Ciena quarterly profit and outlook beat expectations

NEW YORK Fri Mar 7, 2008 1:46pm EST

NEW YORK (Reuters) - Communications equipment maker Ciena Corp CIEN.O reported a higher first-quarter profit and gave an outlook that exceeded market expectations, triggering a surge of as much as 16 percent in the company's shares.

Ciena, which sells optical switches and other products that support Internet protocol (IP) networks, forecast full-year revenue growth of up to 27 percent, up from a previous 20 percent and higher than the average analyst forecast of 22 percent growth, according to Reuters Estimates.

It also forecast second-quarter revenue would increase 5 percent from the first quarter, more than the 3 percent expected by analysts. That outlook, as well as the full-year forecast, included revenue from World Wide Packets, a carrier ethernet company Ciena finished acquiring on Monday.

"We're not immune to the global economy, but the fundamentals are clearly positive," Ciena Chief Executive Gary Smith said, citing strong demand for network upgrades by phone service providers and large businesses amid growing Internet traffic.

Net profit for the first quarter ended January 31 rose to $28.8 million, or 28 cents a share, from $11.1 million, or 12 cents a share, in the same quarter a year earlier.

Adjusted earnings per share rose to 47 cents from 22 cents, far exceeding the average analyst forecast of 39 cents, according to Reuters Estimates.

Ciena said its fiscal first-quarter revenue rose 38 percent to $227.4 million. Analysts, on average, had forecast revenue of $225.7 million for the quarter, according to Reuters Estimates.

JP Morgan analyst Ehud Gelblum noted a "very strong gross margin" of 51.6 percent, which was 320 basis points above his forecast.

Smith said that while Ciena could not yet say its gross margin would constantly be above 50 percent, it could well report such margins ahead.

"It's certainly possible that we can report more quarters that begin with a 5," he said.

He also said the telecommunications industry was still at the beginning of a cycle of network upgrades that is boosting demand for network equipment and software.

Ciena's competitors, including industry leader Cisco Systems Inc (CSCO.O), have forecast double-digit growth as increased use of online video and other bandwidth-heavy applications require advanced communications infrastructure.

"In fact, on some levels, the industry may be underestimating the amount of bandwidth ultimately required, given the infancy of so many of these applications," Smith said.

One of the highlights of the quarter was a multiyear contract to provide ethernet products to top U.S. phone company AT&T Inc (T.N). AT&T accounted for 25 percent of Ciena's revenue in 2007.

Ciena shares rose as high as $29.04 on the Nasdaq, their highest level since January. Near midsession, they were trading up $2.94 or 11.8 percent at $27.88.

Even with those gains, however, the stock is down more than 40 percent from 2007 highs on worries about increasing competition from bigger rivals, many of which have merged over the past few years.

Ciena's rivals, in addition to Cisco, include Alcatel-Lucent (ALUA.PA), Ericsson (ERICb.ST), and Nokia Siemens NSN.UL.

(Editing by Gerald E. McCormick and Dave Zimmerman)

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