Ciena Corp Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Adrienne Colby - Citi - Analyst : Hi, it's Adrienne Colby for Atif. Thank you for taking our question. I was hoping we could talk a little bit about the dynamics you were seeing in the cloud service provider segment. I'm interested in what the linearity of the order trends were in the quarter, if you saw any kind of a pause or a shift or signs that cloud customers are rethinking some of their strategy for the year.

Question: Adrienne Colby - Citi - Analyst : Thank you.

Question: Meta Marshall - Morgan Stanley - Analyst : Maybe to start with just in terms of -- following up on the previous question but just how do you see seasonality of cloud customers, obviously, it's kind of down quarter over quarter, but you noted very strong order activities, so just what you're seeing in terms of seasonality. And then maybe as a second question. You noted no further tariffs contemplated, but just what are you assuming for tariffs as announced and just how are you looking to mitigate those either through price or moving kind of distribution?

Question: Meta Marshall - Morgan Stanley - Analyst : Okay, great. Thank you.

Question: Amit Daryanani - Evercore - Analyst : Thanks for taking my question. I guess maybe just to start on gross margins, Jim, you sort of mentioned there was some one-time benefits in the Jan quarter you folks had. So could you just talk about very strong performance and gross margins in the Jan quarter, sort of what drove that upside and what were the things that were perhaps non-reoccurring that were not sustained in [out] quarters.

Question: Amit Daryanani - Evercore - Analyst : Fair enough. And then, if I kind of step back and think about your commentary around auto growth and the cloud demand, it all seems like up into the right. I was wondering if you kind of stack that up against your April quarter guide, which I think is calling for revenue growth of low-single digits 2% sequentially. I think, historically, it tends to be up more like 67% mid- to high-single digits. So maybe talk about the guide for April seems to be a little bit lower than normal seasonality despite some very positive commentary on audit and cloud from your side.

Question: Amit Daryanani - Evercore - Analyst : Perfect. Thank you.

Question: Joe Cardoso - JPMorgan - Analyst : Thanks for the question. This is Joe Cardoso on for Samik. I guess first one from my end, as you're thinking about the updated full year outlook for revenue, I guess is there any change in terms of how you're thinking about the composition between the customer verticals that you serve? And maybe more specifically, in terms of guiding or raising the guide here, is there a specific customer vertical that is tracking ahead of your plans relative to 90 days ago, or is this more broad-based in terms of what you're seeing across the verticals and the trends you're seeing? And then I have a quick follow up. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 11, 2025 / 12:30PM, CIEN.N - Q1 2025 Ciena Corp Earnings Call

Question: Joe Cardoso - JPMorgan - Analyst : No, got it, thank you. And then for my follow up, I'm just curious if we can get an update on how you're seeing the pluggable opportunity unfold for the year. It's -- anecdotally it kind of sounds like you guys are more confident around revenues here at least doubling for the year. So just curious, is that fair in terms of seeing a better demand in terms of 90 days ago? And then as you think about the expectations for the year anyway, just kind of size the contribution between how much is coming from Nano 5 versus 6 in terms of what you're embedding into the outlook.

Question: Joe Cardoso - JPMorgan - Analyst : No, understood, and then I appreciate all the color, guys. Thank you.

Question: Simon Leopold - Raymond James - Analyst : Thanks for taking the question. Look, I understand the tariffs are very fluid and change by the minute some days, but I guess what I'm trying to get a better understanding of, I feel like your supply chain and contract manufacturer relationships have been re-engineered somewhat and changing apart from tariffs. So if you could help us in understanding maybe what exposure to Mexico and how you envision this changing because I believe you're moving more into Southeast Asia. So any way to sort of quantify the risk if the tariffs stick as they are today and what else is going on in your supply chain reengineering?

Question: Simon Leopold - Raymond James - Analyst : Thank you very much.

Question: Tal Liani - BofA Global Research - Analyst : I have a few small questions kind of. What are the applications for WaveLogic? Why is it growing and, where do you see it in the network? And the second question is about pluggables. Can you, same question kind of, is it because -- is the growth because of the launch of 800GB or is it in 400GB and are you taking share from Cisco? The market share data shows that Cisco was very strong in 400GB. So can you give us a little bit more on pluggables? And I have one little question at the end.

