Shining Stars

Profits are coming hard to telecom carriers, with voice revenue shrinking and data not yet taking up the slack, but theyre still buying optical equipment at a frenzied pace.

Thats very good news to optical equipment makers, which continue to post impressive revenues.

Ciena and Sycamore Networks last week continued a monthlong parade of record sales.

Ciena, the Dense Wavelength Division Multiplexing (DWDM) equipment vendor, reported first-quarter revenue of $287.6 million, a 130 percent rise compared with a year ago. Revenue was up 22 percent from the fourth quarter, Ciena said.

Sycamores gains were even larger. The vendor said second-quarter revenue soared to 414 percent from last years second-quarter figure to $149.2 million — up 24 percent from the first quarter. Sycamores switches manage and provision access, and long-haul and ultra-long-haul optical networks.

Both companies said they had little exposure to cash-strapped emerging carriers, and that they are addressing high-growth optical transport and switch markets. Ciena raised estimates for its business this year, while Sycamore did not.

Security analysts worry about Sycamores dependence on three customers —one of which is Williams Communications — for almost 75 percent of its revenue. Ciena, an older company, has more than twice as many customers as Sycamore.

Its been upward curves for optical gear makers all earnings season. ONI Systems, a new player in the DWDM space, recently posted fourth-quarter revenue of $30.2 million — almost 30 times greater than a year ago and 84 percent larger than third-quarter revenue.

In January, Alcatel — supplier of DWDM, Synchronous Optical Network and optical components — reported a 36 percent increase in its optical business to $2.15 billion for the fourth quarter. Tellabs said a 49 percent increase to $641 million in sales of its SONET products drove an overall 41 percent increase in revenue that gave the company its first billion-dollar quarter at $1.02 billion. And Nortel Networks, the leading supplier of DWDM and SONET gear, reported $10 billion sales from optical products in 2000, double 1999s total.

With all the good news, Sycamore Chief Executive Dan Smith repeated concerns about the next two quarters, and was seconded by executives at Cisco Systems, Tellabs, Nortel and other telecommunications equipment vendors.

While data traffic is growing rapidly, carriers profits are not, Smith said. He said he is confident carriers will continue investing in optical networks to handle rising business traffic, but there is a “great deal of uncertainty” for the next two quarters because of general economic conditions, carrier restructuring and uncertain capital markets.

Sycamore Chief Financial Officer Frances Jewels said revenue is still expected to grow 205 percent to 210 percent this fiscal year. That implies a slower rate of growth in coming quarters, she admitted. Williams and 360* Communications are major customers. Each has contracts for $400 million in Sycamore equipment.

Ciena was more upbeat. Executives told analysts it expects revenue for 2001 to be between $1.67 billion and $1.76 billion, up 95 percent to 105 percent over 2000s results. Previously the company projected sales would rise as much as 85 percent.