Tech investors hoping to see sales momentum shouldn't hold their collective breath for
Thursday morning comments.
The networking gearmaker has shown steady improvement of late, riding its unusual acquire-through-the-dark-days strategy. But demand for new equipment remains stubbornly soft as phone companies continue to make do with less. And that could mean some setbacks in coming quarters for the Linthicum, Md., company.
Most analysts expect Ciena to hit fiscal third-quarter targets Thursday, so the question on Wall Street is what execs will say about the rest of the year. Bulls have grown more voluble in recent days about the prospect of hopeful guidance. But one industry watcher warns that investors' wishes, however fervent, won't necessarily make it so.
"They'll probably bring it down a bit," optical-gear analyst Sam Greenholtz says of Ciena's fourth-quarter outlook. Greenholtz, of networking research shop Telecom Pragmatics, thinks the company's many fans may have overestimated how quickly Ciena can deliver on promising sales leads. "They're just not getting the contracts they thought they were going to get," he says.
Off the Bottom
Analysts are looking for Ciena to lose 10 cents a share on $71 million in sales in the third quarter, according to a Multex tally. That is roughly flat with the previous quarter and a 42% improvement from sales levels a year ago.
What really intrigues some investors and analysts, though, is the prospect that Ciena might report progress with large buyers like
and the U.S. government. The latter in the midst of contract decision-making for a four-phase network construction project.
But Greenholtz says government money for the government's so-called GIG BE data-networking project isn't expected to start flowing until midyear 2004, so any near-term excitement may be jumping the gun a bit.
Even so, Ciena fans like the company's chances of emerging as one of the stronger players in the industry once healthy gear-buying returns. Over the past two years, Ciena has used the success of its industry leading CoreDirector optical switch to win new customers.
And to help capitalize on those wins, Ciena has acquired companies such as ONI and WaveSmith to help broaden its metropolitan optical-gear and data product lineup.
During that same period, larger rivals like
have had to jettison many of their promising yet unprofitable product lines to stay afloat.
Ciena's lack of profits has made it a hard stock for many investors to get comfortable with. But the company may start to answer critics by showing some fiscal fitness this time around.
Though Ciena has $1 billion in cash and has made few excuses for having a quarterly revenue breakeven levels running as much as three times higher than current sales, analysts expect the company will likely say that it has made progress on cost-cutting efforts.
While analysts expect gross margins to hover around 24% in the third quarter, anything closer to 30% will be seen as evidence that Ciena is getting a handle on its expenses.
To be sure, managing costs is a widely appreciated talent these days. But Ciena investors are slightly more eager to hear something about growth. Watch out if the message is disappointing.