It seems that diversification moves by network equipment maker Ciena (CIEN) have helped it over time. The company performed impressively in the last fiscal year. The company’s expansion strategy and its efforts to penetrate the market are a key reason behind its improvement. Further, with AT&T and Verizon as its top customers, Ciena sees bright opportunities in the future to gain traction.
Solid quarterly performance
Ciena’s financials were solid. Its quarterly revenue came in at $560 million, which is more than $507.7 million from last year. On a non-GAAP basis, the company reported net income of $19.4 million, which was better than $2.2 million from the second quarter of fiscal 2013.
The company has benefited from diversification. It is planning to strengthen its diversification moves by stretching its footprint into areas such as data-center connectivity, software orientation. It is selling its products to broader customer segments. With such efforts, Ciena is looking for some impressive pay-offs in the future. The company is seeing a shift of customers toward on-demand networking models.
Strong opportunities ahead
Ciena is consistent with its strategy of expanding and is focusing on growth through three strategies. First, the company is seeing good traction in Tier 1 carrier spending by addressing more applications beyond pure optical infrastructure. It is focusing on capturing a greater share of Tier 1 carrier spending. Second, the prime focus of the company is on broadening and diversifying its customer base. Lastly, Ciena is working on design and believes that the solutions that it is offering are ideally aligned with the requirements of an emerging on-demand environment.
Another exciting opportunity for Ciena comes from Packet Optical, which is a foundation for creating a new revenue generating service. Since Ciena is a leader in Packet Optical, this shift will undoubtedly strengthen its leadership position and will help it expand its position within Tier 1 accounts.
Ciena is working aggressively to improve its revenue on the international front as well. Ciena has entered into a new partnership with RXM. With this new step, it is expecting substantial long-term growth in 2015. Ciena is also doing well in the non-telco service segment. The excellence of the company in this segment can be seen by a 25%-30% growth in the revenue of the non-telco segment.
Web 2.0 is one of the fastest growing non-telco segments for Ciena, including end-markets like internet content providers and data center operators. Having delivered good services, Ciena figures in two of the top five Web 2.0 providers as direct customers. It is further making advances to strengthen this by collaborating with traditional network operators to support their Web 2.0 clients with both infrastructure and carrier services.
With the changing end user behavior, Ciena is expecting good times coming in the future. The on-demand segment is growing as both consumer and enterprise end users are consuming resources largely through network application that require on-demand experience. This shift to an on-demand world is expected to bring noticeable changes, and Ciena is uniquely positioned for a market shift like that.
Ciena is counting on this initiative and making some impressive moves to be confident even more. It is developing SDN control software with Ericsson. Also, it has recently announced a joint solution with Brocade to enable on demand provisioning for computing and network resources across data centers.
Ciena looks like a good bet. The earnings of the company are expected to grow with a good CAGR of 16.67%. Its forward P/E of 14.11 is an attractive point for the investors to consider. Moreover, a diversified portfolio and market leading position in Packet Optical are an advantage. Thus, in summary, Ciena looks like it a good pick.