Ciena Gears Up for Recovery

With the worst of the financial crisis presumably over and phone companies scrambling to accommodate higher traffic levels, Ciena chief Gary Smith is slightly optimistic about his networking equipment business.
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LINTHICUM, Md., (

TheStreet

) --

Ciena

(CIEN) - Get Report

sees a sliver of hope in tech spending.

With the worst of the financial crisis presumably over and phone companies scrambling to accommodate higher traffic levels, Ciena chief Gary Smith is slightly optimistic about his networking equipment business.

"The trajectory is in the right place," Smith told TheStreet. "We see stability in North America, and we think Europe may lag that a bit."

Smith's comments follow the Thursday release of Ciena's fiscal third-quarter results, which beat profit, margin and sales targets.

Ciena shares got a 5% boost from the upbeat talk and solid numbers, but the enthusiasm was somewhat muted as the company set sequentially flat targets for the current quarter.

The head-fake on guidance was similarly mixed on an earnings conference call with analysts. Smith refused to say whether order levels had rebounded from early this year. But he shared other info that sounded encouraging. Smith's staffing plan, for example, was to hire more and fire less employees. This would be a sign, arguably, that Ciena may have turned a corner after a bruising period of revenue declines and cost cuts.

Ciena has had to balance its goals of increasing spending on research and development while keeping cash flow out of the red. Pushing product development in the downturn gives Ciena a "strategic advantage coming out" of the tech spending slump, said Smith in the interview.

Ciena's role as a networking specialist focused on optical and Ethernet equipment gives it a somewhat more sheltered position than some of its larger rivals like

Cisco

(CSCO) - Get Report

and

Alcatel-Lucent

(ALU)

. Shares of maller gear peers like

Juniper

(JNPR) - Get Report

, and network testing shop

EXFO

(EXFO) - Get Report

were up 1% and 6% by midday Thursday.

As for the numbers, on an adjusted basis, excluding $17.8 million in one-time charges, Ciena posted a net loss of $4.8 million, or a nickel a share for the fiscal third quarter. Those numbers compare with an adjusted loss of $22.5 million or 25 cents a share in the prior quarter and a 37-cent pro forma profit in the year-ago period. Analysts had expected an adjusted loss of 13 cents a share, according to Yahoo! Finance.

Sales for the fiscal third quarter ended in July were $164.8 million, up 14% from the prior quarter but down 35% from last year's level. Analysts had expected Ciena's sales to drop 40% to $152.6 million in the most recent quarter.

Ciena managed to squeeze 17% of its operating cost in the past nine months. This effort was evident in Ciena's gross margins, which expanded to 46% from 43% in the previous quarter.

Ciena shares rose 72 cents, or 6%, to $12.99 in midday trading Thursday.

Written by Scott Moritz in New York.