Ciena Corporation

This is our first report on Ciena Corporation, a networking systems, services and software player catering primarily to the telecom industry. The company had  a lower-than-expected financial result and failed to meet Wall Street expectations in terms of both, revenues and earnings. In spite of the elongated lead times and supply chain challenges, the strong secular demand trends have not shown any sign of abating. The combination of the market leadership and secular drivers, including global scale, investment capacity, and the company’s technology is driving the continued strong demand from the customers in relative and absolute measures. In the quarter, orders have outpaced the revenue by over 30%, and the company has continued to grow its backlog. The small quantity of low-value, low-cost components holds up a disproportionate quantity of revenue, mainly for its optical modems. This is the reason why adjusted gross margin and revenue were impacted negatively to a significant degree. In optical, the company added 41 new customers for its WaveLogic 5 Extreme. In spite of the supply challenges, Ciena had a record quantity of quarter for its WaveLogic 5 shipments. We initiate coverage on the stock of Ciena Corporation with a ‘Buy’ rating.