Question: Tal Liani - BofA Global Research - Analyst : Perfect. Thanks for the elaborated answer. Services. Last year was a big year, like a big quarter -- same quarter last year was a big quarter for service growth. This quarter it grew 2.5%, and I see that the growth kind of decelerated throughout the year, 12%, then 5%, then 3.5%, 2.5% now. What are the trends in services?

Question: Tal Liani - BofA Global Research - Analyst : So, Jim, the range for year-over-year growth in the last four quarters was very big from 2% to 12%. What's a good assumption for us for kind of steady-state growth, ignoring all the mountains and valleys? What's a good assumption for services growth annual growth?

Question: Tal Liani - BofA Global Research - Analyst : Got it. Okay.

Question: Alyssa Shreves - Barclays - Analyst : This is Alyssa Shreves on for Tim Long. I just had a quick question on the service provider business. Now with the kind of gradual recovery you've seen in service provider, can you talk about the MOFN opportunities there? Should we still expect this to be kind of around 10% to 15% of telco? Just trying to get any color there. And then just a quick question on India, how are you guys viewing India recovery this year upside there?

Question: Alyssa Shreves - Barclays - Analyst : Thank you so much.

Question: Alyssa Shreves - Barclays - Analyst : Thank you.

Question: Ruben Roy - Stifel - Analyst : Gary, maybe to stick with the international service providers team, I'm wondering if you have some updated thoughts for us on the Huawei -- potential for Huawei replacement across various geographies now that inventories have normalized and supply chains have normalized. Any updates there, it sounds like there might be some movement, so just wondering if that's at all -- if there are any assumptions with that replacement cycle for your next three-year outlook.

Question: Ruben Roy - Stifel - Analyst : Thank you, Gary, and I had a follow up for Scott, I think. And Scott, kind of considering some of your commentary on longer-term potential opportunities inside the data center, there's been a lot of chatter in recent weeks and months around CPO, and I assume we're going to hear more about that over the next several weeks. What are your thoughts there, again thinking through sort of longer-term prospects for Ciena either with you know transceivers or ingredients that make up transceivers inside the data center. CPO, an opportunity, a threat, or neutral? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 11, 2025 / 12:30PM, CIEN.N - Q1 2025 Ciena Corp Earnings Call

Question: Ruben Roy - Stifel - Analyst : Right. Thanks a lot for the details, Scott.

Question: Tim Savageaux - Northland Capital Markets - Analyst : A couple of questions. I guess the first one on the competitive front, I'd just love to get an update on given the closing of the Nokia-Infinera deal, are you seeing anything changing competitively either on the cloud side or the service providers side of the market? And then I'll follow up.

Question: Tim Savageaux - Northland Capital Markets - Analyst : Great, thanks. And I think, Gary, you mentioned that in terms of upside drivers for the year, you felt them. The cloud was really driving it. But if you look at the dynamic in Q1, where you've got service provider of double digits and cloud down a little bit, as you look at fiscal '25 and look at that kind of low double-digit growth that you seem to be targeting. I mean, is it possible that most of that comes from service provider this year given the dynamics, or do we -- are we expecting to see a big rampant cloud later in the year? Looks like your orders might be out a little bit. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 11, 2025 / 12:30PM, CIEN.N - Q1 2025 Ciena Corp Earnings Call

Question: Tim Savageaux - Northland Capital Markets - Analyst : Great. Thanks very much.

Question: Ryan Koontz - Needham & Company - Analyst : Great, thanks for the question. We could double click for a minute on the strength out of North America SP which really sounds like it got off to a strong kind of unseasonally robust start here, is that driven by just purely an improved spending environment or maybe are there specific programs or share gains that are driving that uptake?

Question: Ryan Koontz - Needham & Company - Analyst : That makes a lot of sense. Thanks for that. And with respect to your broad exposure in cloud, which sounds like it's poised to see some strong sequential growth through this year, would you attribute that coming, primarily from kind of the top four classic players or, historically, more recently you've talked about, strength out of the next Tier 2s that are growing rapidly. How would you characterize your growth there and exposure? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 11, 2025 / 12:30PM, CIEN.N - Q1 2025 Ciena Corp Earnings Call

Question: Ryan Koontz - Needham & Company - Analyst : Makes a lot of sense, Gary. Thanks for that.

Question: Ryan Koontz - Needham & Company - Analyst : Thank you.