Ciena Earnings Call INSIGHTS: CapEx Expectations, Software and Services Revenues

On Thursday, Ciena Corporation (NASDAQ:CIEN) reported its third quarter earnings and discussed the following topics in its earnings conference call. Take a look.

CapEx Expectations

Mark Sue – RBC Capital Markets: The CapEx linearity should work towards your favor. You’re still cutting the outlook for the back half and for the near term. Can you provide some thoughts on may be month-to-month order trends maybe indications as we moved the back half of Carrier CapEx and perhaps the inclination to spend and also if we can quantify the impact of the macro and the slower rollout of design wins, is there way we could frame that in terms of how – what amount we should move from October to potentially into the January quarter?

A Closer Look: Ciena Earnings Cheat Sheet>>

Gary B. Smith – President and CEO: It isn’t what I had say about the CapEx, generally speaking none of the large operators in the U.S. are backing away from their plans to update their networks and their overall spending has been – it was just – is expected to be pretty good, but based on internal decisions that they make and we are there allocating the capital expenditure. There is no question that their allocation decisions inside their overall CapEx envelope can affect our results. When we look at our expectations for Q4 today against where they were earlier in the year, there is no question that Europe is a fair amount weaker than we expected it to be. As we move into next year, it’s hard to say what’s going to happen. I think we are well-positioned depending upon the CapEx amounts that the operators choose to spend but the macroeconomic environment is going to inform their decisions.

James E. Moylan, Jr. – SVP, Finance and CFO: Mark let me come out at it from the aspect of the overall (indiscernible) piece we had use, I would say there is sort of two dynamics that we are weighing on the business. One is the overall macro environment, I mean most obviously manifested is Europe. The issue around Q3 particularly is that it’s a big vacation time as well, so how much of that is vacation, et cetera. It’s typically a weaker quarter for us. But our orders were actually reasonable in the quarter. We achieved about one-to-one to revenue order intake. North America whilst I’m sure is showing some impact from the overall macro, it’s certainly difficult to really pick out and discern any sort of tangible things you can point to there. The other thing that’s weighing on us is some of the operationalization of the many wins that we have had are clearly taking longer. I actually don’t think that’s terribly much to do with the macro. They are going as quickly as they can. There are big strategic moves that are fundamentally a change in infrastructure for many of these major carriers and I think it is just taking longer in terms of the back office and all the rest of it to get in place. I would say encouragingly, I think we are through the majority of that and some of the large ones and we are actually beginning to see some deployments won’t materially impact Q4, but I think it’s encouraging that we are actually starting to get some of that stuff out there. Order flows for Q4 are forecast to be pretty reasonable and we are off to a pretty good start even in August.

Mark Sue – RBC Capital Markets: Gary would that be – so would the order trends and the design wins all at to our comfort that backlog is actually continuing to grow on a quarter-to-quarter basis since your record backlog back in October?

Gary B. Smith – President and CEO: I would think that we would leave the quarter with the higher backlog than we went in, yes.

Software and Services Revenues

Kent Schofield – Goldman Sachs: If you look at the last two quarters of Software and Services revenues, they very nicely beat the kind of $80 million to $90 million range of the seven quarters before that. Could you talk a little bit about the strength there and if this is sort of a new run rate base or if there has been anything going on last couple of quarters that we should think of as more temporary?

Gary B. Smith – President and CEO: Yeah, Kent, I think, certainly the increase in the services piece, talks to the overall picture around increased initial deployments, and typically the margin on that is lower. You can also look to the lower margin that’s come out of that segment as well, and I think as we get through that, I think we should see margin improvement as we get into 2013, but also think we’re seeing growth in some of the software aspects of that as well, so I think that is sustainable as we get through to 2013.

James E. Moylan, Jr. – SVP, Finance and CFO: Yes we do expect to grow our services business. As in everything in our business there are large projects spends that can cause quarter-to-quarter movements to very slightly, but we are making a concerted effort in several areas of our software services business, and yes, I do think that this level that we see now generally speaking we are going to grow from here.