Ciena back in black -- first time since 2000

Strong 4th quarter seals profitable year

December 15, 2006|By Stacey Hirsh | Stacey Hirsh,Sun reporter

Ciena Corp., the Linthicum maker of fiber-optic equipment that rode the technology wave up and then crashed with it, is back in the black for the first time in five years. Its shares rose 11.5 percent.

Gary B. Smith, the company's chief executive and president, called Ciena's profitable fourth quarter and fiscal year a "significant milestone" and a validation of the company's strategy.

For fiscal 2006, which ended Oct. 31, Ciena reported earnings of $595,000, or a penny per diluted share, on sales of $564.1 million. That compared with a net loss of $435.7 million, or $5.30 per diluted share, on revenue of $427.3 million in fiscal 2005.

For the quarter, Ciena had net income of $13.1 million, or 14 cents per diluted share, snapping a string of 20 consecutive quarterly losses and a big upswing from a year earlier, when it lost $252.9 million, or $3.06 per share.

Revenue in the three months was $160.0 million, up 35 percent from $118.2 million for the previous year's fourth quarter.

The quarterly earnings beat analysts' expectations. On the Nasdaq, Ciena shares jumped $2.87 to close at $27.83 in heavy trading. The company completed a 1-for-7 reverse stock split in September.

"It was a good quarter," said Simon M. Leopold, a senior vice president at Morgan Keegan & Co. Inc. who follows Ciena and does not own shares.

Leopold and other analysts were more focused, however, on the company's adjusted earnings, which do not include one-time and other charges. On an adjusted basis, Ciena's past two quarters were profitable.

But the company's last profitable year was 2000 -- Ciena reported earnings of $81.4 million when calculated with generally accepted accounted principals.

Ciena was once a high-flying company of the tech boom. Its initial public offering in February 1997 gave Ciena the highest first-day value at that time for a venture-backed startup. Employment peaked at nearly 4,000 during the boom, and its stock price topped out at $149.50 in October 2000.

When the bubble burst, Ciena endured several rounds of layoffs and saw its 2001 loss reach $1.8 billion. Its comeback strategy has been to expand its product line through acquisitions.

Over the past five years, Ciena acquired six telecommunications companies in deals valued at more than $2.1 billion. It employs about 1,500, including about 600 in the Baltimore area.

The company has said that its effort to expand its business beyond the core equipment it provides for fiber-optic networks has brought in a host of new clients and added new products to sell to existing customers such as AT&T and Verizon.

Leopold, the Morgan Keegan analyst, said that while diversifying through acquisitions makes sense as a strategy, Ciena is largely having success in its core business of optical products. Optical products were 74 percent of Ciena's revenue, Leopold said.

Ciena CEO Smith said the convergence of voice, data and Internet services is a plus for the company. With carriers offering products such as video over the Internet and wireless devices, the demand for capacity increases -- a demand Ciena's products can help them meet.

"We're in it for the long term, and we're looking at creating value for the long term," Smith said. Ciena's profitability, he said, "really is the result of a very deliberate strategy that we pursued."

stacey.hirsh@baltsun.com

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