Ciena expects strong demand from cloud, mobile computing

Reuters News
Posted: Jun 06, 2013 7:13 AM
Ciena expects strong demand from cloud, mobile computing

By Chandni Doulatramani

(Reuters) - Network equipment maker Ciena Corp said it expects strong growth in cloud computing and higher use of smartphones, and forecast stronger-than-expected revenue for the current quarter.

Ciena shares jumped as much as 15.5 percent on the Nasdaq on Thursday morning. Shares of rival Finisar Corp were up 5 percent while those of Juniper Networks Inc were up about 1 percent.

Ciena, which makes switches to route internet traffic and broadband access products, said it expects to grow faster than the overall market helped by a "fundamental shift in network architecture."

"Mobile data volumes are expected to continue to increase dramatically in the very near term. And machine-to-machine connections are forecast to reach 24 billion over the next several years," Chief Executive Gary Smith said on a conference call with analysts.

Machine-to-machine applications allow wireless and wired systems to connect with other devices.

The company said it expected third-quarter revenue of $515 million to $545 million. Analysts on average expected $509.5 million, according to Thomson Reuters I/B/E/S.

Ciena and its rivals such as Cisco Systems Inc and Infinera Corp are likely to benefit as North American telecom companies, particularly AT&T Inc and Verizon Communications Inc, expand their 4G services.

The need for high levels of convergence, automation, capacity, openness, and software intelligence is leading Ciena's customers to change how their networks are structured and managed, the company said.

Wells Fargo analyst Jess Lubert said healthy spending by Tier-1 U.S. telecom carriers, which have started deploying 100G coherent optics, carrier ethernet and optical transport network switching capabilities, should drive growth for Ciena.

Tier-1 carriers, such as AT&T Inc and Verizon Communications Inc, don't borrow network capacity.

Ciena's margins should improve as many companies using its converged packet optical and carrier ethernet solutions are moving from trials to commercial production, Lubert said.

Ciena's optical switches help telecom carriers manage load on their networks.

The global 100G, or 100 gigabit ethernet services market, is expected to grow to $4.8 billion by 2016 from $892 million in 2012, according to market research firm Frost & Sullivan. Ethernet services are used by telecommunications companies to provide high-speed networks for corporate customers.

Bigger rival Cisco, which reported strong third-quarter results last month, also said it expected current-quarter revenue to increase.

Ciena's net loss narrowed to $27.1 million, or 27 cents per share, in the second quarter, from $27.8 million, or 28 cents per share, a year earlier. The company earned 2 cents per share before items.

Revenue rose 6.3 percent to $507.7 million.

Analysts expected an adjusted loss of 1 cent per share on revenue of $483.6 million.

Ciena shares, which have gained 11 percent in the last month, were up 12.5 percent at $18.35.

(Additional reporting by Sayantani Ghosh in Bangalore; Editing by Joyjeet Das)