Ciena bags 20.5% growth perhaps thanks to Huawei dilemma

Optical networking company Ciena posted positive results for the first quarter of 2019, with total revenues of $778.5 million beating analyst expectations.

There have been whispers in corners of various conferences that a Huawei ban could benefit some, and it may well be having a positive impact for Ciena. While there are numerous other companies which would compete with Huawei in the optical equipment segment, with Ciena one of the few ‘pure-play’ companies it might have a more notable impact on the financials.

That said, irrelevant of where the favourable fortune has come from investors will be happy. $778.5 million represents a 20.5% year-on-year increase for the first quarter, while nearly all geographical markets have shown healthy growth.

“We began fiscal 2019 with a very strong first quarter performance, including outstanding top and bottom line growth as well as continued market share gains,” said Gary Smith, CEO of Ciena. “We believe that the combination of our leading innovation and positive industry dynamics will enable us to further extend our leadership position.”

Net income for the quarter stood at $33.6 million, though this is incomparable to the same period of 2018 which registered a loss of $473.4 million thanks to President Donald Trump’s US tax reform.

Looking at the regions, in the US, a market which now accounts for 62% of the company’s total revenues, the earnings grew just over 20% to $485.5 million, while 20% growth was also registered in the APAC region. The big success story however was in Europe, where the team grew the business by 32% to $129.2 million. This is still only 16.6% of the total haul for Ciena, but more geographical diversification will certainly be welcomed.

For Ciena, Europe could be a very interesting market over the next couple of months. With Huawei coming under increasing scrutiny globally, telcos will look to further diversify supply chains to add more resilience and protect themselves from potential government bans. While the anti-China rhetoric being spouted out by the White House is losing momentum, the European Union is reportedly looking some sort of ban, even if this puts the Brussels bureaucrats at odds with some member states.

For such vast investments, telcos will be looking for certainty and consistency from government policies. When looking at Huawei as a potential vendor, telcos will naturally be nervous, even if they don’t want to admit it.

With Huawei’s ban set to have little impact on the US market, it is not a major supplier to the market historically, the Europe could be a hidden goldmine for Ciena.

Interestingly enough, this scenario also seems to be paying off dividend in the APAC markets as well. Smith notes the success in the APAC region has come from Australia, Japan and Korea, three markets where Huawei has either been explicitly banned or is receiving a rather frosty welcome.

Infinera closes on Coriant purchase before share price tumbles 15%

24 hours after completing the acquisition of Coriant, Infinera share price has dropped 15% over comments rival Ciena is on the verge of stealing one of its biggest customers.

The acquisition not only notably increases the revenues of Infinera but also brings some pretty heavyweight customers into the fray. Six of the global internet content providers are now customers, as well as nine of the top 10 global network operators. Not a bad bit of business for Infinera.

“This is an exciting day for Infinera,” said CEO Tom Fallon. “The acquisition of Coriant is a major milestone, expanding the scope of our vertical integration strategy across a powerful suite of packet optical solutions for our customers. The acquisition immediately strengthens our ability to serve a global customer base and accelerates delivery of the innovative solutions our customers demand.”

Initial feedback has been good as well. Sound bites from Telefonica, GTT and SSE Enterprise Telecoms paint a positive picture, but the bad news comes from MKM Research analyst Michael Genovese. Ciena is making moves on Infinera’s largest customer, CenturyLink, giving the firm no option but to advise customers to sell Infinera shares.

In CenturyLink, Infinera has a major customer, accounting for more than 12% of annual revenue, though consolidation in the industry has had investors worrying. Five Infinera customers count for 44% of the company’s annual turnover. With customers being merged into single entities and economies of scale working against customers, the last thing Infinera needs is Ciena going on a customer raid.

Perhaps this should not be viewed as particularly surprising however. In August, investment bank Jefferies released a research note which suggested things were on the rise at Ciena. This is another company which has a slightly unhealthy customer to revenue ratio, three counts for more than 33% of revenues, though Jefferies noted Ciena has the best technology, a reliable and secure supply of product, and the resources to support very large network buildouts, making it an attractive proposition for potential customers. It is also spending more on R&D and the only vendor currently shipping a 400G/wavelength coherent product.

Infinera has pointed out CenturyLink is yet to make a final decision, though it certainly has been a rollercoaster 24 hours for the firm.

Ciena strengthens its software suite with DonRiver acquisition

Optical and IP transport company Ciena acquired software and service company DonRiver to shore up its Blue Planet portfolio.

One week after its CEO explicitly said it was on the lookout for new software M&A, Ciena announced that it has entered a definitive agreement to acquire DonRiver, a privately-owned software and service company specialised in federated network and service inventory management solution.

Ciena reported a strong quarter, but its software business suffered a 3% year-on-year dip. Although the SDN-based network management suit Blue Planet only accounted for a minor share of the total software sales, high hopes have been banked on it. When talking to analysts at the quarterly result call Ciena’s CEO Gary Smith said, “With Blue Planet, we’ve done a lot of learning over the last two to three years, …the bookings were very encouraging. And we should be able to come into the year — next year with a backlog for 2019.”

