Ciena's stock skids to $6.08 as loss widens

Shares even touch $5.90, a 52-week low, during Nasdaq trading session

2nd-quarter loss is $612 million

Analysts see a survivor, but upturn may be far off

May 24, 2002|By Stacey Hirsh | Stacey Hirsh,SUN STAFF

Shares of Ciena Corp. hit a 52-week low yesterday as the company disappointed Wall Street with its second-quarter numbers.

The Linthicum-based maker of fiber-optic equipment reported before the market opened that its losses were 12 times more than they were in the second quarter of last year and revenue fell by hundreds of millions of dollars.

"Everyone's concerned about profitability for these guys," said Rick Schafer, a research analyst for CIBC World Markets in Denver.

Ciena saw its profit soar during the tech boom, and analysts are optimistic about its survival, but the company has been losing money as the telecom sector struggles. Ciena's stock price has also felt the punch.

During trading on the Nasdaq stock market yesterday, Ciena's shares touched as low as $5.90, which was 10 cents less than their previous 52-week low of $6. Shares finished the day at $6.08, down 36 cents. The shares hit their 52-week high of $66.73 on May 22, 2001.

Ciena reported a net loss of $612.2 million, or $1.86 per share, on revenue of $87.1 million for the quarter that ended April 30. That compares with a net loss of $50.7 million, or 17 cents per share, on revenue of $425.4 million posted for last year's second quarter.

"The short-term performance is obviously not what we would want, and this environment that we're in right now is very challenging," said Gary B. Smith, Ciena's president and chief executive.

For the third quarter, revenue is expected to be the same or less than it was in the second, and a net loss of 17 cents to 19 cents per share is expected, the company said. Those estimates do not include Ciena's planned acquisition of ONI Systems Corp., a California fiber-optics company, for $1.2 billion in stock and debt. Shareholders of both companies are scheduled to vote on the deal on June 18. Shares of ONI Systems closed yesterday at $4.25, down 26 cents.

Jay Ritter, a stock analyst who covers Ciena for Morningstar Inc. of Chicago, said he wasn't shocked by the numbers, but "clearly the results were disappointing."

Smith said Ciena is seeing "unsustainably low" spending levels from carriers. The company recorded a one-time charge of $16.1 million in the second quarter for two unidentified customers - one that filed for bankruptcy protection - that Ciena believes may not be able to pay their bills.

Other one-time charges in the quarter included $121.4 million for work-force reductions and other write-downs, $260 million for income tax effect on one-time charges and $1.8 million for amortization of intangible assets. Without those and other one-time charges, Ciena said, the quarter's net loss would have been about 63 cents per share.

But the company also took a $223.2 million charge for excess inventory. Without that charge, the company estimated, the losses for the quarter would have been between 19 cents and 23 cents per share.

Analysts were expecting an adjusted net loss of 21 cents a share, according to Zacks Investment Research.

"The loss per share looked a lot worse than expected," said Schafer, the CIBC analyst, adding that "on a pro-forma basis, it looks OK." Analysts said some positive points that came out of Ciena's conference call yesterday were that the company's sales in Asia remain strong and that the company has a new customer in Europe.

Ciena had four new customers last quarter from which it saw revenue, Smith said.

Schafer said Ciena's problems are indicative of sector-wide struggles. "Bottom line, looking out 12 or 18 months when this market turns around, I think Ciena's very well positioned," Schafer said.

Ritter also believes that Ciena will be a survivor in the long-term, but that the stock is a risky bet now. "Despite their great technology, it's a company with very uncertain prospects," he said. "So for that reason we think investors should hold off until we see some light at the end of the tunnel in terms of the telecom sector."

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