Ciena bags 20.5% growth perhaps thanks to Huawei dilemma

Optical networking company Ciena posted positive results for the first quarter of 2019, with total revenues of $778.5 million beating analyst expectations.

There have been whispers in corners of various conferences that a Huawei ban could benefit some, and it may well be having a positive impact for Ciena. While there are numerous other companies which would compete with Huawei in the optical equipment segment, with Ciena one of the few ‘pure-play’ companies it might have a more notable impact on the financials.

That said, irrelevant of where the favourable fortune has come from investors will be happy. $778.5 million represents a 20.5% year-on-year increase for the first quarter, while nearly all geographical markets have shown healthy growth.

“We began fiscal 2019 with a very strong first quarter performance, including outstanding top and bottom line growth as well as continued market share gains,” said Gary Smith, CEO of Ciena. “We believe that the combination of our leading innovation and positive industry dynamics will enable us to further extend our leadership position.”

Net income for the quarter stood at $33.6 million, though this is incomparable to the same period of 2018 which registered a loss of $473.4 million thanks to President Donald Trump’s US tax reform.

Looking at the regions, in the US, a market which now accounts for 62% of the company’s total revenues, the earnings grew just over 20% to $485.5 million, while 20% growth was also registered in the APAC region. The big success story however was in Europe, where the team grew the business by 32% to $129.2 million. This is still only 16.6% of the total haul for Ciena, but more geographical diversification will certainly be welcomed.

For Ciena, Europe could be a very interesting market over the next couple of months. With Huawei coming under increasing scrutiny globally, telcos will look to further diversify supply chains to add more resilience and protect themselves from potential government bans. While the anti-China rhetoric being spouted out by the White House is losing momentum, the European Union is reportedly looking some sort of ban, even if this puts the Brussels bureaucrats at odds with some member states.

For such vast investments, telcos will be looking for certainty and consistency from government policies. When looking at Huawei as a potential vendor, telcos will naturally be nervous, even if they don’t want to admit it.

With Huawei’s ban set to have little impact on the US market, it is not a major supplier to the market historically, the Europe could be a hidden goldmine for Ciena.

Interestingly enough, this scenario also seems to be paying off dividend in the APAC markets as well. Smith notes the success in the APAC region has come from Australia, Japan and Korea, three markets where Huawei has either been explicitly banned or is receiving a rather frosty welcome.