Ciena slides after DSL warning

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Ciena, the US telecommunications equipment maker, reported a narrower quarterly net loss on Thursday reflecting strong revenue growth and improving gross margins at the telecommunications equipment maker.

But in spite of the improved results, Ciena’s shares fell more than 7 per cent in early trading after the company warned that sales of broadband DSL (digital subscriber line) equipment to large carriers could fall as consumer broadband growth begins to slow.

Ciena reported a net loss of $51m, or 9 cents a share, for the third quarter, compared with a loss of $141.5m, or 25 cents, in the year-earlier period. Excluding one-time costs, Ciena’s loss would have been 4 cents a share.

Revenue rose 46 per cent to $110.5m buoyed by increasing demand for communications equipment designed to speed traffic on fibre-optic networks.

“Like others in our industry, we are seeing some seasonal softness in order patterns seemingly due to customers’ summer holidays, but our fourth-quarter visibility remains strong,” said Gary Smith, chief executive.

“As a result of demand fuelled by accelerating customer and enterprise broadband adoption and usage, we expect to deliver up to 5 per cent sequential revenue growth in our fiscal fourth quarter.”

The improved results represent further evidence that Ciena’s recovery strategy under Mr Smith is beginning to work. Ciena has expanded its product portfolio, cut costs and begun to win significant contracts, particularly from overseas customers. In the latest quarter these included orders from Deutsche Telekom’s T-Online unit, Singapore-based Star-Hub and Japan’s Jupiter Communications.

In addition to delivering solid revenue growth for the sixth sequential quarter, Mr Smith said efforts over the past few years to expand Ciena’s product portfolio while reducing costs had begun to pay off. Overall gross margins improved from 26.2 per cent in the second quarter to 34.1 per cent in the latest period.

Looking ahead, Ciena said it expects a loss of 3-5 cents a share in the current quarter, excluding special and none operating items.

It said it expects lower revenue from high-speed home DSL upgrades to be offset by increases from other business units in the fiscal fourth quarter, which ends in October. Overall, the company said it expects fourth quarter revenue to increase by up to 5 per cent over the fiscal third quarter.

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