Ciena Trims Losses

Ciena Corp. (CIEN - Analyst Report), a telecommunications network specialist, reported third quarter fiscal 2011 loss per share of a penny, which was significantly better than the Zacks Consensus Estimate of a loss of 21 cents. The reported loss per share narrowed from the comparable prior-year quarterly loss of 18 cents per share.

The results were positively impacted by growth across its business segments and lower operating expenses.

Revenue

Total revenue of $435.3 million in the third quarter of 2011 was up 11.7% year over year from $389.7 million. The reported revenue was at the lower end of management’s guidance range of $435.0 million to $455.0 million and was also below the Zacks Consensus Estimate of $442.0 million.

Product revenue that comprised 80.4% of the total revenue was up 12.0% from the prior-year quarter to $350.0 million. Services revenue, representing 19.6% of the revenues, increased 10.3% from the year-ago quarter to $85.3 million.

Sales to international customers represented 48.0% of the total revenue in this quarter, versus 45.0% in the previous quarter. The company had one 10.0% plus customer in the quarter, which accounted for 17.0% of total sales.

Margins

Adjusted gross profit jumped 8.8% year over year to $190.7 million in the quarter, mainly attributable to improved manufacturing efficiencies. Gross margin was 43.8% compared to 45.0% in the previous year quarter.

Operating expenses decreased 1.2% year over year to $183.3 million. This decline was primarily due to a 7.6% year-over-year decrease in research and development expenses and a 13.5% decrease in general and administrative expenses.

Adjusted operating income was $7.4 million compared to an operating loss of $10.5 million in the previous-year quarter.

Balance Sheet & Cash Flow

Ciena exited the quarter with $486.3 million in cash and cash equivalents, down from $506.8 million in the previous quarter. The company used $132.5 million in cash from operations versus $115.4 million cash used in the prior quarter.

Guidance

Ciena expects fourth quarter 2011 revenues in the range of $440.0 million to $460.0 million. The Zacks Consensus Estimate is pegged at $ 475.0 million.

Adjusted gross margin is projected to be in the low 40% range, consistent with the company’s near-term expectation. However, management expects adjusted operating expenses to be in the upper $170 million range.

For the fourth quarter of 2011, the company did not provide any earnings per share guidance. However, at the time of the earnings release, the Zacks Consensus Estimate was pegged at break even.

Our Take

In the third quarter, Ciena witnessed growth across its business segments, as well as a favorable product mix and lower operating expenses. We anticipate a recovery based on impressive operational execution, a new product line-up and strong alignment of the company’s solutions to customer priorities. This would lead to a gradual improvement in results in the forthcoming quarters.

However, near-term results are expected to remain under pressure due to increased expenses, slowdown in carrier spending, intensifying competition from Cisco Systems Inc. (CSCO - Analyst Report) and Alcatel-Lucent (ALU - Analyst Report) and continued losses.

We have a long-term Neutral recommendation on Ciena shares. Ciena currently has a Zacks #4 Rank, implying a short-term Sell rating.