Increased global demand for optical networking equipment boosted Ciena’s performance during its fiscal first quarter that ended Jan. 31. The company banked $33.6 million in net income on $778.5 million in revenue, representing a 20.5 percent year-over-year increase in revenue.
With 5G deployments now getting underway, the company says it is positioned for more growth and it expects sales to increase across most of the regions it serves. Ciena is also gaining momentum outside of its traditional telecom customer base. More than 35 percent of its revenue during the recently closed quarter came from non-telco customers.
“The top-line strength underscores our view that the company is the long-term winner” and will continue to consolidate market share in the optical networking space, investment banking firm Jefferies noted in a research report about Ciena’s earnings. The company is “seeing broad-based strength across the business – both by products and geography.”
Ciena’s share of the telecom equipment market has remained relatively flat during the last six years, hovering around 3 percent, but it remained among the top seven manufacturers and slightly ahead of Samsung in 2018, according to a new report from Dell’Oro Group. “The two largest equipment markets in the year were mobile radio access network and optical transport,” the firm wrote.
Ciena claims it gained 3 percent of the global optical market share in 2018.
Network Convergence Overshadows 5G
While 5G is expected to drive increased networking spend, the convergence of networks, fiber, and applications is making it harder for Ciena to identify what’s attributed to 5G. “It’s a little difficult for us to sort of discern exactly the application for some of that because it gets converged into their overall network spend,” Gary Smith, president and CEO of Ciena, said during the earnings call with analysts, according to a transcript.
Nonetheless, “the 5G rollout is in front of us” and “we will see some of that in 2019, but that will stretch into 2020, and beyond,” Smith said. He added that spending from AT&T, Verizon, and CenturyLink are all expected to be up year-over-year as well.
The near-term pipeline for 5G-related spend will be led by Asia-Pacific, followed by North America and then customers in Europe, the Middle East and Africa, Smith said during the earnings call. “We remain well positioned with our traditional service provider and cable operator customers. Particularly as content moves closer to the edge and spend shifts toward fiber densification initiatives like 5G and fiber deep in the metro aggregation and access segments of the network.”
Overall, much of Ciena’s growth can be attributed to “sheer bandwidth growth and trying to get fiber closer to the customer in its various forms,” Smith said. “Some of the carriers, it’s apparent in their architecture that they’re spending in a converged metro-type application with 5G in mind and probably Verizon and AT&T and CenturyLink come to mind around that.”
5G Won’t Materialize Quickly
There will be more specific 5G build outs later this year and in the early months of 2020, Smith added. “My own view on this is this always takes longer than everybody thinks, but I’m actually of the view that it’s a very positive set of dynamics in the service providers in North America for the next couple of years at least.”
Ciena’s long history and market position in optical networking will be of particular importance as network operators upgrade to 5G. The company led the optical transport networks segment of the data center interconnect (DCI) market in 2017, according to a report by Dell’Oro Group. More recently, the research firm concluded the global optical transport market has expanded for four consecutive years due to strong sales of dense wavelength division multiplexing (DWDM) equipment in China and large content providers for DCI.