Ciena (CIEN +2%) is trading higher after reporting a solid EPS beat for Q3 (Jul). Revenue fell 11.8% year-over-year to $942.3 million, surpassing analyst expectations and the mid-point of prior guidance of $880-960 million. Notably, Ciena provided in-line Q4 (Oct) revenue guidance of $1.06-$1.14 billion.
- Order flow in Q3 was strong, driven by cloud providers, with a book-to-bill ratio above one. Ciena views this as a positive market trend, with narrowing gaps between supply and inventory absorption. Bandwidth demand remains strong, especially with the rise in AI-driven network traffic and increased cloud adoption.
- Ciena's customers are mainly cloud companies and service providers (SPs):
- Cloud providers are leading the charge in network expansion to support cloud and AI traffic growth. Investments span subsea cables, long haul routes, and data center connectivity. In Q3, Ciena secured new wins with major cloud providers and sees growing opportunities among data center operators and cloud infrastructure service companies.
- For service providers, Ciena's pipeline is increasing with significant deals and new logos. In North America, SP purchasing patterns are normalizing, though the recovery is gradual and will take several more quarters. However, there is clear evidence of improvement.
- Internationally, SP spending remains cautious, especially in Europe, due to macroeconomic and geopolitical concerns. This means the recovery in order volumes from international SPs will likely lag behind North American counterparts.
Investors are pleased with Ciena's Q3 results and Q4 guidance. After previous guide downs, in-line guidance is seen as a win. The commentary on the call was more upbeat than usual. Ciena describes FY24 as a transition year following pandemic-related supply chain challenges and outsized growth in FY23. The company aims for a longer-term +6-8% CAGR revenue growth in FY25, with current consensus at +8%.
