Ciena blames weak Q4 outlook on regional provider sales, government customers

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Ciena told investors it expects fiscal fourth quarter 2017 revenues of $720 to $750 million, falling short of analyst expectations of $767 million.

Ciena may have seen revenues rise in its fiscal third quarter, but the bigger concern for investors is the company's lower fourth-quarter forecast. The company said its near-term outlook is being affected by a mix of slower government and regional service provider spending.

The vendor told investors it expects fiscal fourth quarter 2017 revenues of $720 to $750 million, falling short of analyst expectations of $767 million.

Investors did not respond favorably to this outlook as Ciena’s shares fell nearly 11%, or $2.56, to $21.71 on Thursday morning trading on the New York Stock Exchange.

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Gary Smith, CEO of Ciena, said that softness in the public sector and regional provider industry segments are key factors in the company’s near-term outlook.

Ciena Smith
Gary Smith

“We now believe that some U.S. government-related business will not materialize in our fiscal second half as we had expected,” Smith said during the earnings call, according to a Seeking Alpha transcript. “We believe this is largely due to the same uncertainty that several other companies in our broader space have recently referenced.”

While Smith did not call out the service providers by name, Ciena said some of its customers that are in the midst of acquiring or bringing other companies into their folds have paused spending.  

“We’ve also seen some softness in orders from a handful of regional service providers in North America really related to very customer-specific challenges including things like M&A and integration activities,” Smith said.

However, Smith added that “even with these slightly lowered expectations for Q4, we expect to continue to significantly outpace the competition in the market with North America as a strong contributor.”

Here’s a breakdown of Ciena’s key metrics:

Converged packet optical: Converged Packet Optical continued to be a star performer in Ciena’s portfolio as revenues were $505.5 million, up from $497.6 million in the same period a year ago.

Packet Networking: Packet Networking revenues were $82.1 million, up year-over-year from $63.7 million. 

Optical Transport: Unlike Packet Networking and Converged Packet Optical, Optical Transport was $3.7 million, down year-over-year from $9.6 million.

Software and Software-Related Services: Ciena’s bet on software continues to pay off as the vendor reported that Software and Software-Related Services revenues were $42.3 million. The vendor reported gains in Software Platforms and Software-Related Services, which were $18.4 and $23.9 million, respectively.

Smith said that in the software business it “has 25 Blue Planet customer engagements,” including four that “have been converted into live deployments and eight that are in active trials.”

Financials: For the fiscal third quarter 2017, Ciena reported revenue of $728.7 million as compared to $670.6 million for the fiscal third quarter 2016.