The problem, however, is that the Street absolutely hated management's second-quarter guidance. It's an overreaction. Ciena's management didn't say anything we haven't heard from Cisco (CSCO) and Juniper (JNPR). And it's not as if Ciena had overpromised in the quarter just completed. Guidance was considered weak when it was issued in December.
The company specializes in broadband, data networking and optical equipment services, which means that it's main customers included (among others) are Verizon (VZ) and AT&T (T). If you follow the telecom sector, you know it's these companies that have under-invested in infrastructure for the past couple of years.
This occurred while analysts predicted strong capacity upgrades that never came. And even though there has been some modest improvement in carrier spending, it's been anything but robust, not just in the U.S. but also abroad.
Cisco's CEO John Chambers has made this clear on several occasions. Somehow it has become Ciena's fault for not promising better days. We have no idea when spending will return to robust levels.
Here's what we do know; although the good times have yet to arrive, Ciena is well positioned to steal and/or preserve market share when carriers can no longer starve themselves. With first-quarter revenue surging 18% year-over-year, management continues to do an exceptional job differentiating Ciena's products and services.
Ahead of the report, there were concerns that Verizon's deal with Vodafone (VOD) would impact the strength of Ciena's relationship with Verizon. It was said that Verizon would no longer "need" Ciena. This, too, was overblown. And with adjusted earnings climbing 8% year over year, the Street has to now explain how it could have underestimated Ciena's performance 116%. The Street expected 6 cents per share. Ciena delivered 13 cents.