Ciena loss bigger-than-expected but shares rise

NEW YORK (Reuters) - Ciena Corp (CIEN.O) reported a bigger-than-expected loss and a sharp drop in revenue as phone companies cut spending, but shares in the communications equipment maker rose 7 percent on hopes that the worst may be over.

Shares fell as much as 8 percent in premarket trading as the company said the quarter was particularly challenging. But they rallied back after the market opened.

"Order flows improved in Q2, which bodes well for revenue for Q3," Chief Executive Gary Smith told Reuters in a phone interview.

However, he added that it was too early to say for sure that conditions had bottomed out. "What we see is encouraging but we need more time and more data," he said.

JP Morgan analyst Ehud Gelblum said the numbers were "ugly", but that it "looks like a bottom" and that Smith's comments showed visibility appeared to be improving.

Revenue in the fiscal second quarter that ended April 30 fell 40 percent from a year earlier to $144 million, much lower than Wall Street's average forecast of $157 million.

The company's chief executive said the quarter was particularly challenging, but said revenue in the current quarter would likely increase sequentially based on recent orders and conversations with customers.

Ciena sells optical switches and other products that support Internet protocol networks to large "tier 1" phone companies such as AT&T Inc (T.N), Sprint Nextel Corp (S.N) and Verizon Communications Inc (VZ.N), as well as smaller carriers.

Such companies have vowed to rein in capital spending to cope with a weakening economy, although many of them have also recently said they would invest in more advanced wireless technology.

Ciena posted a net loss of $503 million, or $5.53 a share, compared to a profit of $24 million, or 23 cents a share, a year earlier.

Excluding share-based compensation and other items such as goodwill impairment, its loss per share was 25 cents, and much worse than the average estimate on Wall Street for a loss of 9 cents.

Smith told investors on a conference call that in the long term, increased mobile and Internet use meant that customers would eventually need to purchase more network equipment.

"There's no question that underlying traffic demand continues to grow, and traffic demand remains the fundamental capex driver for our customers," he said.

He also noted that phone companies' capital spending relative to revenue was at historically low levels in 2008.

"Given the combination of traffic growth and new service demands on networks, it seems unrealistic to believe current spending levels are in fact sustainable," he said. "These are encouraging data points and lead us to believe that our customer spending patterns will improve over time."

(Reporting by Ritsuko Ando; Editing by Derek Caney)