Ciena (CIEN, Financial) is experiencing a significant stock surge, despite concluding FY24 on a mixed note. The telecom and networking equipment giant reported a Q4 (October) EPS miss, although revenue met expectations. Investors are focusing on bullish commentary and Ciena’s optimistic revenue guidance for Q1 (January) and FY25. Notably, Ciena has increased its long-term average annual revenue growth target for FY25-27 to 8-11%, up from 6-8%.
- Adjusted gross margin dropped to 41.6% from 43.7% a year ago, contributing to the EPS miss. The margin decline was due to a larger provision for excess and obsolete inventory. Despite the EPS shortfall, Q4 orders exceeded revenue for the second consecutive quarter, contrary to previous expectations.
- Bandwidth demand continues to drive Ciena's business, growing at around 30% annually, fueled by cloud and AI. Ciena anticipates bandwidth growth to surpass historical levels in the coming years.
- Ciena highlighted that AI impacts all network areas, not just data centers. The company observes this in its current business, with cloud providers investing heavily in infrastructure to support AI, requiring advanced line systems like those Ciena offers.
- North American service providers' purchasing patterns are improving, with supply and demand balancing as they manage inventory build-up. In Q4, North American service provider orders exceeded revenue for the first time in nearly two years.
Ciena's stock rarely sees such a significant move. The company can be unpredictable around earnings and guidance, but the recent guidance has been notably strong. The substantial increase in long-term guidance is boosting the stock, reflecting Ciena's confidence in its future business, supported by robust capital expenditure plans from cloud provider customers.
