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Ciena Corporation (NASDAQ:CIEN) is a provider of Networking & Communication Equipment , software, and services that support the transport, aggregation and management of voice, video and data traffic. Ciena’s proprietary Dense Wavelength Division Multiplexing optics technology can obtain speeds of up to 100 Gigabytes per second, a first, and the fastest current speed in the world.[1] The company specializes in transitioning legacy communications networks to converged, next generation architectures, capable of delivering a broader mix of high-bandwidth services.[2]
Currently, governments worldwide, including the United States, have been researching and proposing plans for nationwide broadband access.[3] Ciena's proprietary product line positions the company to be highly competitive for government contracts. In addition, a large increase in internet traffic due to online video and file sharing has forced broadband carriers like AT&T to upgrade their network technology.[4] As Ciena's products achieve the fastest speeds currently available worldwide, it stands to benefit from network upgrades. Still, current economic conditions have forced many carriers to scale back expansion.[5] To solidify its position in the industry, and diversify its product and service offerings in the face of economic slowdown, Ciena completed acquisition of World Wide Packets, a Ethernet access vendor, on March 3, 2008.[6]
[edit] Company Overview
Ciena Corporation is a diverse provider of optical network equipment, software and services. CIENA is recognized as a pioneer and leader in Dense Wave Division Multiplexing (DWDM) equipment. DWDM gear enables the simultaneous transmission of multiplexed light signals over a single strand of fiber optic cable, which effectively increases the total volume of information that may be transported.[7] Ciena had two customers in 2008 that each accounted for greater than 10% of revenue; AT&T at 25.2% of revenue and BT at 12.6% of revenue. Ciena earns 65% of its revenue through domestic sales.[8]
On March 3, 2008, Ciena completed acquisition of World Wide Packets, a Ethernet access vendor, for $200 million in cash, $15 million in assumed debt, and 3.4 million shares of Ciena stock.[9] Through the acquisition of WWP, Ciena hopes to expand their Ethernet offering beyond infrastructure to include service delivery capability. On June 4th, 2009, Ciena reported second fiscal quarter earnings 40% lower than the prior year, far lower than Wall Street's expectations.[10]
[edit] Business and Financial Metrics
In Fiscal Year 2008, Ciena's revenue was $902.4 million, a 15% increase from $779.7 million in 2007. Net income fell 53% from $82.7 million in 2007 to $38.8 million in 2008. This was due mostly to the purchase of World Wide Packets. [11]
[edit] Business Segments
Ciena has three main business segments; Optical Service Delivery, Carrier Ethernet Service Delivery, and Global Network Services.[12]
- Optical Service Delivery (81% of revenue)
Optical Service Delivery is Ciena's largest and most important business segment. Containing transport and switching products and legacy data networking products and related software, OSD was responsible for $731 million in revenue in FY 2008. This was an 86.1 million increase or 13.3% from FY 2007 numbers of $645 million. These products support the transport and aggregation of voice, video, and data traffic.
- Carrier Ethernet Service Delivery (6.7% of revenue)
Carrier Ethernet Service Delivery is Ciena's smallest business segment. It covers service delivery and aggregation switches from World Wide Packets, Ethernet access products, broadband access products and associated software. This is networking equipment that enables the cost-effective delivery of a variety of carrier Ethernet-based services, including business Ethernet services, Internet access, video conferencing and VoIP. CESD accounted for 60 million of Ciena's revenue in FY 2008 and reflected a 20% increase from FY 2007's 50 million.
- Global Network Service (12.3% of revenue)
Global Network Services is Ciena's division that deals with sales of services including installation, deployment, maintenance support and training activities. It accounted for 12.3% of income in FY 2008 or 111 million. This was a 31.4% increase from FY 2007's number of 84 million.[13]
[edit] Key Trends and Forces
[edit] A Global Move to Establish Nationwide Broadband Connectivity
Called the "new global arms race" by Money Morning, governments worldwide have been establishing plans for nationwide broadband access.[14] Australia recently announced the most comprehensive plan to date; a $31 billion proposal that will bring broadband internet access to rural communities at taxpayer-subsidized rates and enhance the speed and intelligence of current networks. [15] Similarly, the United States' Congress has allocated $7.2 billion as part of its overall economic stimulus package to increase broadband penetration and coverage and to provide faster, more affordable service to as many Americans as possible. As part of the new legislation, the Federal Communications Commission has also been tasked with coming up with a national broadband policy. A move to smarter, faster networks nationwide will increase demand for high end fiber optics products, positioning Ciena as a top competitor for government contracts. [16]
[edit] Increased Data Traffic From A Surge in Online Media
The growth of online media -- from video sites like YouTube, file sharing platforms like BitTorrent, and online gaming -- has already led to massive increases in the amount of data traveling across the Internet. A study by the University of Minnesota found that worldwide internet traffic grew at annual rate of nearly 60% in 2008. [17] In 2009, the London Times noted that YouTube has become the second most popular internet search engine in the world after Google.[18] Online video requires high bandwidth speeds and capacity, and has already required that carriers spend massive amounts to upgrade their networks, benefiting Ciena. Cisco, the market leader in optics and broadband technology forecasted internet growth between 2007 to 2012 could increase as much as 46% per year, with a very large portion of that growth coming from video demand.[19] Taking this into account, to keep up with customer demand, carriers will look to the best possible technologies. As Ciena currently has the fastest optics technology available, this gives them a comparative advantage over their competitors.
