After this morning announcing better than expected Q3 earnings, shares of communication and networking software firm Ciena (CIEN 21.56, -2.71) trade about 11.2% lower as it appears the weak guidance may be dragging shares down.
CIEN’s Q3 report was pretty good with the company’s earnings of $0.51 per share coming in ahead of market expectations while revenues of $728.7 million, despite rising 8.7% compared to last year, were just in-line with market views. Adjusted gross margins were also on par with management’s guidance, coming in at 45.5% vs guidance in the mid-40% range.
Revenues per segment mostly grew at a healthy clip. Networking Platforms saw total revenues up 9.5% to $592.3 million in the quarter. Total Software and Software-related Services revenues, though a slightly smaller portion of overall revenues, still grew at a solid pace of 33.9% this quarter to $42.3 million. The company’s Global Services total revenues were about 4.1% lower compared to a year ago to about $94.1 million.
If you look at the revenues by geographical area, there appeared to be some weakness in the period out of Europe, Middle East and Africa – where total revenues fell 7.9% this quarter to about $96.1 million. All other regions – North America +6.2% to $465.2 million, Caribbean and Latin America +10.9% to $51.7 million, and Asia Pacific +41.6% to $115.7 million – all saw marked growth.
As mentioned, the weakness today seems to be stemming from CIEN’s weak guidance. In the press release, management guided for Q4 revenues between $720-750 million on adjusted gross margins in the mid-40s percentage range. On the conference call following earnings, management pointed to a few specific areas as reasoning for the underwhelming guidance. To be exact, CIEN’s government business is about $100-125 million per year and management singled out that area as a point of focus. The company now believes that some US government-related business will not materialize in the fiscal second half as originally expected. Additionally, CIEN highlighted softness in certain areas. The company has been seeing softness in orders from a handful of regional service providers in North America. Management noted that these spending changes arose at specific customers due to uncontrollable factors such as M&A and integration activities.
CIEN’s report is putting pressure on some optical peers today -- FNSR -5.30% AAOI -4.15% OCLR -0.70%.
At the current price, CIEN trades slightly higher than 10x estimated FY18 earnings and with today’s move trades about -11% YTD.