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Ciena (CIEN -14%) is pulling back sharply after the telecom/networking equipment giant missed pretty badly on Q2 (Apr) EPS. However, revenue grew nicely, up 23.6% yr/yr to $1.13 bln, at the upper end of prior guidance of $1.05-1.13 bln. Revenue guidance for Q3 (Jul) was quite good at $1.13-$1.21 bln, which is above analyst expectations.

• Ciena continues to see strong demand across all customer segments, geographic regions and its diversified portfolio. Notably, revenue from cloud providers stood out as a key driver in Q2. Ciena achieved record direct Cloud Provider revenue in Q2 (38% of total revs), grew 85% yr/yr to more than $400 mln. This was the first time Ciena reached this level in a single quarter.
• The company said its strength in its direct Cloud Provider segment really demonstrates the accelerating investments in AI infrastructure and Ciena's leadership in addressing this demand. Of note, three of its top five customers in Q2 were cloud providers, underscoring their sustained investments in AI infrastructure and network expansion. And that was evident in the fact that Q2 orders were again significantly greater than revenue. Ciena says it's on track for cloud provider orders to double in FY25.
• Regarding tariffs, Ciena navigated a new and, in the early days, a rapidly changing US tariff environment. It responded in real time with mitigation strategies to minimize the impact. However, as a result of the dynamic conditions, as well as the need to adjust billing systems and customers' systems, Ciena absorbed a net impact to its bottom line in Q2. However, it expects that the net tariff effect to its bottom line in future quarters will be immaterial.

Clearly, investors are focusing on the tariff hit to profitability in Q2. However, the company sounded generally pretty optimistic on the call with respect to both demand and its ability to mitigate tariff impacts in the future. Another factor is that we may be seeing a bit of a sell-the-news impact. The stock had run about 67% since early April, so the EPS miss provided an opportunity to lock in some profits.