After struggling with slower carrier spending due to an inventory glut, Ciena sees signs that the situation is improving.
Speaking to investors during its fiscal fourth-quarter earnings call, Gary Smith, CEO of Ciena, told investors during its recent earnings call that there were signs of a thaw out.
“You’ve seen two years of very anemic spending and underinvesting, running the networks hot by the service providers worldwide,” he said. “We expect it to improve certainly in North America and a little bit in Europe.”
However, he cautioned, "We're not expecting it to get back the levels of spending that it was.”
One of Ciena's key developments was that its WaveLogic 6e is now shipping, with 1.6Tbps trials and deployments announced by large carriers such as KT. KT predicts that with WL6e, data transmission speeds between metropolitan data centers will increase by about 2.6 times compared to previous versions, and the speed of its nationwide backbone network will likely double.
The company also shipped a record number of 400ZR pluggables in the quarter.
Cignal AI noted in its 3Q24 Transport Hardware Report that “a telecom hardware supply chain recovery is underway as component companies reported improving results and noted that recent weakness is reversing.” Still, the research firm added that “some of these gains are attributed to the growing sales of 400ZR pluggable, which do not contribute to optical hardware revenue.”
As for optical hardware, Cignal AI said the North American market revenue “was nearly flat as inventories normalized and Cloud spending continued its upward trajectory.”
However, it added that “routing sales dropped to their lowest level since 2020.”
MOFN opportunities
A key market opportunity that Ciena is pursuing is what it calls the Managed Optical Fiber Networks (MOFN).
Service providers can leverage Ciena’s solutions design and build a dedicated optical network tailored to the hyperscaler’s unique architecture and technology needs.
A significant growth driver of the MOFN concept is the growing adoption of cloud-based services. “What we are seeing with certain carriers around the world is MOFN opportunities driven by cloud and that really is cloud, but the revenues go through from the service providers,” Smith said.
Ciena pointed to Microsoft’s announcement of a move to work with Lumen Technologies to expand its network capacity.
With MOFN, service providers are building dedicated private optical networks for cloud providers, enabling them to extend their reach and better service customer demand quickly. For multi-cloud networks, service providers are building networks that connect to and between cloud providers, enterprises, and other service providers.
Smith said that it has been noted that various carrier customers are using MOFN and other approaches.
“So, I think that we're not expecting service provider spending to accelerate dramatically at all, but just to recover and get back into some balance, which we're seeing,” he said. “And then on top of that, you've got the cloud growth that specifically builds in MOFN and into a cloud that's driving the revenue there.”
Targeting data centers
Driven by cloud and the momentum around AI, another key target for Ciena is data centers.
Ciena sees an opportunity to grow its addressable market where its optical technologies can provide what Smith says can provide a “significant competitive advantage.”
“Data center applications are a significant growth opportunity for Ciena concerning AI within the metro data center campus and, over time, inside the data center itself for our interconnects portfolio,” he said.
It provides pluggables and component technologies to enable connectivity between and within data centers. Coherent technology will be the key element that Ciena will use to pursue interconnection opportunities around the data center or in the metro data center campus.
Pluggables were a key element for Ciena. During the quarter, Ciena shipped 43,000 400ZR pluggables. It also announced its WaveLogic 6 nano 1.6 Tbps coherent light pluggable, designed to optimize the performance and efficiency of data center and campus networks.
“We are targeting opportunities beyond our traditional DCI capabilities that extend into campus and short-reach applications in the 2 to 20-kilometer range, including our recently announced 1.6 terabit coherent light, which is a strong technology fit for these applications,” Smith said. “We will also expect to see coherent optics begin playing a role inside the data center where we can address this need with our interconnect portfolio in the form of plugs and components as legacy IMDD technology begins to reach certain limitations.”
Optical and software lead revenues
Ciena reported revenue of $1.12 billion for the fiscal fourth quarter of 2024, as compared to $1.13 billion for the fiscal fourth quarter of 2023.
For fiscal year 2024, Ciena reported revenue of $4.01 billion, compared to $4.39 billion for fiscal year 2023.
During the quarter, Ciena’s earnings were led by Platform Software and Services, including Blue Planet Automation. Platform Software and Services revenue was $358 million, up from $303 million in the same period a year ago. Likewise, Blue Planet Automation revenues were $77.6 million, up from $69.1 million.
In the networking segments, it was a tale of two different results. While Optical Networking revenues rose to $779.9 million, Routing and Switching dipped to $79.4 million.
Ciena's CFO James Moylan said it is on track to see growth in the first quarter.
“Our book-to-bill ratio was above 1 for the entire second half of fiscal 2024, and our backlog grew by approximately $150 million for this period,” he said. “This resulted in an ending backlog of $2.1 billion at the end of the year. And we are off to a powerful start in orders for the first quarter.”
Looking forward, Moylan said that based on conversations it has been having with its carrier customers, it expects average annual revenue growth of approximately 8% to 11% over the next three years.
“We are seeing plans for substantial CapEx investments by our cloud provider customers as they continue to invest in networks to support AI training and increasingly infancy,” he said. “We expect service provider order patterns to continue to improve.”
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Sean Buckley
Sean is responsible for establishing and executing the editorial strategies of Lightwave and Broadband Technology Report across their websites, email newsletters, events, and other information products.