Sep 4, 2008 1:28 PM,

Ciena reports tier-one spending slowdown

By Ed Gubbins

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“This…slowdown comes on top of some existing and well-publicized customer-specific challenges that we’d navigated successfully,” Smith said. “It’s possible that, absent one or the other of these dynamics, we’d be having a different conversation today.”

Ciena also lowered its expectations for revenue from the former business of Worldwide Packets, an Ethernet access equipment vendor Ciena acquired earlier this year for $300 million. After originally predicting $35 million to $40 million from WWP this year, the company now expects between $25 million and $30 million for the eight months in which WWP will contribute to its fiscal 2008. Ciena attributed the change to general turbulence in integrating the company and ramping up its sales force, though Smith said WWP also had “some exposure” to the spending slowdown of North American tier-one carriers. However, the large deal that WWP has won to supply AT&T, which Ciena has cited as one justification for the acquisition, is unchanged, Smith said, continuing to expect revenue from that contract to emerge in the second half of next year. In the most recent quarter, WWP revenue jumped sequentially to $18 million from $3 million.

Just six months ago, Ciena raised its expectations for the year, citing capacity demand and technology migrations and predicting 27% revenue growth this year. At the time, Ciena said it was also benefitting from the fact that some of its rivals were being distracted by merger integration tasks, and it singled out Alcatel-Lucent, which recently announced a change of leadership.

Ciena said today it wouldn’t make deep cuts in its own spending just yet in reaction to the slowdown. The company added 91 employees in the quarter and plans to continue growing headcount beyond the current 2210 but not dramatically.

“If we get indications that the slowdown is either deeper or more prolonged than we currently expect, we’ll take action to reduce operating expenses,” Smith said. “However, we won’t look to change course at this point.”