

Kevin J. Dennean - Citigroup Inc, Research Division

Mark Sue - RBC Capital Markets, LLC, Research Division

Eric A. Ghernati - BofA Merrill Lynch, Research Division

Blair King - Avondale Partners, LLC, Research Division

Paul Silverstein - Crédit Suisse AG, Research Division

Simon M. Leopold - Raymond James & Associates, Inc., Research Division

Jeffrey T. Kvaal - Barclays Capital, Research Division

Brian T. Modoff - Deutsche Bank AG, Research Division

Ehud Gelblum - Morgan Stanley, Research Division

Rod B. Hall - JP Morgan Chase & Co, Research Division

Nikos Theodosopoulos - UBS Investment Bank, Research Division

Scott Thompson - FBR Capital Markets & Co., Research Division

Sanjiv Wadhwani - Stifel, Nicolaus & Co., Inc., Research Division

Jess L. Lubert - Wells Fargo Securities, LLC, Research Division

Michael Genovese - MKM Partners LLC, Research Division

Presentation

Operator

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Good day, everyone, and welcome to the Ciena conference call to report unaudited second quarter 2012 results. This call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Ciena's Vice President of Investor Relations, Mr. Gregg Lampf. Mr. Lampf, please go ahead.

Gregg M. Lampf

Thank you, Allison. Good morning, and welcome to Ciena's Second Quarter 2012 Review. With me today is Gary Smith, CEO and President; Jim Moylan, CFO; and Tom Mock, Senior Vice President, Corporate Communications.

This morning's press release is available on National Business Wire and ciena.com.

In our prepared remarks, Gary will discuss management's view on the quarter, and Jim will offer some color on our Q2 results and provide guidance for Q3. We'll then open the call to questions from sell-side analysts, taking one question per person with follow-ups as time allows.

As a reminder, we'll be hosting our Analyst Day on Monday, June 11, in New York. That event will get underway at 1 p.m., and we look forward to seeing many of you there.

Before turning the call over to Gary, I'll remind you that during this call, we will be making certain forward-looking statements. Such statements are based on current expectations, forecasts and assumptions regarding the company that include risks and uncertainties that could cause actual results to differ materially from the statements discussed today. These statements should be viewed in the context of the risk factors detailed in our most recent 10-Q filing. Our 10-Q is required to be filed with the SEC by June 7, and we expect to file by that date. Ciena assumes no obligation to update the information discussed in this conference call whether as a result of new information, future events or otherwise.

Today's discussion includes certain adjusted or non-GAAP measures of Ciena's results of operations. A detailed reconciliation of these non-GAAP measures to our GAAP results is included in today's press release available on ciena.com.

This call is being recorded and will be available for replay from the Investors section of our website.

Gary?

Gary B. Smith

Thanks, Gregg, and good morning, everyone. With revenue of $478 million and tangible progress against our operating leverage objectives, we are pleased to report an overall strong performance in our second fiscal quarter. Our network specialist strategy, which encompasses a sharp focus on next-generation packet-optical networking, innovative solutions and a differentiated customer engagement model, is being validated across multiple vertical markets. That traction is enabling Ciena to take a position of competitive strength and clear architectural leadership in the marketplace.

In recent weeks, you've seen announcements with customers from the ranks of major Tier 1 service providers, submarine cable operators and public research and education organizations who've chosen Ciena solutions spanning transport, switching and control plane as foundational technologies for their network modernization strategies. We're seeing customers look for some very specific characteristics as they evolve their networks towards application-centric and cloud-based models including the convergence of network layers and functions, open interfaces, network-level programmability and proven control plane software for automating that programmable infrastructure.

Demand for these capabilities plays to Ciena's strength as the network specialist. By design, we've developed some of the industry's deepest expertise and deployed the most flexible implementations of these technologies. For example, we recently announced that we've extended our newest-generation control plane, OneConnect, across our transport and switching platforms to create a leading family of converged programmable solutions. This convergence also allows us to address a much broader range of applications from the metro through the submarine domain to drive architectural change in the industry.

That need for change has contributed to growing momentum for our 5400 Family, which is now united by OneConnect with our 6500 platform, forming the critical elements of a new architectural model. These solutions are hybrid platforms for TDM, OTN and packet networking that are fully programmable and automated by common control plane. With 6500 driving 100-Gig into the marketplace and automated OTN switching being adopted by major customers, we believe the 5400 Family is now well positioned for growth.

While we are still in the early stages for this platform in terms of revenue, our order flow has been solid. Again, as a point of reference, after 12 years, our predecessor to 5400, essentially the CoreDirector, has approximately 40 customers. Even at this early stage of adoption, 5400 is already halfway to that mark, which I think speaks to the increased market opportunity for this platform.

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