Although Ciena’s revenue for the fiscal third quarter 2017 increased compared to the same quarter last year, the company forecast lower guidance, causing its stock to drop about 9 percent this morning after its earnings call.
Ciena joins other optical networking vendors that are having a difficult year. This week Adva Optical pre-released lower guidance for its upcoming third quarter earnings, citing weaker than expected orders.
And for its second quarter 2017 earnings reported earlier this month, Infinera said revenues plunged more than 31 percent year-over-year, partially due to changes in the data center interconnect (DCI) space.
For its third quarter that ended July 31, 2017, Ciena reported revenue of $728.7 million, compared to $670.6 million for the third quarter 2016, an improvement of 8.7 percent year-over-year. It reported non-GAAP net income of $81 million for the quarter, or $0.51 per share, which compares to non-GAAP net income of $67.6 million, or $0.42 per share, for the same quarter in 2016.
But for its fiscal fourth quarter 2017 guidance, Ciena expects revenue in the range of $720 to $750 million. Analysts had been projecting revenue closer to $770 million.
Ciena President and CEO Gary Smith said on this morning’s call, “We now believe that some U.S. government-related business will not materialize in our fiscal second half as we had expected. We’ve also seen some softness in orders from a handful of service providers in North America related to very specific customer challenges.”
Conversely, Smith said business with its largest service provider customers in North America — Verizon and AT&T — “remains very healthy.” These two customers each accounted for greater than 10 percent of revenue and in aggregate represented 28 percent of total revenue. He said AT&T accounted for $121 million in revenues during the quarter, and Verizon accounted for $83 million.
In addition, Ciena added one of India’s top three service providers as a customer during the third quarter. “India is up about 80 percent for the first nine months of the year versus 2016,” said Smith. “We’ve got all top three carriers there now, plus the government.”
In an attempt to give perspective on the lower guidance for next quarter, Smith said, “Dell’Oro stated the optical transport market is falling 3 percent year-over-year in calendar year 2017. In North America alone, Dell’Oro indicates a 9 percent decline on a rolling basis. Against that backdrop, our Q3 performance proves our strategy to diversify our business is clearly working.”
In terms of diversity, Ciena provides software and software services in addition to its optical networking. Its Blue Planet software-defined networking (SDN) falls into the software category. But its traditional networking platform is still the lion’s share of its business, accounting for 81.3 percent of its revenues. Meanwhile software and software services account for only 5.8 percent of revenues.
“We now have 25 Blue Planet customer engagements, four of which have converted into live deployments and eight are in active trials,” said Jim Moylan, Ciena’s chief financial officer. “It’s clear diversification is helping to offset the market conditions.”