Ciena CEO says telecoms-equipment market will stay ‘turbulent’

When the telecoms equipment manufacturing company, Ciena Corporation, went public in 1997, the global telecoms market was on a roll and the world really did seem to be Ciena’s oyster. For five years things went swimmingly; Ciena manufacturered all its own products, orders and more orders came flooding in from all over the world and the company’s client list was a roll-call of the great, the good, the alright and the not-really-very-good-at-all as well as the downright tatty of the world’s carriers.~ ~ Then, when the telecoms bubble burst, Ciena rode the wave better than many others and did commendably well until 2002 when things really got nasty. By that year Ciena’s core business was in supplying equipment to second-tier networks and as the recession bit, those operators battened down the hatches and stopped spending.~ ~ The result was that Ciena’s revenues, that in 2001 had been US$1.6 billion, by 2003 had dwindled to just $283 million and the company’s share price was in freefall. Something had to happen and Ciena began what Gary Smith, the current CEO, calls “a painful transition.”~ ~ Swingeing redundancies and stringent cost-cutting became the order of the day. More than a quarter of Ciena’s staff were fired and the company outsourced 90% of its manufacturing. These tough actions stabilised the company but it continues to struggle as sales of the core optical networking products that account for 60% of Ciena’s business remain poor.~ ~ This week, Gary Smith is on a sales drive, attempting to drum-up business in Europe and the Far East.

Passing through London he gave reporters his view of the telecoms recovery – or indeed, in his perception, the lack of it.~ ~ Whilst many of his optimistic contemporaries claim to see the silver lining, to be able to make out the green shoots of renewal and can point to increased sales and revenues to back-op their claims, Mr. Smith remains firmly in the pessimist`s camp.~ ~ He said, “Our assumption is that the market will continue to be turbulent, but we are very focused on getting the company back on track through all this industry turmoil.”~ ~ He added, “We have cost reductions in place. We have programmes in place to improve our operating expenses. But you can’t save your way to profitability. You have to get the revenue growth as well.”~ ~ The trouble is that Ciena isn’t getting that growth. The company is not having much success in increasing sales and existing contracts with blue chip clients such as AT&T, BT and the US government are taking a long time to translate from the expense of installation into a steady flow of revenue and perhaps even a little profit.~ ~ As a result Ciena has again cut revenue forecasts and predicts flat sales for Q4. It has also undertaken some aggressive (and expensive) acquisitions that have not impressed shareholders. Indeed, Ciena’s share price has fallen by 65% this year alone.~ ~ Gary Smith says sales will improve as carriers like BT begin to spend on next generation networks. However, that may not be tomorrow or even next year and as Ciena continues to languish how long will it be before predators pounce on a cheap buy?~