Ciena (CIEN) Posts A Similar Quarter As Cisco, But Stock Has Rallied Off Lows Which Is A Good Sign
2:55 pm Thursday, June 02nd, 2022
Ciena (CIEN) is pulling back today after the company released its Q2 (Apr) earnings report this morning. In our preview, we stressed that Cisco’s (CSCO) recent disappointing quarter, and especially its downside guidance, left us with concerns heading into Ciena’s report. Ultimately, Ciena’s performance for the quarter did indeed bear striking similarities to Cisco’s recent results.
Ciena reported a rare EPS miss in Q2. Its revenue was generally in-line with prior guidance, though a bit light of analyst expectations. More troublingly, for Q3 (Jul), the company is guiding for revenues of just $870-930 mln while analysts were expecting a $1+ bln quarter. Adjusted gross margin fell to 43% vs 49.5% last year but was still in-line with guidance of 42-44%. As expected, lower margin, common equipment made up a large proportion of Q2 sales. Ciena expects to report another margin in the low 40s in Q3.
Ciena used almost the same language as Cisco when describing that while demand remains brisk, revenue is not a function of demand right now. It is purely a matter of component supply availability. Also, Ciena conceded that conditions worsened in Q2 relative to prior quarters mainly because of a higher number of de-commits from its supply base, caused both by chip shortages and China lockdowns.
The timing of expected supply chain improvements is a key lingering question. Per Ciena, the industry consensus is that it will take at least several more quarters to return to a normalized state. However, Ciena conceded that that timeline is just an estimate and that the situation is dynamic. Any recovery, once begun, will develop gradually.
Overall, Ciena endured a rough quarter. Its saving grace is that the problems seem to be industry-related rather than company-specific. Demand is booming, bu a lack of available chips is preventing Ciena from shipping more product. On its last call, Ciena sounded more optimistic about the second half of the fiscal year, but the tone on its latest call was more negative on turnaround timelines.
Finally, this report is a good example of why it is important monitor several names within an industry. Cisco’s earnings press prepared us to treat Ciena’s report with caution, and the commentary offered by the two turned out to be remarkably similar. Also, we note that the stock has rallied off its opening lows, suggesting that much of the bad news may have been been priced in already.
