- The Washington Times - Monday, March 27, 2006

Cost-cutting measures at Ciena Corp. may bring the network supplier back to profitability by next year, according to analysts.

The Linthicum, Md., company has said it plans to close a New Jersey facility next month, cutting 62 jobs and saving an expected $7 million to $8 million annually. The company also has outsourced some production work.

Ciena, which sells communications networking equipment, has been operating with a net loss since 2001, when the technology bubble burst.

Investors have responded to the company’s recent cost-cutting work, and the stock’s price has more than doubled in the past six months.

“Businesswise and marketwise, things are definitely improving,” said Tim Daubenspeck, a senior analyst at Pacific Crest Securities in Portland, Ore.

Ciena reported that net loss for the first quarter fell 89 percent to $6.3 million (1 cent basic and diluted share) from $57 million (10 cents) a year ago. Gross profit margin, an important measure of a company’s efficiency in production, rose from 25 percent to 42 percent.

Ciena’s stock price rose 8 cents yesterday to close at $5.23 on the Nasdaq Composite Index.

Analysts say the stock’s climb also is in response to investor confidence in the optical market, which provides equipment for capacity telecommunications networks.

“Investors are eating up shares of Ciena because end-market demand has improved,” said Mr. Daubenspeck, who does not own shares in the company. Pacific Crest does not have a business relationship with Ciena.

“I think most of the move has been some enthusiasm that the overall optical group will see some better times after a very long period of difficulty. Ciena specifically, there has been some enthusiasm over some of the things going on in the company,” said Tim Savageaux, a senior analyst at Merriman Curhan Ford & Co. in San Francisco.

Mr. Savageaux, who owns shares of Ciena, said that soon many companies likely will decide to upgrade the telecommunications equipment they installed during the technology boom.

“Our view is as the carriers need to reinvest, Ciena [would] benefit from that trend,” he said.

Some warn that investors have put too much faith in the idea of a Ciena resurgence continuing.

“Going forward, it’s difficult to envision how they would keep improving things at the same rate,” said Joseph Chiasson, a senior analyst at Susquehanna Financial Group LLLP in Boston.

Optical product companies typically don’t have gross margins higher than 45 percent, Mr. Chiasson said. Ciena is at 42 percent, signaling that the company doesn’t have much more room to grow, he said.

“They’re closing in on that number as we speak … the margin expansion has probably run its course for the most part,” said Mr. Chiasson, who does not own stock in the company. Susquehanna Financial does not have a business relationship with the company.

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