Despite missing on earnings per share in its fiscal fourth
quarter and entering what management describes as “a quarter in which we
typically experience seasonal reductions in order volume and customer
deployment activity,” shares in Ciena Corp. rose on Wall Street
yesterday.
Analysts speculated that the growth in order backlog may have led
investors to conclude that Ciena is in good shape for a hoped-for future
turnaround in fiber-optic network equipment spending.
Ciena reported December 13 results for its fiscal fourth
quarter, which ended October 31. Revenues of $465.5 million represented a 1.8%
sequential decline but a 2.2% improvement over the year-ago quarter. For the
recently concluded fiscal year, Ciena reported $1.8 billion in revenue, up from
$1.7 billion for fiscal 2011.
GAAP net loss for the recently concluded quarter was $38.8
million ($0.39 per common share), worse than the GAAP net loss of $22.3 million
($0.23 per common share) suffered in the year-ago fourth quarter. For the fiscal
year 2012, Ciena reported a GAAP net loss of $144.0 million ($1.45 per common
share) versus a GAAP net loss of $195.5 million ($2.04 per common share) for
fiscal year 2011.
“With five percent annual revenue growth and fourth quarter
financial performance in line with our expectations, we continued to
significantly outpace the market and take share in 2012 despite the challenging
environment. That momentum resulted in record order flow and year-end backlog,”
said Gary Smith, president and CEO of Ciena, via a press release. “Customers
require more network convergence with greater programmability to deliver more
services, and we believe our portfolio is leading the transformation to
next-generation intelligent networks.”
Investors appeared to buy the story, despite the fact that
Ciena guided revenues for the first quarter of fiscal 2013 at $435 to $460
million, with adjusted (non-GAAP) gross margin percentage in the low 40s and
non-GAAP operating expense in the high $180s million range. Shares of the company’s
stock closed yesterday at $15.80, up from the previous day’s $15.57 on a volume
of 15,671,698.
Investor enthusiasm for the stock left several analysts
puzzled. “A record $2 billion of orders in FY12 and 25% backlog increase to
$900 million along with hope regarding a capital spending cycle seems to have
fueled investor optimism,” wrote Raymond James analyst Simon Leopold in a note
to investors by way of example. “We note that FY11 ended on a similarly upbeat
note with backlog rising ~20%, yet FY12 fell short of expectations.
“The intraday rise in Ciena's shares surprises us and
appears as a hope trade (i.e., belief that it generates significant growth and
margin improvement eventually),” continued Leopold, who has Ciena’s stock rated
as “Market Perform.” “Ciena's return to profitability and achievement of its
long term 10% to 12% operating margin target slide out in time again. We remain
optimistic regarding demand, but we're surprised and disappointed by the higher
expense and lower margin outlook.”
Weakness in both packet-optical transport and packet-optical
switching led to the sequential revenue decline in the fiscal fourth quarter.
Packet-optical transport sales shrank $9.1 million sequentially, while
packet-optical switching revenue retreated by $17.3 million
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