Ciena shrugged off an ongoing and industrywide supply-chain shortage to post positive overall third-quarter fiscal 2021 results and announced plans to acquire AT&T’s Vyatta virtual routing and switching technology.

Company executives claimed that despite the component shortage, Ciena has managed to continue to fulfill customer needs. However, that issue could spell trouble in the near future. 

“We're able to navigate through this, probably better than anybody else in our industry,” Ciena CEO Gary Smith told SDxCentral in an interview. He attributed the success to their vertically integrated structure, as well as diverse and sophisticated supply chain. “But we're not immune to it like no one else,” he added. 

Looking forward, Smith said the biggest supply-chain challenge is with FPGA chips. “We would be able to get greater revenues in Q4, probably by low tens of millions [of dollars],”  he said on Ciena's earnings call. “If we were to add unfettered access to everything we wanted as normal from a supply chain, so read into that $20 million or so.” 

Smith told SDxCentral that the supply-chain issue will likely persist through at least the middle of calendar year 2022. “My best view is it's probably at least another couple of quarters before that completely ameliorates,” Smith said.

Ciena is also looking to expand its edge and 5G capabilities, bolstered by its agreement to purchase AT&T's Vyatta assets. The Vyatta platform provides an operating system to run network servers. 

Smith pointed out that AT&T is Ciena's largest single customer, and the two companies have had a close relationship for more than two decades and share very similar views around the network architecture.

“We'd bet heavily on our switching and routing portfolio to address what we think is an opportunity for us in this new emerging metro edge cloud market,” he said, adding that the Vyatta team will help Ciena on developing virtual routing and switching technology and associated software.

Financial terms were not released and the deal is expected to close by the end of the year.

AT&T initially acquired the Vyatta platform from Brocade in 2017, and it used those assets to help power the operator's ambitious SDN and network virtualization goals. It later donated the open source Disaggregated Network Operating System (DANOS) code from the Vyatta platform to the Linux Foundation.

The deal also continues AT&T’s string of divestiture of whole divisions and internal systems. This included its move last month to sell its Network Cloud technology to Microsoft and moving its 5G network core, workloads, and services to Microsoft’s Azure for Operators platform. 

Smith reported on the call that Ciena’s non-telco revenue in the quarter remained strong and represented 42% of total revenue. That number was bolstered by a robust 24% year-over-year increase in sales to webscale companies. Direct data center interconnect customers accounted for one-fourth of total Q3 revenues.

“Over 40% of our business comes from non-tier-one infrastructure carriers,” Smith boasted. “It's a very balanced business and that allows us really to get to the global scale.”

While telecom-focused spending has been flat, Ciena did report strong momentum during the quarter. Smith explained that uncertainty caused by the global pandemic shadowed capacity enhancements and network modernization process, but that financial and operational caution is beginning to dissipate.

He added that the uptick in adoption of cloud services supports very strong secular demand and that telecom providers are focused on catching up with their capacity and modernization builds. 

Overall, Ciena reported $988.1 million in revenues during the quarter, which was a 1.2% year-over-year increase. Despite a nearly 18% surge in operating expenses, net income increased 67% to $238.2 million compared to a year ago. However, the bottom line benefited from a $124.2 million tax benefit related to an internal transfer of non-U.S. intangible assets, according to the company.