The Linthicum, Md., telecom gearmaker is due to release fiscal second-quarter earnings before the market opens Thursday. Fans await a strong performance.
But after a wave of mergers and industry consolidation, phone companies have been more selective about where they spend on network upgrades. One particular weak spot has been in Ciena's sweet spot of optical gear.
In the first quarter, "worldwide optical network hardware revenue dropped 12% to $2.6 billion" from prior-quarter levels, says industry researcher Infonetics in a report Tuesday.
A big chunk of the decline was due to a steep drop in optical-equipment sales at telecom giant
last quarter, says Infonetics. Alcatel is planning a transatlantic merger with
But Ciena, with the help of its
big equipment customer
, has a little room to sidestep the spending slowdown that hit Alcatel.
In March, Ciena boosted its fiscal second-quarter sales-growth guidance to 7% over the first-quarter level. Analysts had been looking for about 5% growth during that period.
While BT's 21st Century Network construction plan offers Ciena a fair amount of confidence in its short-term forecasts, some observers wonder if there will be more than one big gear buyer in Ciena's future.
Highly anticipated supply deals with giants like
haven't materialized, though some analysts say outfits like
have plans Ciena could play a role in.
Channel checks by Lehman Brothers' analyst Marcus Kupferschmidt suggest some sales activity beyond BT.
"We believe Sprint deployed some Ciena gear to upgrade" network equipment made by another vendor, says Kupferschmidt in a recent research note. Kupferschmidt has a buy rating on the stock and a $5.50 price target.
Analysts are expecting Ciena to post an adjusted loss of a penny a share on $129 million in sales, according to Thomson First Call. Looking ahead to the fiscal third quarter, analysts are looking for a breakeven quarter on sales of $137 million, or 6% sequential sales growth.
Ciena shares were up 28 cents, or 7%, to $4.06 in midday trading Wednesday.