• Ciena had a relatively tough fiscal first quarter
• Optical giant expects telco spending to return in H2
• CEO says Ciena is winning business in India as operators replace Huawei  
• But biggest Huawei replacement opportunity is in Europe

Vendors have mostly been cautious to date about stating emphatically they have won new business because they are replacing Huawei, but Ciena isn’t holding back. CEO Gary Smith noted during the company’s fiscal first quarter earnings call today that Ciena has won new business from telcos in India that are swapping out Huawei optical transport equipment, but added that the greatest Huawei swap-out business potential is further west.

“The main opportunities [to replace Huawei] are in Europe,” stated Smith. “But those deals take time, those are multi-year programmes. But we saw signs of this trend previously as service providers moved to reduce their dependency on Huawei about three years ago – look at the wins we have had with Deutsche Telekom and Vodafone, those came a long time ago from that dynamic,” stated the CEO. 

The priority investment for operators right now is in the radio access network, which is why the optical replacement deals are taking a long time, but “India is moving faster with that change because of the relationship between the two countries…. We see that process in India being expedited and [contracts] awarded,” said the CEO.

That business in India is one of the factors that has led Ciena to predict stronger business in the second half of its financial year, which ends in October this year, but those “headwinds” behind Ciena’s business are the result of encouraging signs from multiple regions and from a return to spending by Tier 1 operators in particular.

Smith said the fiscal first quarter, which closed at the end of January, would be its weakest period in the financial year: Revenues came in at $757.1 million, down by 9.1% year-on-year, while the vendor’s operating margin improved slightly to 10.0%. About 61% of Ciena's revenues came from telcos, while 20.4% came from webscale/hyperscaler companies, 6.5% from cable operators, and 12.1% from government, research & education and enterprise customers.

The company expects fiscal second quarter revenues in the range of $810-840 million.

For the full year, Ciena expects its revenues to be on a par with the previous full fiscal year, which generated revenues of $3.53 billion: Sales could even improve by as much as 3%, so full year revenues could be as high as $3.64 billion.

That means Ciena is expecting its H2 sales to come in at more than $1.9 billion, a giant leap over the first half of the year.

Ciena executives say they are seeing signs from operators right now, particularly in North America (where AT&T and Verizon are both significant customers), that a return to network investments is either happening now or is on the very near horizon. Those trends are not guaranteed but Smith and his team are confident: “Not many companies are giving full year forecasts right now, but we are,” he trumpeted.

That forecast gave Ciena’s share price a lift in early trading today, as it jumped up by more than 5% to $53.19.  

Getting edgy

Ciena is best known as an optical transport equipment company but it also plays in the routing and switching sector, which accounts for about 8% of its sales, and in software, including its Blue Planet orchestration and automation unit.

Blue Planet is still a very small part of the company but is growing steadily and has significant market traction. In the fiscal first quarter, Blue Planet revenues hit 16.9 million, up 9% year-on-year, and ended the quarter with more than 200 customers.

Blue Planet is playing a role in Ciena’s ongoing effort to play a greater role in data traffic aggregation in metro and edge networks with what it calls its Adaptive IP proposition, a combination of packet and optical capabilities with network management software tools and Blue Planet functionality.  

Ciena is positioning this as something with slimmed down, “thin” IP, without much of the functionality that legacy routers carry but which can now run in third-party general purpose compute platforms instead, noted the CEO, combined with optical components and the aforementioned software. The key opportunity Ciena sees is in aggregation networks, supporting 5G, fixed broadband, cloud, video and enterprise traffic.

- Ray Le Maistre, Editorial Director, TelecomTV