Ciena gains but shares take a drubbing

March 02, 2007|By Stacey Hirsh | Stacey Hirsh,Sun reporter

Even as Ciena Corp. continued to increase revenue and profitability, investors punished the stock, with shares dropping as much as 12 percent in trading yesterday.

The shares closed at $28.28, down $3.19 or about 10 percent.

Ciena, the Linthicum maker of fiber-optic equipment, reported net income of $11.1 million, or 12 cents per diluted share, for its fiscal first quarter that ended Jan. 31, compared with a net loss of $6.3 million, or 8 cents per share, for the corresponding quarter of last year.

Earnings when adjusted for amortization, restructuring and other costs were 22 cents per diluted share - a penny below analysts' estimates. Revenue jumped 37 percent to $165.1 million, up from $120.4 million for the comparable period a year earlier.

Simon M. Leopold, a senior vice president at Morgan Keegan & Co. Inc. who follows Ciena and does not own its shares, attributed the decline in stock price to a "disappointing" earnings outlook. Ciena said yesterday that it expected adjusted second-quarter earnings of 23 cents to 26 cents a share; analysts had projected 26 cents.

"Forecasts of 23 to 26 cents on higher sales doesn't look that good when The Street was expecting 26 cents," Leopold said.

Ciena expects revenue for its second quarter to increase 5 percent to 10 percent over the first quarter. Net income is expected to be between 11 cents and 14 cents per diluted share during the second fiscal quarter, the company said.

"We're building on the solid progress we made in 2006, and we're pleased with the increasing alignment we see between our portfolio and the direction our customers are going with their networks," Gary B. Smith, Ciena's president and chief executive officer, told analysts during a conference call before the market opened yesterday.

Ciena added about 100 jobs during its first quarter, most of them at a development facility in India, bringing its total head count to 1,588 employees.

The company ended the quarter with $1.2 billion in cash, cash equivalents, short- and long-term investments.

Smith said the company has benefited from the convergence of media services. As consumers use their computers, phones and television sets for more services, Ciena's equipment helps the networks that carry those services.

"All the things that you're seeing in terms of mobile phone growth, high-definition TV, all of those things are helping Ciena's growth because we're exposed to carrying that kind of traffic," Smith said.

Two-thirds of the world's largest telecommunications carriers are Ciena customers, Smith said. The company has more than 300 customers, including AT&T Inc., Verizon and Sprint Nextel, he said.

Smith said the company continues to grow faster than the overall market.

"That's because we invested when the rest of the market was in the downturn, and we're beginning to see the benefits of those investments," Smith said.

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