Ciena Touts Top Line Growth

Optical equipment provider Ciena (NYSE: CIEN) announced robust fourth fiscal quarter and year-end results today, citing strong demand among cloud hyperscalers and growth in its routing and switching product line.

“In Q4 we shipped more hardware across our portfolio than ever before,” said president and CEO Gary Smith, on the earnings call. Specifically, revenue for Ciena’s Q4 came in at $1.13 billion, up 16% year over year (y/y); for the year 2023, revenue was $4.39 billion, up 21%.

Adjusted net income for the fiscal fourth quarter 2023 was $111.2 million, or $0.75 per diluted common share, up 22% y/y; for the year, adjusted net income was $406.3, or $2.72 per diluted common share, up 41% y/y.

Notably, revenue from Ciena’s routing and switching segment grew 25% y/y in the fourth quarter to $128.9 million. The segment grew 27% y/y for the entire year, to $506.2 million. The routing and switching segment now makes up 11.5% of Ciena’s hardware sales; optical networking gear accounts for 68.1%. (The remainder comprises a range of software and services.)

An interesting addition to the routing and switching product lineup this year has been the WaveRouter metro platform, geared to telco demand for products capable of supporting the higher volumes of traffic caused by 5G, cloud computing, and general broadband requirements.

Cloud Hyperscalers Pulling Ahead

In reviewing the quarter and the year, Ciena execs noted that the company has shipped 100,000 of its WaveLogic 5 Extreme 800-Gb/s modems to 250 customers in 68 countries. By way of comparison, Ciena had shipped 25,000 WaveLogic 5 Extreme modems to 140 operators in January 2022. So over the past two years, demand for the high-speed coherent optical solution has tripled. The WaveLogic 5 Extreme is now “the most widely deployed 800-gig solution in the market,” said CEO Smith.

Ciena attributes strong sales of its 800-Gb/s gear to cloud provider network expansions – no surprise, given demand for generative AI processing of large language models. But Smith was very clear that sales to cloud providers aren’t all about AI. “We’re seeing in the cloud players growth around all dimensions of the business.… We’re seeing it in datacenter interconnect, into the metro, into long haul with things like WaveServer. We’re also seeing it in submarine, where they’re investing significantly around the globe…”

But what about telcos? Analysts on the earnings call queried whether the growth of cloud hyperscalers is dwarfing that of telcos, which have been pulling back on spending.

The world’s telcos are still working through a backlog of equipment purchased over the past couple of years, Smith said, with the North American Tier 1 service providers still digesting their backlogs at different rates. But by mid-calendar 2024, he said, the pipeline should be open again.

A Future in the Datacenter?

At one point, Ciena management was questioned about Ciena’s potential future inside the datacenter, an area where the company has no products today. But with Ciena’s expertise in coherent optics, some think that it would be an opportunity for Ciena to introduce products that speed up interconnections in datacenters.

Turns out that’s already on Ciena’s agenda. “We are very bullish around the opportunity,” said Smith. “Traffic is going up dramatically inside the datacenter, where we have no exposure to that right now.” But around 2025, look for Ciena to proffer a variant of its WaveLogic 6 modem designed for datacenter applications. Smith called the datacenter "clearly a massive opportunity for us farther out."