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Ciena Corporation (CIEN): Judgment Day Is Coming for This Company

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Ciena Corporation (NASDAQ:CIEN)It’s been an indifferent year for communications equipment maker Ciena Corporation (NASDAQ:CIEN) so far, with the stock gaining just around 10% and underperforming the NASDAQ Composite index. This is a far cry from what I’d expected from the stock as an uptick in telco spending was supposed to propel Ciena higher.

However, even though Ciena had turned in a terrific quarterly report earlier this year, the shares haven’t taken off. Mixed news coming out from different quarters regarding telecom spending has weighed on the stock and kept Ciena grounded. As such, its upcoming second-quarter results on June 6 will be vital in determining whether Ciena Corporation (NASDAQ:CIEN) can replicate its solid performance from last year in 2013.

Let’s see what’s expected of Ciena and whether its upcoming results and outlook can provide the much needed impetus to the stock price.

On revenue

Analysts, according to Yahoo! Finance, expect Ciena Corporation (NASDAQ:CIEN) to post revenue of $483 million in the quarter, slightly up from last year’s revenue and a shade ahead of the company’s own expectations of $465 million-$495 million at the mid-point. The revenue estimate seems to have moved up since Ciena’s last quarterly results, and the company would have to stretch its top line performance toward the higher end of its guidance to meet estimates.

But then, management had sounded pretty optimistic over the previous conference call, and believed that Ciena Corporation (NASDAQ:CIEN)’s competitive strengths and customers should help it stay ahead of the industry. Well, that optimism would be put to test when Ciena reports its upcoming results. The company’s products were witnessing good traction and it was gaining contracts at Tier 1 customers across the globe in the first quarter.

Most importantly, Ciena’s order backlog in the first quarter was quite strong and had exceeded revenue in that quarter. Design wins across the globe painted a very pretty picture of Ciena Corporation (NASDAQ:CIEN), and one could expect the company to beat estimates in the second quarter.

On earnings

This is the most difficult part to predict, as Ciena’s bottom line performance has been erratic in the past four quarters. The company had posted earnings of $0.12 a share in the first quarter, stunning the Street which was expecting a loss of $0.14. However, before that, Ciena Corporation (NASDAQ:CIEN) had sprung negative earnings surprises of 100% and 17% in the previous two quarters, preceded by a terrific beat in the second quarter last year.

Thus, it’s quite clear that predicting the company’s bottom line performance is like shooting at a moving target. Investors would be hoping that the solid earnings performance in the previous quarter was no false dawn, and the company would be able to satisfy the analyst estimate of a loss of $0.01 a share, which, if achieved, would result in a decline from a profit of $0.04 a share in the year-ago period.

Ciena’s gross margin was in the green in the previous quarter and if the company manages to sell more of its high-margin products and executes efficiently, then it might spring a positive surprise this time as well. But then, the company had admitted on the previous conference call that it isn’t in a position to sustain gross margin growth yet and it won’t be surprising if it falters again.

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