Ciena (CIEN 40.74, -2.06, -4.81%) is trading lower after reporting Q1 (Jan) results
this morning despite an EPS beat with revenue upside. Also, the mid-point of
the Q2 (Apr) revenue guidance was above market expectations. Non-GAAP EPS in Q1
(Jan) more than doubled yr/yr to $0.33 vs $0.15 last year while revenue rose
20.5% yr/yr to $778.5 mln. Both results were better than market expectations.
Non-GAAP operating margin improved to 9.6% from 6.3% last year. On the call,
Ciena guided to Q2 (Apr) revenue of $800-830 mln, the mid-point of which is
above market expectations.
Ciena began FY19 with a very strong Q1 performance, including continued market share gains. One of the main topics on the call was just how broad-based demand has been in every geographic region. It saw double digit revenue growth in nearly every region. It's seeing strength in Australia, Japan, Korea. Asia Pacific was up 20%, including a big contribution from Japan. North America was up 20%; seeing new wins and EMEA was up 30%.
Expanding on this topic a bit, Ciena says that EMEA is a market that has been under-developed (Deutsche Telecom was a nice win there; and some other wins are rolling out this year). Several positive factors are happening in Europe; Asia is being led by India but Japan was very strong as well. Ciena feels quite bullish about Australia.
When asked about the India opportunity, Ciena said it's seeing very strong growth the last couple of years. However, growth should moderate somewhat in India but that's expected as it gets bigger; still seeing healthy growth; 5G roll-out is in front of Ciena, will see some in 2019, but that will stretch into 2020 and beyond.
When asked about the competitive landscape, Ciena says it's taking additional market share. Some smaller vendors are struggling and seeing technology lags. Also, Chinese equipment vendors are seen as having too much market share in some markets. Network operators are doing a flight to quality to vendors like Ciena. Ciena is in highly enviable position as customer confidence has never been stronger.
Another potential wrinkle is Ciena saying on the call that it expects its web-scale growth to moderate a bit in 2019 relative to 2018. Ciena is typically known as a telecom equipment name but it has been making a strong push into non-telco areas, especially Web-scale (internet content providers, data center operators focused on search, social media, video; Web-scale customers include Google, Facebook, Amazon etc.). Webscale was 22% of Q1 revs, up 64% yr/yr. It's a key part to the Ciena investment story, so perhaps this is being seen as a bit of a negative.
In sum, the stock is down despite the upside results. We think it was Ciena's comments that growth is moderating a bit in India and web-scale. However, some moderation should be expected as those areas grow.
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