Ciena Beats on Q1, Despite Depressed Revenues

Ciena ended the first quarter of 2021 with mixed results. The optical networking vendor’s revenues declined for the second consecutive quarter to $757.1 million, down 9.1% from the previous year, but beat guidance by $6.86 million. Ciena ended the first quarter of 2021 with mixed results. The optical networking vendor’s revenues declined for the second consecutive quarter to $757.1 million, down 9.1% from the previous year, but beat guidance by $6.86 million. Despite ongoing challenges wrought by the pandemic, CEO Gary Smith expressed optimism that the coming quarters would see the company return to growth. “This quarterly performance once again demonstrates the strength and durability of our business model,” he said on Thursday morning’s earnings call, according to a transcript. While things are improving, Smith said pandemic-related challenges would likely persist, especially in the North American market where he expects service providers to “remain financially conscious” through the first half of 2021. Ciena’s revenues showed some signs of recovery, but the company’s net income remained down during the quarter. Net income for Q1 slipped to $55.3 million, down 11.3% year over year from $62.3 million in Q1 2020. Breaking out the company’s business units, its Blue Planet and Global Services revenues were the sole bright spots in an otherwise difficult quarter. The former grew 8% year over year to $16.9 million, while the latter jumped 6.4% to $113.7 million during the same period. Ciena’s Global Services division provides maintenance, support, and consulting services to the company’s customers, and Blue Planet is an IP automation platform consisting of multiple products. These include 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. Ciena’s core networking and software business remained a sore spot for the company during the quarter. Ciena’s networking business, which includes its packet optical, routing, and switching portfolios fell 12.6% year over year to $576 million. Meanwhile, software and services revenue fell to $49.9 million, down 3.9% from the year-ago period. Most of these declines were isolated to the Americas and the Asia Pacific regions. Europe, the Middle East, and Africa, meanwhile, rallied during the quarter with a 16.2% increase in revenues. Looking to second-quarter 2021, CFO James Moylan said he expects Ciena to see slightly higher sequential revenues in the range of $810 million to $840 million. “The fundamental growth drivers in our business are strong,” he said. “We are very confident in our competitive position and we continue to perform well, delivering strong profitability and returning capital to shareholders.” Ciena isn’t the only optical vendor feeling the aftershocks of the pandemic. A Dell’Oro Group report out this week found that growth in the optical transport equipment market slowed to 1%, reaching total revenues of $16 billion in 2020. The largest growth declines occurred in North America and Latin America, but the market grew in all other markets, according to the report. “Between concerns on starting new optical builds during the start of the pandemic and aggressive plans on 5G deployments that required a larger share of a service provider’s capital budget, the spending on optical transport dramatically slowed by the end of 2020,” Jimmy Yu, VP at Dell’Oro Group, said. “It was a really dramatic drop in optical equipment purchases in the fourth quarter. While we anticipated a slowdown near the end of the year due to concerns around COVID-19, we were surprised by a 29% year-over-year decline in [wavelength-division multiplexing] purchases in North America as well as a 12% decline in China.” However, in an earlier report, Yu noted that vendors like Ciena are well positioned to capitalize on growing demand for optics cable of 600 Gb/s and 800 Gb/s. “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. And to this end, Ciena touted 14 new customer wins during the quarter for its WaveLogic 5 Extreme coherent optics, which are capable of line rates up to 800 Gb/s for short and metro spans.