Telecom Firm Ciena Returns To Profit
By Chris Kirkham, Washington Post Staff Writer
Telecom equipment maker Ciena of Linthicum, Md., yesterday reported its first profit in five years, a rebound for a company stung by a dismal industry downturn earlier in the decade.
It’s been a slow crawl upward for Ciena, which has tried to diversify its offerings by spending billions of dollars to acquire smaller companies with new technology. And it’s not clear whether one quarter in the black means Ciena’s fortunes are changing.
“We’ve retooled the business,” said Gary B. Smith, Ciena’s president and chief executive. “We’re a much stronger, broader business now.”
Ciena posted profit of $13.1 million for the quarter ended in October, compared with a loss of $252.9 million in the comparable quarter in 2005. The company was a leader among Nasdaq stocks yesterday, rising $2.87, or 11.5 percent, to close at $27.83.
A major deal with Verizon to provide a transatlantic network to Europe fueled a revenue gain, as did a deal with British Telecom to revamp its network to ethernet-based technology.
Consumers’ hunger for faster Internet connections and more choices such as high-definition television and wireless has put pressure on major telecom companies to get more out of their existing networks. Companies such as Ciena, Nortel Networks and Alcatel-Lucent provide the gear to transport more information over existing connections.
All three were survivors of a precipitous decline in demand for telecom equipment in 2001 and 2002, when major carriers such as AT&T and WorldCom realized they had built too much network capacity and stopped buying the products.
“The difference is night and day,” said Brant Thompson, a telecom equipment analyst with Goldman Sachs in New York. “When the bubble burst, all your major customers were in the worst shape. Now they’ve built themselves back up, they’ve expanded their product line. . . . They’re very much back on track.”
Despite the warm reception from Wall Street investors yesterday, Ciena’s revenue for the quarter was mostly in line with analysts’ expectations. Revenue rose 35 percent, to $160 million. The quarter’s profit also pushed Ciena into the black for the fiscal year. Annual profit was $595,000, compared with a loss of $435.7 million the previous year.
The earnings were higher than expected, but a return to profitability was no major surprise. During the analyst conference call, Smith said investors’ expectations for single-digit revenue growth next year were on track.
Among the changing strategies cited by Ciena executives: more international customers than in the past; more outsourcing for manufacturing of equipment; and more diverse customers, including the health-care sector and federal and state governments.
“I wouldn’t say we’re immune from major trends in the industry,” Smith said. “We just have a broader palette of technologies across a broader customer base that makes us more resilient.”
Ciena’s foundation has been fiber-optic-equipment technology. But even as the company tries to diversify with broadband access and data networks, traditional offerings continue to drive growth.
In fact, fiber optics are a growing portion of Ciena’s sales. Seventy-four percent of its sales came from its traditional fiber-optic hardware, growing from 67 percent the year before, Simon Leopold and Paul A. Bonenfant of Morgan Keegan wrote in an analyst note.
That has led some industry consultants to criticize Ciena for spending more money in buying new technology from other companies than in investing in its own research.
“If they had been more patient, if they had been more deliberate, they wouldn’t be any worse off than they were,” said Mark Lutkowitz, a principal for Telecom Pragmatics, a Nashville consulting firm. “They were always an optical company, and they will always be an optical company. . . . It still amazes me that they can’t accept their heritage and their destiny.”
Reported By TechNews.com, http://www.TechNews.com
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