Ciena ceo smith on what wall street’s missing binary to english

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Following the company’s earnings report last week, Ciena’s (CIEN) chief executive, Gary Smith, met up with me yesterday while in New York for various meetings.

We talked about the “big picture,” and also his thoughts on his company’s stock, which was beaten heavily following last week’s fiscal Q3 earnings report, which included an outlook for revenue this quarter that missed Wall Street’s expectations.

"We are considerably undervalued,” was his overall message to investors regarding the stock, thought he declined to offer a price target for his shares, currently trading at $21.66.

“Look at a company growing at a compounded annual rate [in sales] of 9% the last five years, with EPS growing in 41% in that period, and generating lots of cash, what should you pay for that?” he poses rhetorically.


More than the current price, is his view.

The big picture is that the oft-mentioned theme of “digital transformation,” also sometimes likened to a new industrial revolution, led by tech, “is like nothing we’ve seen before” on the planet live charts uk. The Ciena picture is that because of that new era, Ciena’s opportunity is bigger than Wall Street’s sell-side gives the company credit for.

Describing the new era, Smith tells me, "I think the context to it is, it’s an industrial revolution we are going through whose scale is massive, and whose velocity is like nothing we’ve ever seen before."

On the one hand you have this massive rise in the East, of India and China, with the fulcrum of the world’s economy is moving back East usd cad forecast today. By 2025, it will be all the way back there binary to text. That is exacerbated by the urbanization that’s going on rub to usd converter. We are all moving to cities hex editor windows. People are moving because they are more prosperous there us stock market futures. You get, consequently, a velocity of innovation like nothing before usd chf exchange rate. And on top of that, you’ve got this digital age we’re in, and that increase the velocity, because of communications, and makes the world global 45 usd. You know, people in China see what happens in the U.S euro to aud conversion. We live in a world that’s globally connected. Ciena provides the circulatory system for that, and then you combine all those dynamics with with A.I.

As I point out to Smith, Wall Street doesn’t seem to see that. They basically judge Smith’s efforts based on a model of how well it can do selling units of optical networking equipment against competitors in that market such as Huawei, Nokia (NOK), and smaller players such as Corriant.

"I think the investment community, writ large, still views the whole optical connectivity space as cyclical, and volatile, and very concentrated,” he says.

Smith insists it is none of those things. Optical demand between 2000 to 2017 was "pretty steady,” he says, if you average out things like the 2001 market implosion and the 2009 recession. “So, it’s nice steady growth, it’s not cyclical, and the demand drivers are pretty positive, with things like the Internet of Things, and the opportunity with 5G [wireless services.]

If the market overall expects the fiber optic networking field to grow by 3% annually, in revenue terms, a number I threw out, which Smith found reasonable, “we’ll grow by two to three points higher than that,” says Smith.

Still, I said, it doesn’t seem like the Street sees any of the ancillary benefits of this global digital industrial revolution redounding to Ciena, just a little-better-than-market sales growth.

Smith insists you should stay tuned for two next acts: The spread of its “Wavelogic AI” chipset, and its renewed software push with Blue Planet.

Wavelogic AI is the fourth version of the underlying “digital signal processor,” or DSP, as its often called, which Smith frequently refers to as a modem. It is a key piece of Ciena’s intellectual property, a collection of circuits that lie at the heart of all its equipment, and that is the foundation for Ciena’s excellence in “moving optical packets,” as Smith terms Ciena’s raison d’être.

This year, for the first time, Ciena said it will offer that chip to other optical companies, the component suppliers such as Oclaro (OCLR) and Lumentum (LITE), who can in turn sell it to their customers, the box makers.

Yes, it could show up with a lot of competitors, but our view is that people are going to consume this in different ways,” he says of the chips’ capabilities. "We want to drive choice in the market, and we will be the only vendor that will be completely integrated, with components, systems, software and services.” Ciena, in other words, could try the old trick of getting everyone to move to its technology, giving Ciena a certain advantage.

Ciena’s starting to ship the chips now, "and I would think we should look to design integration in 2019,” meaning, parts showing up in finished networking gear of other companies.

The importance of that is that it should be a relatively high margin sale for Ciena, as producing more of the chips beyond Ciena’s own internal demand doesn’t come with a very high incremental cost.

Along with Wavelogic chips, the software business, Blue Planet, can also boost margins future of marketing 2016. This has been a bit of an experiment for Ciena: the company is now having to pivot because too much of the software sale initially was about phone companies moving to something called “software-defined networking,” in which more and more functions are taken out of a hardware box and run as software. That movement is still happening, but it’s taking longer than most people expected.

"Our customers are saying, that’s great [about SDN], but can you fix this automation problem over here, that I have right now, because it takes me six months to fix a circuit, and I want to be able to do it without my doing a whole reinvention” of the network.

“So, we will come to market with two to three application packages, from our learning, to address those sorts of things,” says Smith, scoping out a time frame of "sometime next year.” Blue Planet sales will be about $25 million this fiscal year, which Smith deems promising. "We are not yet saying how much next year, but if we are even mildly successful that’s really meaningful for us” in terms of boosting profitability, says Smith.

It all comes back to profits. "We are really focused on the bottom line, on driving EPS growth,” he says. Margins, currently at 40% or so, can go higher, helped by both Wavelogic chip sales and by Blue Planet. "What takes that gross profit margin to 46%, 47%,” he again poses rhetorically. “It could be the software and the modems,” he says. Ciena has set an aspirational goal of 15% operating margin, up from the current 14%, and “to do that, you obviously need to improve gross profit."

If Ciena can find that profit upside in Wavelogic chips and Blue Planet, to Smith’s way of thinking, it shows there is value in the assets that are more than just units of networking equipment. And that would mean there’s more to Ciena’s opportunities, at least, more than Wall Street understands.


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