Top 3 Takeaways From Ciena’s Q4 Earnings

The impact of the COVID-19 pandemic caught many industries off guard, disrupting supply chains, demand, and even where and how we work. The optical transport market and more specifically Ciena was no exception. The impact of the COVID-19 pandemic caught many industries off guard, disrupting supply chains, demand, and even where and how we work. The optical transport market and more specifically Ciena was no exception. During the company’s fourth quarter of fiscal year 2020 earnings call earlier this month, CEO Gary Smith and CFO Jim Moylan shed some light on how the company weathered the storm and where it’s going. Make no mistake, 2020 was a difficult year for Ciena. Despite exceeding the company’s guidance, revenues fell 14% year over year during the latest quarter. “Our fourth quarter and fiscal year 2020 results maybe illustrate the extent of our market leadership and resiliency amongst the challenging market conditions we detailed last quarter, which are largely unchanged,” Smith said, according to a Seeking Alpha transcript. Smith blamed a combination of slowing business and an increased risk aversion amongst many global service providers as adversely affecting short-term deployments and depressing the company’s revenues. However, the company stands to benefit from a changing tide and a ramp in bandwidth demands predicted for 2021. “We see no change in underlying secular demand for bandwidth and automation that drives our business,” Moylan said during the call. Looking ahead to 2021, he expects the company to rally in the second half of the year. “We expect to grow our annual revenue at or slightly faster than the market in a range of 0% to 3% with a stronger than typical second half as conditions improve.” Indeed, the optical market is likely to enter a growth phase in 2021, according to a recent report from Dell’Oro Group analyst Jimmy Yu. “We believe the adoption curve for 600 Gb/s-capable line cards entered an inflection point and that it is positioned for rapid growth in 2021. We believe 800 Gb/s-capable line cards will also increase next year, considering the strong shipments so far with only one manufacturer,” he wrote. While he didn’t name Ciena in the report, the company is the first and only optical network vender to make its 800 Gb/s commercially available. Ciena claims its WaveLogic 5 Extreme coherent optics can achieve 800 Gb/s line rates across distances of 80 to 240 kilometers, and 400 Gb/s line rates between 2,000 and 4,000 kilometer spans. And according to Smith, the economies of scale offered by the company’s latest generation of optics has been a big hit with customers. “Through the end of Q4, we had orders from 65 customers around the world, and supported by our extraordinary supply chain, we are approaching 5,000 units shipped since general availability,” he boasted. Smith also talked up the company’s upcoming WaveLogic 5 Nano. The programmable 400 Gb/s-capable pluggable optic is expected to ship next year. “We will be ready to intercept the opportunity for pluggables when market adoption begins sometime in the second half of 2021,” he said. Pluggable optics have seen interest in markets with dense metro deployments and for short spans, like those required in data center interconnect (DCI). The pluggable optics are entirely self contained and most utilize industry standard interconnects, allowing them to interface directly with routers and switches without the need for additional hardware like you might see in more traditional line card-based optics. To this end, Swedish network operator Telia Carrier has embraced pluggables in a bid to merge its optical and IP networks, albeit using Acacia’s optics, not Ciena’s. As the macro-economic climate improves in the wake of COVID-19, Ciena plans to invest in strengthening its technology leadership in core networks like DCI, submarine, and long-haul communications. These networks, Smith said, are “under constant pressure to keep pace with ever-growing bandwidth demand.” However, looking beyond established markets, Ciena also plans to expand its addressable market share in metro and access networks. Specifically, Smith said the company would be looking to “expand our IP and automation capabilities, and we will also capitalize on the momentum we are seeing with Blue Planet to guide customers on their digital transformation journeys.” Ciena’s Blue Planet offering consists of multiple products including: multi-domain service orchestration, NFV orchestration, analytics, a network health predictor, route optimization and assurance, virtual WAN, and SDN-based domain control for Ciena packet and optical networks. Blue Planet was coalesced around the remains of Cyan, which Ciena acquired in 2015. Since then, the company has seen steady adoption of the SDN automation platform. According to Smith, Ciena pulled in 11 new contracts during the fourth quarter including a partnership with Dish.