Similarly, Verizon talked of caution among its enterprise customers and continued its ongoing drive to reduce CapEx as a share of revenue figure. In a sense Verizon can do this because it began rolling out its 4G/LTE network around five years ago. But as with AT&T, its smartphone penetration rates were higher than expected, with significantly increased amounts of data now being carried on its 4G/LTE network. The pressure to invest in higher bandwidth solutions in order to meet this demand is ongoing. Again Ciena is well placed.
What is going wrong?
Ciena Corporation (NASDAQ:CIEN) certainly did report strong growth from the big two Tier 1 US carriers. In addition its management stated its international backlog was good too. All of which is fine, but it doesn’t explain why everyone else was so weak in the quarter. Granted plenty of other companies have substantive legacy technology solutions (Ciena is positioned for newer technologies) and no doubt they suffered as a consequence.
But what of something like F5 Networks? They offer application delivery controllers, which ensure applications get moved around networks safely and efficiently. Demand for such products should surely increase in line with the trends discussed above. The fact that it didn’t and other companies reported weak telco based sales is an indication of how easily telcos can shift their approaches to spending. Indeed, Ciena could even see some of this in future quarters. F5 has its own question marks with a product refresh and increasing competition but there is no doubt that its telco vertical was weak.
The bottom line
In conclusion, I think that these results were more about Ciena Corporation (NASDAQ:CIEN) then the industry. Its long-term outlook is good, but don’t be surprised if there are some bumps along the way. As for the legacy technology providers, this is not necessarily a good report and it is still too early to conclude that the much-awaited pickup in telco spending is coming soon.
The article Do Ciena’s Results Mean its Time to Buy Telco? originally appeared on Fool.com and is written by Lee Samaha .
Lee Samaha has no position in any stocks mentioned. The Motley Fool recommends F5 Networks. The Motley Fool owns shares of F5 Networks. Lee is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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