The Lightwave Blog

Posted by Stephen Hardy

Ciena announced unaudited results for fiscal second quarter 2009 today. Not surprisingly, the company reported down revenue; what was perhaps unexpected was a whopping GAAP net loss of $503.2 million, most of which was a non-cash charge of $455.7 million for impairment of goodwill.

The magnitude of the loss may have obscured the somewhat hopeful note of the commentary:

"Our fiscal second quarter was particularly challenging, reflecting the difficult macro and industry environment and continued delays in customer spending," said Gary Smith, Ciena's CEO and president. "While recent service providers' public commentary about expected annual capital expenditures has given the industry reason to be more optimistic about the second half of the year, our customers continue to spend cautiously, and as a result, our visibility remains limited. However, based on our direct conversations with customers and supported by trends we are seeing currently in the business, including recently improved order flow, we expect to deliver sequential revenue growth in our fiscal third quarter."

The question, of course, is whether that rebound will occur and will it be significant. Simon Leopold, communications equipment analyst at Morgan Keegan & Co., still thinks Ciena is a good bet. "We maintain our Outperform rating on Ciena," he wrote in a note issued today. "Despite the poor April quarter, good sequential improvement leaves us optimistic. Challenging visibility remains, but sequential improvement, a new product cycle, net cash per share near $3 and a CY10 EV to sales of 1.0x suggests the stock has upside potential. One could argue for a fair value near $15 based on an EV/Sales ratio of 1.5x."

Labels: Ciena

Posted by Stephen Hardy

Last week's announcement that Ciena will design in a tunable pluggable transceiver from Bookham that doesn't conform to current multisource agreements (MSAs) -- and apparently expects to have a second source deliver similar modules -- raises the question of whether there is going to be a demand for a new MSA. Such an form factor would serve as an interim step down in size between, say, an X2 and an XFP-E.

Why would the industry need such an MSA? Clearly, Ciena wanted to deliver the benefits of tunable pluggables now and couldn't find a supplier capable of meeting its requirements in an XFP-E or smaller form factor. If Ciena is willing to go with a custom size, will its competitors do the same to avoid falling behind?

Yves LeMaitre, VP of telecom sales at Bookham, says there currently aren't MSA discussions focused on his company's device. "At the same time, you are absolutely right about the need for an MSA in the coming two years," he wrote in an email when I posed the question to him. "The value of a tunable-pluggable solution is evident and we believe that the adoption rate will be extremely high amongst optical systems manufacturers."

Unless someone comes up with a tunable X2, XFP, or XFP-E soon, the pressure for a new MSA will rise. The fact that there will be at least two companies making "Ciena-sized" modules might move such an MSA into the development fast lane.

Labels: Bookham, Ciena, transceivers, tunable