Ciena posts $3.6 million loss for quarter Competitive pricing blamed for setback

December 11, 1998|By Jay Hancock | Jay Hancock,SUN STAFF

Telecommunications equipment maker Ciena Corp., recovering from a failed merger and trying to survive in an increasingly competitive industry, said yesterday that it posted a small loss for its fourth quarter and may book more losses in the near future.

The red ink for the quarter that ended Oct. 31, coming to 3 cents per share, or $3.6 million, was caused partly by brutal pricing pressure, Wall Street analysts said. The loss does not count one-time costs incurred by Ciena for its proposed combination with Tellabs Inc.

Tellabs abandoned a $7.1 billion bid for Linthicum-based Ciena in September. Ciena's stock plunged from more than $88 per share in July, when Tellabs' bid first came under doubt, to less than $9 in October.

It has recovered somewhat since then, closing yesterday at $17.38, down 25 cents. Ciena's financial report was disclosed after stock markets closed.

The fourth-quarter loss was slightly better than what many analysts had expected. The mean estimate of stock analysts polled by I/B/E/S was a 4-cents-per-share loss.

Ciena's sales for the quarter fell to $91.2 million from $130.1 million in the same period last year, as telephone companies delayed hardware purchases and competitors grabbed business Ciena hoped to get. At the same time, Ciena's profit margins fell as it lowered prices in an attempt to fight back.

"The business that they are in has become completely commoditized in terms of pricing," said Raj Srikanth, who follows Ciena's stock for First Albany Corp. "That's part of the problem at Ciena."

Indeed, Ciena Chief Executive Officer Patrick Nettles blamed the loss on pricing rivalries.

"During the last several quarters, we've seen the competition turn to one of the only levers they have to attempt to gain share from Ciena -- price," he said. "Our gross margins in the fourth quarter reflect that pricing pressure."

Ciena makes equipment that boosts the capacity of phone networks. After explosive growth and a fabulously lucrative stock offering, its business has been eroded by larger, better-heeled competitors. A key part of its strategy has involved reducing its reliance on just a few large customers.

Its roster of 14 clients for the quarter was a record high, the company said yesterday.

"We firmly believe that securing footprint and market share now will better position Ciena for longer-term growth," Nettles said. However, he said, that "will likely limit our operating profitability during at least the first half of fiscal 1999 and may result in near-term operating losses."

While some shareholders have held out hope that Ciena would still be acquired, at least one analyst doesn't think that's in the cards.

"I think it's time to be patient," said Tom Burnett, director of Merger Insight, a New York stock research service. "I'm not expecting anything until they improve their earnings and expand their client list."

For the year that ended Oct. 31, Ciena earned $83.2 million, or 77 cents per share, not counting merger costs and other one-time costs. For the previous fiscal year, Ciena had earned $120.5 million, or $1.15 per share.

Revenue for the most recent fiscal year increased to $508.1 million from $413.2 million in fiscal 1997.

Pub Date: 12/11/98

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