Similar to Ciena’s recent acquisition of Packet Design, DonRiver has been a partner to Ciena, so its technology knowhow is well known to the latter. Despite that it has a couple of A-list clients including Telstra, Comcast, and Rogers, it is not DonRiver’s clients or the revenues that was driving the acquisition, Ciena told

“The combination of Blue Planet and DonRiver will enhance our ability to deliver closed loop automation of network services and the underlying operational processes across IT/operations and the network,” said Rick Hamilton, senior vice president of Global Software and Services at Ciena about the latest acquisition. “With this new set of technology and expertise, we can help customers realize the full benefits of network automation by helping them move away from highly complex and fragmented OSS environments to those that accurately reflect the real-time state and utilization of network resources.”

Specifically, what DonRiver could bring to the Blue Planet portfolio, especially the Analytics & Intelligence component, is its capability to bring a holistic view of the network inventory. With networks getting more complex, stacks of OSS are being added to the architecture, making it increasing difficult for the operators to know what exactly is happening in the layers of networks. The vastly improved visibility and accuracy enabled by DonRiver’s expertise will strengthen Ciena’s value proposition to help operators optimise the OSS environments. As Ciena executives said to, DonRiver’s engineers can do much more than network inventory, they are OSS experts.

The terms of the acquisition were not made public.

Ciena is doing well and is only going to get better – Jefferies

Off the back of its quarterly results, investment bank Jefferies is confident business at Ciena is only going to get better.

With the last three months looking very positive for the business, Jefferies has warned investors not to get too jumpy and hold onto shares in the business. With the team reporting a 12% year-on-year rise in revenues to $818.8 million, share price also jumped 12%. Some might be tempted to cash in on the bonanza, but they might be missing out.

“The July quarter results reinforced our view that Ciena’s perceived margin issues are normal and temporary in nature,” said George Notter, MD of the telecoms research group at Jefferies. “Moreover, they’re the long-term market share consolidator in the space. We still think the shares are still too cheap given potential upside to the model, faster EPS growth, and improving consistency here. We reiterate our Buy rating.”

There are of course risks to the Ciena business model. Three customers account for more than 33% of total revenues, a slightly uncomfortable concentration, though Jefferies believes the struggles of Ciena’s rivals only compounds its leadership position in the segment. On-going security concerns for Huawei and ZTE will not make these attractive vendors for the sizeable investment made by telcos, while Infinera has missed recent product cycles resulting in lost market share, and Nokia is seemingly innovating its own portfolio but at a slower pace than Ciena.

Ciena has the best technology, a reliable and secure supply of product, and the resources to support very large network buildouts, making it an attractive proposition for potential customers. In comparison to competitors, Ciena is also spending more on R&D allowing the firm to meet the aggressive product recycle demands of customers. This is demonstrative in Ciena is the only vendor currently shipping a 400G/wavelength coherent product, Wavelogic Ai, and while technology leadership can change quickly, it is believed Ciena will announce a successor product over the next couple of months to consolidate this position.

According to Jefferies, while there has been a surge in share price, it is still cheap and should move upwards. If you’re a Ciena investor, the advice here is don’t get twitchy with the sell button, greater gains are on the horizon.

Microsoft and Facebook lay some serious cable

The laying of the ‘highest-capacity’ transatlantic cable by Microsoft and Facebook has been completed in just over a year.

The two tech giants started work on Marea in May 2016 in partnership with Telefónica cable subsidiary Telxius and have completed the work pretty quickly. Marea goes from Virginia Beach on the east coast of the US to Bilbao in northern Spain. It claims to be the highest capacity trans-Atlantic cable – shifting 160 terabits per second.

“Marea comes at a critical time,” said Brad Smith, President of Microsoft. “Submarine cables in the Atlantic already carry 55 percent more data than trans-Pacific routes and 40 percent more data than between the U.S. and Latin America. There is no question that the demand for data flows across the Atlantic will continue to increase and Marea will provide a critical connection for the United States, Spain, and beyond.”

Someone from Facebook pontificated about bringing people together and someone from Telxius said all this extra bandwidth might come in handy, what with streaming video, etc. The cable is also a fair bit further south than many others, which provides a potential connectivity safeguard in the case of natural disasters or other mishaps.

Unstated but presumably critical to their involvement in the project is the fact that both Microsoft and Facebook have major datacenters in Virginia. This is yet another example of tech companies trying to take more ownership of the connectivity challenge.

Elsewhere Ericsson, Telstra and Ciena have successfully encrypted in-transit data travelling at 100Gbps over multi-vendor networks on a trans-pacific cable between LA and Melbourne (or transatlantic if you believe the amusing typo in the email press release).

“This demonstration shows that customer services with large bandwidth requirements can be secured and data transported across virtually any distance and over an underlying network that uses multiple vendors,” said Darrin Webb, Executive Director of International Operations and Services at Telstra. “This means we can provide service consistency regardless of the cable system used. Customers will also be able to protect their data not only at the application layer, but also at the network layer without any reduction in quality.”