While trying to foretell the upcoming Ciena 3rd Quarter 2008 results to be released this Thursday, September 4th, RBC Capital Markets Managing Director Mark Sue is reporting that customer concentration remains the challenge for Ciena, and in particular, key customer Sprint (~10%) seems to have sharply turned off its capex (capital expenditures) spigot.
 According to Sue: "Although Ciena may be enjoying solid trends with BT, AT&T and Verizon for that matter, we're not expecting a rebound anytime soon at Sprint. Subsequently, we're reducing our estimate for the upcoming October quarter from $268M to $260M or just 3% sequential growth. CY09 EPS declines from $1.88 to $1.80. Shares may nonetheless be reaching a bottom trading at just 10X our new CY09 EPS estimate. Ciena's market cap. is $1.5B and the company maintains ~$2.0B in NOLs (Net Operating Loss)." |
Ciena Stock Chart:
Sue adds: "Ciena's July quarter results this Thursday morning should be solid and we're expecting revenues to grow 4% sequentially to our estimate of $252M vs. the consensus of $254M. EPS may come in at $0.40, in line with the consensus, although a penny may come from a lower share count. The issue may be the outlook. Although Ciena may stick to its 27% revenue growth for the year, inclusive of the World Wide Packets acquisition, visibility has decreased and closure rates have expanded, in our view.
"Looking ahead, Ciena may see an uptake in major markets with Verizon and continued progress at BT, both internally and within the 21CN (21st Century Network) build. WWP remains on track for $35-$40M in revenues this fiscal year and we look for an expanding role for this Ethernet-centric product at AT&T.
"Gross margins on the product side still remain predominately product mix dependent and we are estimating slightly down gross margins from last quarter's 56.4%. Service gross margins should hold steady at 30%. Operating margins may dip sequentially due to the a ramp in R&D expenses as Ciena elected to accelerate certain new product development. Overall operating margins nonetheless may remain near 15%."
He concludes: "Optical demand remains healthy, in our view, yet the problems at certain service providers are having an impact on Ciena. We believe Ciena is executing well with other key accounts and is also diversifying its revenues with tier 2 carriers. And with a broadening product portfolio, Ciena is expanding its addressable market into carrier Ethernet. New target of $25 reflects 14X our CY09 EPS."
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