Release Date: December 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Ciena Corp (CIEN, Financial) reported strong fiscal fourth quarter results with revenue of $1.12 billion, marking the second consecutive quarter of book-to-bill above 1.
- The company launched WaveLogic 6 Extreme, becoming the only provider of 1.6 terabit capable coherent modems, reinforcing its technology leadership.
- Ciena Corp (CIEN) experienced its largest quarter ever for shipments of line systems, driven by demand from large cloud providers.
- The company has seen significant growth in its pluggables segment, with over 43,000 WaveLogic 5 Nano units shipped to date.
- Ciena Corp (CIEN) has secured major wins in next-generation optical infrastructure RFPs from North American service providers, indicating strong market positioning.
Negative Points
- Adjusted gross margin for Q4 was lower than expected at 41.6%, due to a larger than typical provision for excess and obsolescence in inventory.
- The company faces challenges with inventory management, as evidenced by a $39 million charge for excess and obsolescence.
- Ciena Corp (CIEN) anticipates continued pressure on gross margins in the first half of fiscal 2025 due to a high concentration of line system sales.
- The company has experienced a reduction in headcount as part of cost management efforts, which may impact operational capacity.
- Ciena Corp (CIEN) is exposed to potential tariff impacts, particularly from Mexico, which could affect future financial performance.
Q & A Highlights
Q: Can you explain the growth assumptions for fiscal '25, particularly in the cloud market versus North America telco and international segments?
A: Gary Smith, President and CEO, explained that the service provider market is coming into balance with supply and demand, leading to improved orders. The growth is driven by cloud and AI traffic, with strong service provider strength in North America and steady improvement in Europe and international markets. The cloud and AI growth is layering on top of the service provider base, driving growth over the next one to three years.
Q: Regarding the gross margin and obsolescence risk impact, is there a risk of more charges in Q1, and how will gross margin improve in fiscal '25?
A: James Moylan, CFO, stated that the excess and obsolescence (E&O) charges are not expected to recur at the same level, and they anticipate returning to normal levels. The improvement in gross margin will primarily be driven by product mix normalization, particularly with line systems becoming an industry standard, which will lead to higher gross margins as they are populated over time.
Q: What drives the choice between direct cloud sales and managed optical fiber network (MOFN) trends, and how do these buying patterns differ?
A: James Moylan, CFO, noted that cloud providers prefer direct purchases but sometimes rely on service providers due to regulatory restrictions or capacity constraints. Gary Smith, CEO, added that the rapid growth of cloud providers necessitates using all available options, including MOFN, to meet demand.
Q: How are you addressing the potential impact of tariffs with the incoming administration?
A: James Moylan, CFO, mentioned that while they have exposure to tariffs, particularly from Mexico, they have not factored any tariff impacts into their numbers. They will work to mitigate any effects if tariffs are imposed.
Q: Can you elaborate on the opportunities in short-reach coherent technology and its impact on future revenue?
A: Scott McFeely, Executive Advisor, explained that coherent technology opportunities exist in metro data center campuses and eventually inside data centers. The WaveLogic 6 Nano technology is expected to be in customer networks by late '25, with revenue contributions starting in '26. This opportunity is included in their long-term targets.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
