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(CIEN) - Get Ciena Corporation Report

Thursday slashed second-quarter revenue projections by nearly a third, as demand for network equipment continues its yearlong free fall.

The Linthicum, Md., company, which Monday set a $900 million acquisition of another struggling optical network gear shop,



, projected second-quarter revenue of just $100 million. That's 32% below the Wall Street consensus of $148 million and a stunning 76% below its year-ago revenue of $425 million. Ciena shares, already 90% below their 52-week high, plunged 58 cents, or 6% in early trading to $8.12, setting a 52-week low.

The optical networking shop told analysts and investors on a conference call Thursday that two major customers would shelve their orders, further reducing sales for coming quarters. Ciena executives declined to identify the customers, but observers note that struggling phone companies Qwest and Sprint represented more than half of the company's 2001 revenues. Citing uncertainty and the prospect of more order slowdowns, company executives declined to provide any financial guidance for the year.

The news hardly comes as a shock to investors who have been watching the market's flogging of Qwest and Sprint in recent weeks. The big telcos have seen their shares plunge amid worries that they won't be able to service big debt loads.

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Qwest, for one, has repeatedly cut back its capital spending as it seeks to balance spending with weakening revenue -- cuts that come at the expense of outfits like Ciena. Last week, Qwest cut its equipment budget to $3.7 billion, or 56% below last year's levels and suggested that it could, if need be, spend as little as $1.5 billion on its network this year.

"There continues to be a high level of uncertainty surrounding service providers' near-term spending," CEO Gary Smith said in a press release. "We recently received information that leads us to believe that two of our historically most important customers may purchase significantly less from us than they had previously indicated."

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Onetime highflier falls

Wall Street has already more or less figured out that 2002 won't be a good year for Ciena. The company is expected to lose 66 cents a share on revenue of $641 million, reversing a 2001 profit of 60 cents on revenue of $1.6 billion.

But the depth of the company's despair is becoming clearer every day, as its shares plunge and penny-pinching big telcos cut back further on their network-building plans. Ciena insisted Thursday that its customer and revenue-inflicted despair wouldn't change the terms of its all-stock merger with ONI, though the market's reaction may dictate whether that statement stands up. The merger requires a majority vote from both Ciena and ONI shareholders in order to be approved.

The nasty outlook news more than overshadowed Ciena's first-quarter results, which matched analysts' expectations. For the quarter ended Jan. 31, Ciena lost 17 cents a share on $162 million in revenues, reversing a year-ago profit of 18 cents. Wall Street had expected a loss of 20 cents on $164 million in revenue, according to Thomson Financial/First Call.

Wrapping up the call with analysts, CEO Smith said when the industry returns to health and demand returns, Ciena will be in a position to benefit.

He offered up little more than the company's core strengths as reason to be encouraged.

"We wish we had better short-term news," said Smith. "But "we remain very confident in our future based on our product portfolio, customer base and strong balance sheet."

Investors may not be quite as confident.