Ciena Shares Sink As Profit Plunges, Outlook Weakens

Shares of Ciena took a hammering yesterday, losing nearly a quarter of their value after the Linthicum Heights company announced a decline in third-quarter profit and warned of a sales slowdown.

The provider of network equipment to telecommunications companies said that with the economic downturn forcing consumers to cut back on expenses, telecoms have become more cautious about their spending and are upgrading their networks more gradually.

"While we've seen no project or order cancellations, sales cycles are lengthening and some deployments are slowing," chief executive Gary Smith said in a statement. The company lowered its revenue forecast for next quarter to between $190 million and $210 million. Analysts surveyed by Bloomberg had forecasted fourth-quarter revenue of $263 million.

Ciena said its third-quarter profit tumbled 59 percent, to $11.7 million (12 cents a share) from $23.8 million (23 cents) in the comparable period a year earlier. The company said it had been saddled with one-time expenses, including restructuring costs relating to the $295.8 million acquisition of World Wide Packets and a $5.1 million loss on two mortgage-related investments. Its revenue grew 24 percent, to $253.2 million, in the three months ended July 31.

Ciena's stock fell $4.34 to $13.09, less than a third of its 52-week high of $49.55. The decline came as the Dow Jones industrial average had one of its worst days of the year.

The global telecom companies that Ciena serves have pulled back their spending for a variety of reasons, analysts said. Carriers have been wary of pumping money into new infrastructure, both because of the economic downtown and because of regulatory concerns, particularly in Europe, said Julian Watson, a telecom analyst with Global Insight. Many companies just finished upgrades to their mobile networks and are opting for less expensive projects. Several are also turning to Chinese vendors for network equipment.

A July report from Credit Suisse forecast that telecom companies would increase their capital investments by 10.9 percent in 2008, down from 13.7 percent in 2007 and 15.3 percent from 2003 to 2007.

But while telecoms are being more careful with their spending, there is still a fundamental need for them to expand their networks, thanks to the increasing popularity of Web video and advanced mobile phone technology, said Alex Dannin, an analyst with Morningstar.

Ciena should be safe in the long term, he said.

"There's going to be a tremendous need for these carriers to install more equipment," he said. "I don't think the extreme sell-off that we've seen is warranted. It's the typical Wall Street thing. There are so many short-term investors. It's the rush to be the first out the door."