Ciena reported strong quarterly earnings driven by optical and AI opportunities, while revealing a retreat from broadband research and development (R&D).

The firm reported a 29.4% year-over-year (YoY) revenue increase to $1.22 billion for the third quarter, with GAAP net income of $50.3 million and adjusted net income of $96.2 million. Revenues for the next quarter were projected between $1.24 billion and $1.32 billion.

Ciena’s optical networking revenue grew 34% YoY to $816 million, partly driven by healthy demand from cloud providers for managed optical fiber networks (MOFN), with CEO Gary Smith pointing to the network’s integral role in the “underpinning, growth, and monetization of AI.”

AI is driving investments in the network sector, with a recent Dell’Oro report finding the technology has led to a 51% increase in global data center capex in 2024, hitting $455 billion in investment. Real estate consulting firm JLL’s Data Center Project Development and Services, meanwhile, expects around 40% of total data center workloads to be AI-related by 2030.

Off the back of its own AI-driven boon, Ciena revealed it would be retreating from its residential broadband business in favor of investments in AI and cloud networks.

“To ensure we can take full advantage of those growth opportunities … we will align our strategic investments on our coherent optical systems, interconnects [and] coherent routing,” Smith said. “To that end, we will be redirecting additional R&D investment into these technologies and away from our residential broadband access portfolio.”

Ciena clarified this meant a cessation of further development of next-generation passive optical network (PON) technology, with executive adviser Scot McFeely specifying an end to 25 Gb/s and 100 Gb/s PON broadband activities. This means a stop to the company’s work in coherent PON (CPON), which is capable of 100 Gb/s services over a single wavelength to multiple endpoints.

David Rothenstein, chief strategy officer at Ciena, recently admitted to SDxCentral that “PON will lag somewhat in terms of adoption” due to the slow shift from coax to fiber cables, but stressed CPON was intrinsic in handling the demands of AI on the network.

With its new pivot, Smith confirmed R&D investments going forward would be limited to areas such as its data center out-of-band management (DCOM) solution, which is designed to streamline and modernize out-of-band (OOB) management networks within large data centers using PON-based architecture.

“PON is still an important technology for us in terms of offering an access choice on our routing and switching portfolio and a key contributor to optics inside the data center with our DCOM solution set,” Smith said.

Neoscalers and AI

Smith also revealed hyperscalers account for roughly half of its business, with one major hyperscale provider having placed their first large order with Ciena in the quarter for its 400ZR+ pluggables.

Ciena also underlined partnerships with hyperscalers on the design of its reconfigurable line system (RLS), an open line range that includes coherent optical transponders such as the newly-released WaveLogic 6 Extreme (WL6e).

Another customer of its DCOM solution, meanwhile, has generated “hundreds of millions” for the firm.

In the earnings call, Smith coined the term “neoscalers” for a subdivision of this customer set.

“[This is] a term which is inclusive of AI compute specialists such as GPU-as-a-service (GPUaaS) providers, cloud and edge service providers, and smaller data center and colocation providers," Smith explained. “As they build and scale their own infrastructure, neoscalers are strategically positioned to leverage AI traffic growth, distributed compute and automation, creating significant opportunities for Ciena globally over time and adding to the durability of the demand."