Two words – Absolutely nothing! At least on the face of it! The company became a victim of the telecom downturn, and basically treaded water, and since then has survived the bust. It has slowly weaved its way into the hearts and minds of incumbets. All those who were going to obliterate the company, well have themselves have been obliterated. A month ago it got a major boost when it was selected as one of the suppliers for the much vaunted British Telecom 21CN Network as a long haul provider. Yesterday it reported better than expected earnings, improved margins and a decent forecast. The stock still got pounded in the market, and the company cannot seem to shake off the negativity that surrounds it. Why? Because it is still guzzling cash – about $37 million a quarter.

Inventing Money blames this ho-hum reaction to the company’s recent good performance on Ciena’s seemingly haphazard acquisition strategy, which despite best efforts has delivered flat results. Catena for instance is still running at $25 million a quarter, flat from where it was a year ago when Ciena bought the company. The ONI Systems acquisition hasn’t really panned out as planned, and neither did WaveSmith purchase. The company still gets over 60% of its revenues from the much maligned optical equipment sales, which can’t bring the the 40% margins the management so believes.

Still, having known Gary Smith for a while, I am less negative than most. I think with the world moving to metro ethernet, things could look up for them in the near future. Still, they really need to bring their cost structure down and increase the number of customers. They still have long term problems -tThe price pressure from the Chinese is going to eventually flatten the profits in the long haul business. As Inventing Money writes, I would like to see more cost reductions at CIEN, especially in R&D and G&A and revenue growth from acquired companies that sell non-optical products with higher gross margins.