Ciena reaches profits ahead of schedule

Ciena reported adjusted profits earlier than promised in its second fiscal quarter.

Late last year, Chief Executive Officer Gary Smith predicted the equipment vendor, which has been reporting losses following the telecom bubble’s burst, would return to profitability before its 2006 fiscal year ended on Oct. 31, 2006. In fact, excluding the effect of stock compensation and other non-operating items, Ciena reported an adjusted net income of more than $3 million (or $0.01 per share) for the quarter ending April 30, 2006.

Based on Generally Accepted Accounting Principles, Ciena’s net loss for the quarter was $1.9 million, or less than $0.01 per share.

The company reported more than $131 million in quarterly revenue, up nearly 9% sequentially and up 26% from a year earlier. Revenue from Ciena’s core switching gear (namely its CoreDirector) contributed significantly to those results, to the tune of nearly $23 million, as existing customers boosted capacity on their backbone networks. Sales of long-haul gear decreased sequentially, however, which the company attributed to the inherently lumpy nature of that business.

Sales of Ciena’s CN 4200 multiservice transport platform, introduced a year ago, jumped 445% sequentially in the quarter to $12 million, contributing nearly 10% of the quarter’s total revenue. The company expects sales of the 4200, which has been purchased by British Telecom for its 21st Century Network initiative, to continue growing. Though Ciena is marketing it to cable, enterprise, government and research customers, it expects carriers to represent nearly half of the 4200’s sales going forward, as a few very large carriers are already deploying it.

Ericsson has resold the 4200 in Europe, along with some other Ciena products, in a relationship that Ciena is trying to expand. “[Ericsson is] selling pretty much an entire portfolio of [Ciena] products [in Europe],” Smith said. “We’re trying to blossom that relationship so they do even more.”

Sales of metro optical transport were down. And revenue from broadband access equipment slid 10% sequentially to $22.4 million.

Sales of the company’s data networking gear, which have been disappointing in recent quarters, nearly doubled in the second quarter to $11 million. But Chief Financial Officer Joe Chinnici said future growth in that business will come from migrating that gear’s technology to other Ciena products.

“The DN [product family] has a good customer base, with two of the largest customers in North America, but the real growth has got to come from migrating it to other product lines,” Chinnici said.

“As these products converge and the line blurs between them, it’s more challenging to talk about boxes,” Smith said. “[Ciena’s] business units are becoming less and less relevant in this environment.”

The company’s global headcount shrank by 54 in the quarter to 1388 as it closed an office in New Jersey and hired more staff in India, where the company now employs more than 50 people. Smith said the closing of the New Jersey facility is likely to be the last plant closing for Ciena in the foreseeable future.

Ciena expects its fiscal third-quarter revenue to increase 7% to 10%, yielding an adjusted net income of between $0.00 and $0.01 per share. And it expects sales in the second half of the year to beat the more than $250 million the company reported in the first half.

“We’re walking a fine line between feeding growth in our business and gaining operational efficiencies,” Smith said.