With a big check coming from British Telecom ( BT), Ciena ( CIEN) has reason to be encouraged about the future.
Gary Smith, CEO of the Linthicum, Md., networking gearmaker, says BT's far-reaching network upgrade plan figures strongly in the company's expected sales growth this year. Ciena posted solid fiscal first-quarter numbers and raised guidance slightly, calling for 7% sequential revenue growth in the current period, up from the 5% analysts were looking for. While not all the upside for Ciena is coming from BT's 21st Century Network construction plan, some observers wonder if there is more than one big gear buyer in Ciena's future. Smith says BT's business is huge -- but also offers a glimpse at emerging spending trends across the industry. "BT has the larger and more aggressive plan," says Smith, adding that "all the major carriers are looking to create a network architecture with lower costs and that is more efficient from an operating perspective." Ciena shares have doubled in the past three months, riding optimism about telecom tech trends. That gave investors fairly lofty expectations going into the earnings report, says one Wall Street analyst. "But the top line was only up $2 million from last quarter, not exactly Mount Olympus," says the analyst. After an early 7% tumble, Ciena shares rebounded by midday Thursday, up 24 cents, or 5%, to $4.59. Fans say Ciena's product combination of optical gear and Ethernet transport systems puts it in a good position as telcos look for new equipment to merge increasing Net traffic volume onto more accommodating pathways. Meanwhile, Ciena looks like a challenger as gear peers like Lucent ( LU) and Nortel ( NT) remain mired in the soggy demand for old-line products. At this stage, new orders for next-generation equipment at Lucent and Nortel have yet to offset the drag of stale products, say analysts.