[edit] Telecommunications Expansion Contracts Due to Decline in Economy
The economic recession that has affected the world economy since early 2008 has forced telecommunications companies to cut back spending, potentially reducing the number of new contracts for Ciena. In December of 2008, Ciena's largest customer AT&T announced it was cutting 12,000 job, or about 4% of their workforce. AT&T also announced that, moving into 2009, they were cutting capital spending.[20] This is reflected in Ciena's second quarter results, which were down from the previous year and came in far below Wall Street's expectations.[21] If the recession continues deeper into 2009, further cuts by Ciena's main customers in employment and expansion will potentially slow Ciena's growth.
[edit] Competition
Some of Ciena's main competitors include:
- Alcatel-Lucent (ALU-FR) Alcatel and Lucent merged in 2006 to create one of the largest telecommunications equipment vendors in the world with $16.9 billion in 2008 consolidated revenue.[22]
- Cisco Systems (CSCO) Cisco is the worldwide leader in data-networking equipment and software, generating nearly $38 billion in revenue in FY 2008.[23]
- Nortel Networks (NT) Nortel is a global supplier of networking hardware, software, and services designed to improve the way consumers and businesses communicate. Their revenue was $10 billion in FY 2008. [24]
While Ciena is a much smaller firm in size compared to their main competitors, its gross margins were higher than those of Alcaltel-Lucent in 2008, and remain strongly competitive due to its proprietary technologies. [25]
[edit] References
- ↑ http://www.moneymorning.com/2009/05/18/ciena-corp/
- ↑ http://www.secinfo.com/dsvRq.t4Zq.htm#_102
- ↑ http://reclaimthemedia.org/broadband/cable/obama_adviser_eyes_governmentb2722
- ↑ http://seekingalpha.com/article/81653-cisco-internet-traffic-to-boom?source=feed
- ↑ http://gigaom.com/2008/12/04/with-att-job-cuts-telco-recession-is-official/
- ↑ http://blog.telephonyonline.com/unfiltered/2008/01/23/why-ciena-acquired-worldwide-packets/
- ↑ http://www.secinfo.com/dsvRq.t4Zq.htm#_102
- ↑ http://www.secinfo.com/dsvRq.t4Zq.htm#_110
- ↑ http://blog.telephonyonline.com/unfiltered/2008/01/23/why-ciena-acquired-worldwide-packets/
- ↑ http://www.reuters.com/article/hotStocksNews/idUSTRE5535HZ20090604
- ↑ http://www.secinfo.com/dsvRq.t4Zq.htm#_110
- ↑ http://www.secinfo.com/dsvRq.t4Zq.htm#f71
- ↑ http://www.secinfo.com/dsvRq.t4Zq.htm#f71
- ↑ http://www.moneymorning.com/2009/05/18/ciena-corp/
- ↑ http://reclaimthemedia.org/broadband/cable/obama_adviser_eyes_governmentb2722
- ↑ http://news.cnet.com/8301-13578_3-10215603-38.html
- ↑ http://www.dtc.umn.edu/mints/home.php
- ↑ http://www.strangelove.com/blog/tracking-growth-rate-youtube-online-video
- ↑ http://seekingalpha.com/article/81653-cisco-internet-traffic-to-boom?source=feed
- ↑ http://gigaom.com/2008/12/04/with-att-job-cuts-telco-recession-is-official/
- ↑ http://www.fool.com/investing/general/2009/06/05/strike-three-is-ciena-out.aspx
- ↑ http://www.sec.gov/Archives/edgar/data/886125/000130817909000033/alcatel20f.htm
- ↑ http://www.cisco.com/web/about/ac49/ac20/ac19/ar2008/financial_highlights/index.html
- ↑ http://www.sec.gov/Archives/edgar/data/1119664/000119312509042559/d10k.htm#wrap17831_24
- ↑ http://finance.yahoo.com/q/co?s=CIEN
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