Ciena Misses 1Q Estimates

Telecommunications network specialist Ciena Corp. ( CIEN - Analyst Report ) reported first quarter fiscal 2012 loss per share of 26 cents, worse than the Zacks Consensus Estimate of a loss of 17 cents. The reported loss per share widened from loss of 24 cents per share in year-ago quarter.

Revenue

During the first quarter 2012, total revenue decreased 3.8% year over year to $416.7 million and missed the Zacks Consensus Estimate of $421.0 million. Despite the year-on-year decline, the reported revenue surpassed management’s estimate of $415.0 million.

Product revenue, which comprised 80.0% of the total revenue, was down 5.3% from the prior-year quarter to $333.7 million. However, Services revenue, representing 20.0% of the total revenue, increased 2.6% from the year-ago quarter to $83.0 million.

Sales to international customers represented 44.0% of the total revenue in this quarter, versus 45.0% in the previous quarter. The company had one 10.0% plus customer during the quarter, which accounted for 19.0% of total sales.

Margins

Adjusted gross profit was down 3.6% year over year to $173.5 million in the quarter, dragged by lower revenue base. Gross margin remained flat on a year-on-year basis at 41.6%.

Operating expenses decreased 3.8% year over year to $183.5 million. This decline was primarily due to a 6.4% year-over-year decrease in research and development expenses and a 23.3% decline in general and administrative expenses. However, selling and marketing expenses moved up 12.8% on a year-over-year basis.

Adjusted operating loss improved from $10.6 million in the previous-year quarter to $9.9 million, due to lower operating expenses.

Balance Sheet & Cash Flow

Ciena exited the quarter with $550.4 million in cash and cash equivalents, up from $541.9 million in the previous quarter. The company had $12.9 million in cash from operations, versus $90.5 million cash used in the prior quarter.

Guidance

Ciena expects second quarter 2012 revenues in the range of $435.0 million to $460.0 million. The Zacks Consensus Estimate is pegged at $450.0 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 low $180 million range.

Our Take

Delays in revenue recognition due to new project ramp ups, weak spending patterns from its customers, slowdown in carrier spending, continued losses and intensifying competition from Cisco Systems Inc. ( CSCO - Analyst Report ) and Alcatel-Lucent ( ALU - Analyst Report ) are the near-term headwinds.

Despite the near-term challenges, we anticipate a recovery based on favorable operational execution and the new product line up. These are expected to lead to a gradual improvement in results in 2012.

We have a long-term Neutral recommendation on Ciena, with a Zacks #3 Rank, implying a short-term Hold rating.