Ciena's CEO Gary Smith told Silverlinings that the quarter's success was based on the fact that the company was able to deliver on its backlog.
When it comes to hyperscalers, Smith said "They're investing in their network, which makes sense because that's how they monetize their business. They have to get it out to the customers."
Ciena has a number of "engagements" with the with the content players in everything from campus-type networks, datacenter connectivity and submarine cables
In an earnings season bright spot, Ciena Corp. (NYSE: CIEN) reported today that its Q3 numbers showed nearly 40% increase in sales to hyperscalers this year. But that's not all. Overall, the company reported strong third quarter results, including quarterly revenue of $1.07 billion, an increase of 23% year over year.
"Our results included solid profitability metrics with quarterly adjusted operating margin of 12% and adjusted EPS of 59 cents," said Gary Smith, CEO for Ciena, on the company's earnings call this morning. "We are delivering a very strong year with 22% revenue growth year to date as we continue to capture market share."
The vendor is "confident as we look forward, particularly given that secular demand for bandwidth continues to increase," Smith said. "Bandwidth growth has remained consistent for years, even through the recent period of supply chain constraints and the underlying drivers of that strong growth of very durable over the long term. These include mobility, 5G, cloud automation and more recently, artificial intelligence applications as they move out towards the network."
Separately, Smith told Silverlinings the quarter's success was based on the fact that the company was able to deliver on its backlog and get past the "whiplash" due to supply chain challenges over the last 18 months.
"We had a very strong quarter and it's shaping up to be a strong year," said Smith. "I think the sort of flushing out from the outsize backlog that we had is happening as we as we'd hoped. It's sort of a catch-up year from a revenue point of view so we expected it to be strong, and it's playing out that way."
A hyperscaler business snapshot
Ciena has a number of "engagements" with the content players in everything from campus-type networks, datacenter connectivity and submarine cables, according to Smith.
"We're seeing strength across all three of those dimensions. We're going to be up close to 40% this year on on cloud content players, and we already have the largest market share there," he said. "They're investing in their network, which makes sense because that's how they monetize their business. They have to get it out to the customers."
In terms of submarine global cables, Smith said the hyperscalers are "main players in that now. Both in terms of their ownership and certainly their traffic. That's interesting."
The company partners with the hyperscalers across the globe on that specific market, and Smith highlighted India as a key area for hyperscaler investment right now. "It's the fastest Internet growth market in the world. And we've got number one market share in India, too, and a lot of submarine cables now landing into India to support that growth," he said.
The AI quotient for cloud players
Ciena is starting to see the impact of artificial intelligence (AI) on cloud player demand for data center equipment and overall network infrastructure, including in compute power and the WAN. The fact that cloud players are building out the WAN is significant, said Smith.
"It's the first time we've seen them come back out and say, 'Listen, you know, we're beginning to plan for that traffic growth and we're at the early stages of it, but here's what we want to do,'" he said. "So they are making investments in the expansion of the WAN network for connectivity for when that traffic does come out of the datacenter."
As for what that model looks like, Smith said he isn't sure, but added, "I think we're beginning to see the first signs of the of that application [AI], if you will, being being thought about in terms of network traffic."
Comparing Ciena to its competitors
While other vendors such as Ericsson and Nokia reported lackluster earnings this last quarter, Ciena's Q3 stands out for its success.
Smith attributes this to the company's focus and the fact that Ciena is "not into mobile infrastructure," which he says is generally "a struggle more from 5G build out, etc."
The company's backlog has added to its success, he said. "We have way more backlog than any of our competitors in the space that we're in.... That really is testament to the competitive advantage that we have and as we roll out those, turn that backlog into revenue, it's massive amounts of market share that we're taking now. You know, I mean, none of our competitors are growing at 20% revenue growth, not right now."
Dell'Oro Group's Vice President and Analyst Jimmy Yu concurred with Smith's sentiment. "Ciena has the largest market share for direct DWDM sales to Internet Content Providers at nearly 50% in the first half of 2023," Yu wrote to Silverlinings in an email.
This article was updated on Thursday, Aug. 31, 2023, at 2:56 PM ET.