Ciena’s post-COVID role: market share thief

Article content

Few companies have traced the impact of COVID-19 on global supply chains as faithfully as Ciena, the optical networking giant that reported record third-quarter financial results on Thursday.

Article content

Exactly one year ago, Ciena shocked its investors by warning its revenues would slump as much as 18 per cent in its next fiscal quarter. A major cause was a malfunctioning supply chain for many of the thousands of parts that go into building high-speed communications networks. Its engineers, who help build these complicated marvels, were having difficulty accessing customers’ sites.

Article content

Not only that, Ciena’s largest customers — giant carriers such as AT&T — were shifting their attention from installing new gear to making sure the communications networks already in place could handle the extra COVID-inspired load caused by Netflix and Zoom calls.  

The result: Ciena’s quarterly revenues, which hit US$977 million in its third fiscal quarter ended Aug. 1, 2020 — tumbled for two straight quarters to $757 million. Along the way, the company shed US$3.4 billion of its market share, some 37 per cent.

Article content

At the time, long-serving CEO Gary Smith assured investors that revenues would bounce back as the world returned to normal. Turned out he was right.

Maryland-based Ciena, which does roughly half its global R&D in Kanata, reported revenues on Thursday of US$988 million for its third fiscal quarter ended July 31. Year over year, that was an unimpressive gain of one per cent. But that doesn’t show the firm’s recent recovery from COVID. Revenues are up 19 per cent from the second quarter and more than 30 per cent from the first quarter.

Ciena’s adjusted third-quarter earnings were US$1.06 per share, up 15 per cent year over year. The company’s share price has recovered to within five per cent of its peak.

Ciena is now forecasting revenue of a shade more than US$1 billion for its fourth quarter. This might have been $20 million or so higher but for the lingering effects of the latest waves of COVID-19.

Article content

“We’re very well placed to navigate through this, more than anyone else in the industry,” Smith asserted Thursday in a conference call with independent analysts. “But we’re not immune.”

Supply constraints — which include a general shortage of semiconductors and other important components — are expected to persist into 2022, the company said. But, Smith added, Ciena’s order backlog has been increasing faster than forecast, reflecting the company’s win rates for new business.

“We will continue to take (market) share,” Smith said, “no doubt about that.”

The consensus forecast from independent analysts surveyed by Thomson Reuters calls for Ciena to achieve US$3.9 billion in revenues in fiscal 2022, up from US$3.6 billion in the current year.  Earnings, too, are predicted to jump: to US$3.22 per share next year from US$2.88 for 2021.

Not bad for a company still running against the tide of COVID-19.