May 23, 2002
Q2’02 (April 30, 2002)
Conference Call Notes
- Revenue contribution from 38 optical networking customers. 4 new customers and 4 greater than 10 % customers. These 4 customers accounted for 60 % of revenue. 2 of the 4 greater than 10 % were international customers
- Core switching and metro switching greater than 50 %
- Long haul less than 20 % total revenues
- Metro K2 greater than 10 of total revenues.
- GAAP Net loss of 1.86
- Inventory charge of 223,277
- CIENA claims that operating losses were not as bad as presented since much of the charges were “one time “ events. (Just my opinion, but that is a bunch of baloney, especially with the inventory charge, which during the buildup continually increased margins and earnings)
- CIENA claims strong balance sheet (“strongest in the industry “).
- Cash burn was 44 million when excluding payoff of Cyras debt
- DSO was 63; this is down from last quarter of 87. DSO’s should fluctuate and could come above target range (I missed target range)
- Inventory levels were 75.6 million. RM = 101.3, WIP 27.6 m, FG 73.1. Turns were 4.6 compared to 2.2 last quarter.
- Worldwide headcount 2235, a decrease of 1159 from 1/31/02.
- Long Haul system sales outpaced channel card sales. Indicated to draw no conclusions or trend from that.
- “Unsustainably low spending levels by customers”
- Revenue from 5 metro switching customers, up from 2 in Q1’02
- CoreDirector gaining market presence. This has been shipped to more than 35 customers worldwide. CoreDirector trials are continuing and progressing very well. These trials will be a meaningful telltale sign of NextGen technology acceptance.
- Continues to hear that end user demand is continuing to grow.
- Customers can deploy today at a cost of about ½ from over a year ago.
- CIENA cannot wait for long haul demand to return. Expects market to look much different in future. CIENA will continue to deliver fully integrated network wide solutions. CAPEX is part of the problem, whereas OPEX needs to be addressed.
- Future revenue drivers will be added features of CoreDirector, core switching metro market.
- 3 key items moving forward
- Focus sales efforts on incumbent carriers (RBOC’s and International) (just won a large incumbent international carrier). Future incumbent wins will be a benchmark for industry in general.
- Broaden product portfolio. Needs successful integration of ONI.
- Expense management and cost management
- Revenues 3rd quarter will be flat to down.
- Gross margins to be in 5 to 10 % range
- Operating expenses to decrease slightly
- Other income 2 to 4 million range
- EPS of (.17 to .19)
Question and Answers
- What was equipment on “ Major International Customer”? Answer is CoreDirector. SDH functionality of MetroDirector should drive greater international adoption. Unnamed vendor has multiple current vendors and hinted towards legacy vendors.
- China as a region was greater than 10 % customer.
- Not seeing meaningful traction in RBOC’s until at least 2003. Seeing competition internationally from Alcatel and Marconi. In USA seeing Lucent as primary competitor.
- Paul Silverstein asks if any change seen among competition. CIENA indicated that Lucent has a decent strategy with Lambda Unite and existing ATM, yet seeing lots of interest but not traction.
- Cash burn expectations of 140 – 150 million in current quarter. Going forward normalized cash burn will be same as prior guidance (my thoughts are, what was prior guidance? I looked at my CC notes from February 21, 2002 and that number was 50 to 70 million. Yet the guidance back then was based on greater revenues and greater gross margins. Hence I found that answer to be terribly confusing and vague.
- CoreDirector roll out with AT&T going well. CIENA claims that the rollout is greater than halfway through of first phase rollout. Questioner asked if revenue was recognized halfway as well. CIENA would not comment on that. (My opinion is that was a very proper and relevant question and I am concerned as to why CIENA would avoid answering that)
- For quarter 3, North American / International revenue picture will be near where it was this quarter. Breakeven numbers will be discussed after ONI deal is closed. (I am not sure of the current breakdown).