Ciena (CIEN) Gains From Focus on Core Optical Networking, Tie-Ups

Ciena Corporation CIEN seems well-positioned, thanks to higher demand for bandwidth, increased network traffic, and back-to-back partnerships with several telecommunication companies. Moreover, its focus on helping carriers to transition to next-generation networks places it in one of the fastest growing segments of the telco space.

Ciena has a lot of growth opportunities in Asia-Pacific, especially India. The acquisition of Nortel Network’s optical networking and carrier Ethernet business – Metro optical and Ethernet Networks division – helped the company expand its global reach. The acquisition helped it gain rapid traction in the emerging markets of Asia Pacific, Middle East, and Africa.

The company is witnessing encouraging signs in the market that include improvements in customer spending. Its increasingly differentiated position in the marketplace and a strong demand environment instill optimism. It has the largest optical research and development investment capacity in the industry, which enables it to deliver trailblazing innovation at the best time to market.

Innovative Solutions Drive Ciena

Ciena needs to constantly come up with modern networking solutions to fortify its position in the dynamic tech industry. Ciena’s revenues are primarily generated from the growing demand for packet optical transport and switching products, integrated network, and service management software.

The company has been diversifying its footprint in data center connectivity. This has enhanced its reach into a broader end-to-end optical and data equipment market. It is increasingly investing in the data and optical fiber market to cash in on the tremendous growth opportunity presented by bandwidth demand from network service providers. By expanding beyond its core optical networking expertise, Ciena has been able to boost its customer base, thereby growing its addressable market.

Network upgrades by telecom carriers to meet demand bode well for the company’s long-term prospects. It is one of the leading suppliers of 40G and 100G optical transport technology. Ciena is making efforts to expand its Web Scale IT Architecture in the enterprise market by launching products like new chipsets, metro architecture, and mobile backhaul solutions.

Fiber Deep technology represents a big opportunity for the company driven by the strong adoption of its products among all major cable operators in the global market. Further, Ciena is expanding its Packet Networking portfolio with new Adaptive IP capabilities, coherent optics, and purpose-built hardware platforms to help service providers capitalize on the next-generation of wireless connectivity, 5G. Management expects to witness a strong rebound in the second half of the fiscal as the markets gradually return to pre-pandemic levels.

Accretive Partnerships

A few months back, Ciena had collaborated with Openreach to augment the latter’s network capacity on the back of its avant-garde networking solutions. Per the deal, Openreach had leveraged Ciena’s Routing and Switching portfolio to offer a hub-and-spoke model for multiple 10GbE/100GbE links at key network locations.

The deal increased the scope for Ciena’s customer engagement and boost sales, leading to a recurring revenue stream. The end-to-end network deployment and service rollout also enabled the U.K. carrier to extend network capabilities, gain greater control over its operations while reducing costs and improving its reliability quotient.

It had joined forces with Bahrain Telecommunications Company (Batelco) to expand the cable capacity of the Batelco Gulf Network (“BGN”) in a concerted effort to boost the latter’s digital ecosystem. Per the agreement, Ciena was responsible for upgrading and supporting BGN’s bulk network traffic, thereby enabling it to seamlessly address the burgeoning requirement for over-the-top services and high-speed content among customers.

Recently, it announced that AccessOn Networks, a leading provider of full fiber rural broadband connectivity in North Carolina, utilized its networking solutions to expand network capacity across the region. AccessOn leveraged Ciena’s Routing and Switching portfolio to offer high-speed 100GbE links at key network locations. The deal also enabled AccessOn to better manage bandwidth-intensive applications, drive innovation, and expand services in remote areas.

Ciena’s GeoMesh Extreme solution is being deployed by Djibouti Telecom to upgrade its DARE1 (Djibouti Africa Regional Express1) network that will boost digitization in the East African region. It had also inked a deal with AT&T Inc. T to acquire the latter’s Vyatta virtual routing and switching technology for an undisclosed amount. The buyout reflects Ciena’s investment in its Routing and Switching roadmap to address the growing market opportunity to transform the edge, including 5G networks and cloud environment.

Roadblocks for Ciena

The Hanover, MD-based company functions in an intensely competitive market for the sale of communications networking equipment, software, and services. It has a small market share relative to many of its competitors like Ericsson ERIC, Nokia Corporation NOK and Cisco. These market players resort to aggressive pricing to grab market share. As a result, cut-throat competition is a major obstacle to achieve significant growth within the industry.

Also, majority of its revenues are concentrated among a few large global communications service providers. Given the competitive nature of the industry, loss of any one of its key customers could severely impact the company's performance. Hence, customer concentration has impeded Ciena’s top-line growth. Further, delays in product development or supply chain as a result of the COVID-19 turmoil might affect its reputation and impair its ability to seize market opportunities.

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