At least


(CSCO) - Get Report

gave investors something to feel good about.

Early Monday morning, Ciena projected fourth-quarter results would slightly exceed Wall Street estimates, quieting marketwide fears of a shortfall. The company also joined the telecom industry's acquisition-writedown crowd and said it would slash its workforce by 10% in an effort to control costs. The stock jumped 12%.

Ciena's solid results, released well before the market opened, appeared likely to spark an early marketwide rally. But subsequent news of a commercial jetliner's crash in the New York City borough of Queens quickly shifted investors' focus back to the terrorism fears that have overshadowed the market since Sept. 11. Stocks fell across the board.

Ciena, which makes optical switches and transport gear for the Internet, said fourth-quarter earnings would come in at 4 cents to 6 cents a share on revenue of $368 million. Analysts surveyed by Thomson Financial/First Call had forecast earnings of 4 cents on revenue of $361 million.

Ciena also said it would write off $1.7 billion of goodwill incurred in its acquisition of Cyras Systems and lay off 380 workers, or 10% of its workforce. Layoffs have been spreading throughout the industry as hard-hit telcos and gear suppliers strive to balance costs with plummeting revenue.

Considering the bad news spreading across the economy, investors' eagerness to seize on Ciena's strength was understandable. The earnings and cost-cutting news amount to an "incremental positive," said a Silicon Valley hedge fund manager at the UBS Warburg Global Telecom conference in New York.

That said, this investor didn't expect to see a substantial rally till Ciena shows its strength is sustainable. "I think investors will sit on their hands until they see what Ciena does with its 2002 numbers," said the manager, who has no position in the stock. "If they can stick within the range for 2002, it will show they are offsetting the fall in long-haul spending with strength from sales of their CoreDirector."

CoreDirector, Ciena's highly regarded optical switch, is the rare product that can claim success amid a widespread spending freeze in the telecom industry. Ciena has 17 customers for the switch, which allows network operators to manage communications traffic with alacrity, cutting down on operating costs. And in the current environment, cutting costs is job one.

"Controlling expenses is a good thing for them to be doing at this point," said John Viggiano, VP of marketing for Cierra Photonics, a closely held maker of fiber-optic networking gear. "You hope it might be enough to balance what's happening on their sales side."

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