Ciena turns in a solid Q1, but it's not totally immune to coronavirus

Bouyed by sales to AT&T and Verizon, Ciena beats estimates for its fiscal 2020 first quarter earnings. (Pixabay)

Ciena's bottom line is not totally immune to the coronavirus fallout, but it's in a better position than some of its rivals, namely Huawei.

On Thursday, Ciena reported better than expected results for its 2020 fiscal first quarter, but cautioned that while it's better insulated from the coronavirus than some of its rivals, its Q2 revenues could be down by as much as $30 million.

On the earnings call, Ciena President and CEO Gary Smith said from a supply chain point of view, his company doesn't have a lot of direct exposure into manufacturing in China and in its direct supply chain, although some of its third and fourth order contract suppliers do.

"So we're not immune from it, but unlike most of our competitors, we don't have a significant direct supply chain based in China," Smith said, according to the Seeking Alpha transcript. "And then secondly, on the demand side, as many of you know, we do not sell directly to the major carriers in China and that's a very conscious decision on our part.

"But that being said, we are present in many of the other APJ countries that have had challenges, some of which are in sort of lock down, and it's difficult to get to some of their sites for installation, for example. So, it is having an impact on us, which is reflected in a change in our Q2 guidance."

With the coronavirus originating in Wuhan, China, companies such as Huawei face a bigger challenge going forward this year, both with their sales and supply chains.

According to Ciena Chief Financial Officer Jim Moylan, Ciena is expecting Q2 revenues to fall between $875 million and $905 million versus its previous midpoint projection of $920 million. Due in part to its broad product portfolio, Ciena does expect to make up for the adverse impact of the coronavirus in the second half of this year.

For the first quarter, Ciena reported revenue of $833 million, which was a 7% increase from a year ago, versus the Street's estimate of just under $820 million. Ciena's non-GAAP profits were 52 cents per share, ahead of the Street at 38 cents. Adjusted operating margin was 13%, up from 9.6% a year ago. Adjusted gross margin was 44%, up from 41% a year ago.

Ciena had a particularly strong first quarter in its America's region. Verizon and AT&T each accounted for 10% of the company's revenues. Revenues from MSO customers, including Charter Communications and Comcast, and the U.S government were up 5% year-over-year.

"We expect material contribution from these service providers in 2020, as well as growth from CenturyLink later this year," Smith said. "We also expect continued growth in the Americas to be driven by other customer verticals. Web-scale was also a solid contributor in the quarter, as this vertical continues to perform well and as expected. We also anticipate a strong Q2 in web-scale."

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Smith also touted the WaveLogic 5 Extreme and next generation coherent optical technology customer wins with Southern Cross, Verizon and Comcast as well as Internet2 where Ciena has started initial field deployments.

"As evidenced in these customer networks, we have delivered on our promise to be the first to market with a 800-Gig solution, well ahead of any competitive offerings," Smith said. "WaveLogic5 Extreme is fully featured and performing better than anticipated across a multitude of applications. We continue to expect initial revenue in Q2 with more material revenue in the second half of the year."

In its fiscal first quarter, Ciena repurchased 1.3 million shares for close to $51 million.