Ciena Losses Widen as Nortel Integration Costs Mount

The November 2009 purchase of bankrupt Nortel Networks assets hurt Ciena Corp.s bottom line in the third quarter as integration proved more expensive than expected.

Cienas losses widened in the quarter ended July 31, from $26.5 million a year earlier to $109.9 million, the networking gear-maker said on Wednesday. The losses were due, in part, to $17 million in acquisition and integration costs, and $2.2 million in restructuring expenses.

Still, even though Ciena fought integration challenges and weakness in the global economy, it managed to more than double revenue thanks to the takeover of Nortels Metro Ethernet Networks unit. Ciena had forecast sales of $375 million to $400 million, but reported $389.7 million, with $221.8 million contributed by the Nortel properties. Analysts at investment bank UBS said they were looking for $398 million in total revenue, although they were only expecting the Nortel assets to pitch in $188 million.

For the fourth quarter, Ciena is projecting up to 5 percent more revenue than in the third quarter; the amount, then, could reach $409.2 million. Analysts polled by Thomson Reuters predict $424 million in sales. UBS, for its part, is aiming for about $470 million in fourth-quarter revenue. The firm kept its neutral rating on Ciena, along with the price target of $14.50 per Ciena share.

Ciena stock was trading markedly higher in mid-afternoon activity. Investors boosted the share price by 5.66 percent on the earnings news, to $14.19, by about 1 p.m. Eastern. Cienas strong revenue appeared to reignite Wall Streets confidence in the companys Nortel strategy, which has been viewed as a big risk to Ciena. Indeed, industry observers have not been shy to express fears about Cienas ability to integrate the Nortel Ethernet resources and control related costs.

But the deal seems to have worked out better than hoped, even though Ciena changed its mind about laying off workers. The Maryland-based company said earlier this year it would in fact cut jobs despite earlier assurances to the contrary and planned to have all of the affected positions slashed by Aug. 31. The associated severance and operations charges should show up in the fourth-quarter earnings report.

Ciena last year bought Nortels Ethernet division at a hotly contested auction  Ciena beat Nokia Siemens Networks for the assets. Nortel filed for bankruptcy in January 2009 and has spent the intervening months shedding its holdings to repay secured creditors.

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