Ciena Corp Q3 2024 Earnings Call Transcript

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

Question: Meta Marshall - Morgan Stanley - Analyst : Jim, just as you mentioned on the call, you had talked about kind of 6% to 8% kind of being a good long-term guide. Just as you look at fiscal '25 estimates as they are and they are within that range, is there a comfort that you have with kind of fiscal '25 estimates of the Street as they are? And then maybe a second question for Gary. Just on the pluggables wins that you guys have had noting that you said that a lot of those were very short reach. Do you view the pluggables business that you're getting as additive to the business currently?

Question: Simon Leopold - Raymond James - Analyst : First of all, Jim, congratulations, and thank you for giving us a 1-year notice. Appreciate that. I hate being surprised. And we'll miss you. . So on the questions, first of all, I wanted to see if you could put some dimensions around the MOFN opportunity you've talked about. Given that it's sort of buried in the telco, but it's somewhat indicative of cloud trends, that's my first question. As a follow-up, I wanted to see if you could comment on your broadband opportunities in light of announcement yesterday from one of your competitors winning exclusivity or at least claiming exclusivity with a Tier 1 US operator.

Question: Samik Chatterjee - JPMorgan - Analyst : Maybe for the first one, if I can sort of ask you more about the order commentary that you had in your prepared remarks. You mentioned the book-to-bill tracking above one, which I think would largely be seen as positive from sort of what your expectations for last quarter, but you also sort of highlighted the more sort of limited improvement or a slow recovery you're seeing with the service providers, particularly internationally. So I mean, can you just parse that out a bit in terms of the improvement orders between service providers and cloud and did sort of the service provider order improvement come in below your expectations. And I don't know if you ever provided like in terms of the service provide exposure do you have, how much is -- how much should we think is North America versus international? And I have a follow-up.

Question: Samik Chatterjee - JPMorgan - Analyst : And for my follow-up, we all sort of continue to see this robust investment or CapEx cycle from the web scalers and you talked about that being driven by your preparing for AI as well. How should we think about how much of that investment from the webscalers will be towards the pluggables or short reach versus really directed more towards your systems portfolio and sort of traditional portfolio that you have, how you're thinking about where does the AI preparedness benefit really come through on the portfolio side. .

Question: Amit Daryanani - Evercore - Analyst : I have two as well. Maybe to start with your October quarter guide for gross margins in the low to mid-40%. I think you talked about you're seeing some mix impact by initially selling more line systems there. Could you just quantify what that impacted just like 100 to 200 basis points headwind, and then do you see that normalize in fiscal '25 as you start to sell more modems potentially? Or is there a longer duration to normalize that?

Question: Amit Daryanani - Evercore - Analyst : Got it. And then on the telco side, you talked about just starting to see a recovery in North America and EMEA being macro-driven but a little bit weak. I wonder if you can just talk a little bit more about what you're seeing in APAC and India specifically when it comes to telco spending?.

Question: Amit Daryanani - Evercore - Analyst : Jim, congrats on the retirement.

Question: Tim Long - Barclays - Analyst : Congratulations for me too as well, Jim, we'll miss you. Yes, first one, if I could, then I have a follow-up. I understand you don't want to get too into fiscal '25 at this point. But Jim, you did make some comments about kind of looking a little bit more normal or maybe Gary did after a strong '23 and correction here in '24. When we look at next year or just going forward, do we think we're back towards more typical linearity in the business

Question: Tim Long - Barclays - Analyst : Yes, seasonality, yes.

Question: Tim Long - Barclays - Analyst : Okay. Great. And then just kind of a two-part follow-up here. Two of the business lines looked a little big changes quarter-to-quarter. So for Blue Planet that jump -- is there just a big deal in there or some kind of seasonality? And similarly, the drop in routing and switching sequentially. So in either of those businesses where there's anything like kind of onetime in them? Or are these more normalized levels here? .

Question: George Notter - Jefferies - Analyst : I guess I wanted to ask about sort of the trend in your direct webscale revenue. You've had couple of quarters in a row now that are a bit smaller relative to what was a couple of quarters of really, really strong web scale sales. So the narrative around AI, the narrative from you guys, I think, just sounds better and better and better. And I'm kind of wondering what's causing that sort of step down versus the run rates you're at a couple of quarters ago. Is that inventory digestion, maybe it's a function of not seeing the whole picture and I've got to look more at your MOFN deals and sort of adjust for that. But how do you sort of explain that trajectory relative to the narrative? .

Question: George Notter - Jefferies - Analyst : Got it. Great. And then just as a follow-up. You guys made a comment in the monologue about interconnect opportunities, I think, inside data centers and collaborating with several content providers. Could you talk a bit more about what the application is there and what exactly you guys are doing? .

Question: Tal Liani - Bank of America - Analyst : I want to ask you two questions. Number one is cloud. So cloud was strong, and you did not participate in this debate of InfiniBand versus Ethernet. You were kind of external to that debate. So the question is, when you look at the cloud opportunity going forward and take a 3-year view, 5-year view, is the opportunity for you. First, is the deployment going to get stronger? Do you think the growth is going to be higher than what we've seen in the last 3 to 5 years in general? And. Second, is the opportunity for you getting bigger? Meaning, do you -- are you going to be in parts of the network that you were not there before. So you could see better growth in the next few years. So I have another question, but maybe we can start with the cloud because I think that it will -- it does define your stock and valuation, and I wanted to better understand kind of your participation there.

Question: Tal Liani - Bank of America - Analyst : Okay. Second question is about the broadband, and I'm going to ask it in a sarcastic way, but I'm not a mean person. Why are you even in this business? This is a commodity like -- that's what we've learned in the last few years, right? Commodity like it's about pricing, there are companies that have been doing it for a while, why suddenly you increased participation in this fiber to the X? And why is this attractive for you?

Question: Tal Liani - Bank of America - Analyst : And do you think you can earn good margins on this business?

Question: Ruben Roy - Stifel - Analyst : I guess, Jim, just to follow up on that. So as you get through the inventory exiting fiscal '24, how would you assess inventory levels at that point pretty close to normal? Or is there more work to do there?

Question: Ruben Roy - Stifel - Analyst : Congrats on your future plans. I had a quick follow-up for Gary or Scott. Just around the 400 CR commentary. I was wondering -- it seems to me like that's maybe a little bit more of a competitive set of products relative to where you've been in systems historically? And just wondering, given the momentum there for your products, if you could maybe just give us a few details around why you're winning. I assume you mentioned power is important, et cetera. But anything else we can you think of around kind of why you're winning and what your visibility is, I guess, for continued momentum in that seemingly important area of the market. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 04, 2024 / 12:30PM, CIEN.N - Q3 2024 Ciena Corp Earnings Call