Ciena posted mixed second fiscal quarter 2018 results that beat revenue predictions but missed on profits. The optical networking and software vendor also announced plans to acquire Packet Design in a move to boost its Blue Planet software platform.
Ciena said it was acquiring privately-held Packet Design for an undisclosed amount. Austin, Texas-based Packet Design provides network performance management software focused on Layer 3 network optimization, topology, and route analytics.
Ciena plans to fold Packet Design’s platform into its Blue Planet software to extend its intelligent automation capabilities beyond Layers 0-2.
“The addition of Packet Design will enhance our position by enabling customers to realize networks that are more adaptive – capable of self-optimizing and self-healing for faster time-to-market for new services, more efficient and lower cost network operations, and the ability to deliver an overall better customer experience,” said Rick Hamilton, senior vice president of global software and services at Ciena, in a statement.
Packet Design was founded by former Cisco executives in 2003. It was acquired by private equity firm Lone Rock in 2013. Beyond its headquarters in Austin, it has engineering labs in Pune, India, and San Jose, California.
It initially focused on network monitoring with a majority of its business coming from telecommunication operators. Last year, the company launched an SDN-based application to automate service path computation in service provider’s networks.
The deal is set to close by the end of July.
Ciena’s Q2 2018
Company revenues for its fiscal Q2 that ended April 30 increased 3.3 percent year-over-year to $730 million during the quarter. That number came in ahead of forecasts of around $725 million.
Ciena’s networking platforms business continued to drive most of its overall revenues, accounting for 81.1 percent in Q2. Geographically, North America accounted for 59.1 percent of Ciena’s revenues in Q2; followed by 20.8 percent from Asia-Pacific; 16.7 percent from Europe, the Middle East, and Africa; and 3.4 percent from the Caribbean and Latin America.
While revenues were up, the cost of goods sold skyrocketed 12.3 percent, which offset flat operating expenses. The result was a drop in net income from $38 million last year to $13.9 million this year.
Ciena CEO Gary Smith attributed the gross margin hit to recently-begun deployments by international service providers. But he did note that the company expects to normalize those metrics through the rest of the year and is forecasting strong revenue growth through the end of fiscal 2018.
Ciena’s stock was trading down 2 percent early Thursday, while the broader Nasdaq was down just 0.12 percent.
Ciena has been cited by some analysts as driving a price war in the market. This was most recently tied to rival Infinera having its stock plunge more than 19 percent following release of its most recent quarterly results earlier this month.
During its first quarter conference call with analysts, Infinera CEO Thomas Fallon lauded the company’s results and full-year potential. But he cautioned about “very, very aggressive pricing from some of the larger guys.”
“This is always a very competitive market. It’s been over-served for a decade or more,” Fallon said, according to transcipts. “And I think what’s a little bit different this time – and we’re putting it out – is we’re continuing to see normal type of pricing pressures in general, but we’re seeing some of the larger, more traditional optical people, I would say, being hyper-aggressive on some of the, I would call it, more important deals that are in the world.”
A report from MarketWatch cited William Blair financial analyst Dmitry Netis as stating Ciena was the source of the pricing pressure mentioned by Infinera’s management.
Infinera’s Fallon did attempt to temper those competitive pricing concerns.
“I don’t raise it up because it scares us to death. I raise it up because it is a little bit of a new dynamic, and I think that there’s a little bit of a land-grab mentality going on,” Fallon said. “The good news is there’s a ton of bandwidth demand out there. So, there’s lots of opportunities. But it’s a bit of a hyper-competitive place right now with more traditionally larger competitors.”
Jeffries Research Services this week downgraded its rating on Infinera from “hold” to “underperform,” and noted pricing and technology pressure coming from Ciena and Nokia.