Ciena Corporation (CIEN)

My cousin said to me today as I was taking about my portfolio and I told him I had 2 cloud companies and 2 college tuitions so one of them had to go…the other company is Pure stupidity Destructions or something like that needless to say I kept me my Ciena! I admit I was scared as I am way overweight in technology!!! It’s always changing and always evolving to places we can’t even fathom! But, I had been preaching this same sentiment to my college educated and another one graduating this year🙏 and the baby will have one year left!
I would have been turning my back on everything I have said for a decade plus now!!! Did I mention I love me them chips! I love em so much Congress had to go and enact a “Chips Act” on a account of National Security they claim. But, they also came to understand that we put that
S#%+ in everything!!! Yup, my thesis held up! I ain’t going to be eating Ramen Noodles because of this ungodly sentence for the simple offense of wanting to pursue a higher education! And don’t ya know that S#%+ is legal now…kids these days, expensive as hell but 3 Aces that will go on to do great things!!! It has certainly been worth every nickel!
More Chips!!! Long baby long!!!

Ciena's Story Is Steadily Improving, But The Stock Hasn't Been So Steady
Sep. 10, 2019 8:00 AM ET
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About: Ciena Corporation (CIEN), Includes: ACIA, CSCO, INFN, IPHI, NOK

Stephen Simpson, CFA
Long only, growth at reasonable price, value, research analyst
Kratisto Investing

(10,445 followers)
Summary
Ciena once again beat sell-side expectations, but the lack of a boost to guidance seems to have disappointed investors.
The datacenter business continues to grow nicely, and Ciena is starting to see orders for its 800G technology.
Ciena is now trading below the low end of my valuation range and looks like an interesting growth story to consider today.
I’ve written more than once that Ciena (CIEN) shares often give investors “second chances” and that there are fairly frequent gaps between the company’s performance and near-term sentiment. And here we are again – while the company beat expectations in the fiscal third quarter and continues to gain share, the combination of concerns about global spending and management’s “failure” to raise guidance has the shares down about 13% relative to my last update.
I’ve written before that I like the idea of buying Ciena shares below $40, and as of this writing, that’s where we are, so this is a name that is very high on my prospective buy list. Yes, I am concerned about the potential of slower datacenter spending, as well as lumpiness in service provider deployments, but I’m willing to accept that risk given the share gain, market growth, and margin improvement offsets. Ciena certainly wouldn’t be immune to a broader market sell-off (particularly a tech-led sell-off), but again that’s a risk that I’m willing to accept on balance.
Another Beat… But No Raise
Ciena has been enjoying a very good run of better-than-expected quarters, and the third quarter was no exception. Revenue was about 3% better than expected, and arguably even more important were the 200bp-plus beats at the gross and operating margin lines, as operating margin expansion/leverage has been one of the key bull/bear debates.
Revenue rose 17% this quarter, with roughly similar growth across the major business units. Networking was the leader relative to expectations, though, with nearly 18% growth driving a number 6% higher than expected on 22% growth in converged packet. Software rose 16%, with nearly 140% growth in Blue Planet, but platform growth was just 1% and overall sales were a little shy of expectations again. Service revenue rose almost 17%, with 8% growth in maintenance-related revenue.
Gross margin improved 430bp in the quarter, well above expectations, and operating income rose 36%, leading to 220bp of margin expansion. Gross margin is tough to model for Ciena on a quarter to quarter basis, as order timing and the make-up of orders can have a big impact; initial hardware installations tend to be lower margin (as do datacenter orders), but subsequent orders typically offer much higher margins.
All told, telco service provider revenue rose 13%, which I regard as a strong result on balance (and relative to underlying trends at Nokia (NOK), Infinera (INFN), et al). Webscale was even stronger, with Ciena seeing almost 50% revenue growth, and for the first time ever, Ciena’s largest customer in the quarter was not a telco service provider (most likely Google, Facebook (FB), or Amazon (AMZN) ).
The big negative from the quarter was that management didn’t raise guidance despite the beat, effectively leading to a negative revision for the fiscal fourth quarter. While the book to bill was below 1.0 this quarter, I don’t believe there is anything fundamentally wrong with the business – Ciena has established a track record of relatively conservative guidance, and that seems particularly prudent with the global economic slowdown likely leading at least some customers to reexamine their spending/deployment plans.
Ongoing Opportunities For Upside
Trees don’t grow to the sky, but I still see several areas where Ciena can improve and continue to drive attractive growth in the business.
In the datacenter, Ciena continues to add customers, with eight WaveServer wins in the third quarter and 16 wins for WaveLogic. The company also booked its first 800G WaveLogic order, suggesting the company is more or less on track with its deployment timeline. I’d also note that the strong growth in the Webscale (datacenter) business supports the position that Acacia’s (ACIA) 600G solution hasn’t been meaningfully disruptive to Ciena’s business or the market as a whole.
Looking beyond the next few quarters, I still see some meaningful growth drivers for Ciena. Roughly 20% of the global metro market is comprised of “other” in the latest Dell’Oro report, and I think the market is going to become increasingly inhospitable to subscale players – customers won’t want to trust critical system deployments to providers where there are concerns about staying power, and those small companies aren’t going to have the revenue coming in to