Ciena sees ‘funnel’ of opportunities in managed optical fiber

  • Ciena CEO Gary Smith touted the value of managed optical fiber networks for the company's revenue
  • Roughly half of Ciena's total Q2 revenue "is driven now directly and indirectly from cloud providers.”
  • Inventory issues persist, but they're getting better, a Ciena exec told Fierce

Ciena is eyeing a way its cloud customers can build up their capacity without the hassle of fiber ownership regulations.

On Thursday’s fiscal Q2 earnings call, CEO Gary Smith said one area where the company sees “a significant funnel of opportunities” is managed optical fiber networks (MOFN).

He explained MOFN is when telecom service providers build optical networks and then lease fiber pairs to cloud providers. It’s a model that’s often used in countries that have “specific rules for fiber ownership,” which may make it more difficult for cloud providers to build their own network infrastructure.

Even if a country doesn’t have such restrictions, cloud providers are turning to MOFN if they need to add capacity “very quickly,” Smith said.

“This enables the cloud providers to quickly expand their reach and better serve their end users,” he said, adding MOFN is an example of “an indirect source of revenue from the cloud providers through [Ciena’s] service provider customers.”

Smith went on to say Ciena’s expanding its addressable market in three key areas: broadband access, metro routing and “inside and around the data center.”

Ciena’s recently partnered with a number of regional fiber providers, such as eCommunity Fiber and OPTK Networks, to help those operators boost their speed capacity.

Smith said Ciena “expect[s] to lead in 25GS-PON as it emerges next year,” estimating the “10G and above” PON market will grow to approximately $7 billion by 2027.

The company’s also made strides in the metro routing space this year, with the expansion of its WaveRouter offering. WaveRouter is targeted at multi-system operators (MSOs) and other providers that require high bandwidth.

Riding the cloud wave

Just like in Q1, cloud revenue was a highlight, with Smith noting “as much as 50% of our total revenue is driven now directly and indirectly from cloud providers.”

“As cloud providers continue to build massive data centers with high data rates to handle AI workloads, they are increasingly reaching power and space limitations,” he said.

Speaking of AI, Ciena’s Blue Planet launched in April its Cloud Native Platform, which allows communications service providers to automate operating support system (OSS) applications without being locked into one vendor.

Unsurprisingly, Ciena’s feeling pretty bullish about cloud and AI.

“We are now seeing specific plans and engagements around network deployments in the second half and moving into early 2025 to deal with what [cloud providers] expect to be an increase in AI traffic,” Smith stated.

Is inventory getting its groove back?

Like many of its optical vendor peers, Ciena’s still coping with inventory buildup among customers.

Order volumes haven’t returned to normal, but there are some “positive signs,” according to Ciena Executive Advisor Scott McFeely.

In a conversation with Fierce, McFeely noted Ciena’s orders and revenue in FQ2 were “up sequentially” from the first quarter. Specifically, equipment orders “within the broader order pool” had gone up.

“That’s a good early indicator of [service providers] deploying capacity…as opposed to a bunch of maintenance services for their existing install base,” he said.

McFeely also pointed out Ciena in FQ2 saw one of its service provider customers make their way back to the vendor’s “10% list,” meaning companies that make up more than 10% of Ciena’s quarterly revenue.

“So it’s really encouraging to see them back,” he said.

McFeely added the inventory issue is “largely a North American service provider dynamic.” Outside of North America, in EMEA and APAC, Ciena’s seeing “more macroeconomic caution” that’s impacting revenue in those regions.

Ciena by the numbers

Consolidated revenue of $911 million decreased from $1.13 billion in FQ2 2023.

Within the Networking Platforms segment, optical networking products made up 62% ($560 million) of total revenue, but that figure was down from $785 million in the year-ago quarter.

Routing and switching revenue decreased from $130 million to $116 million YoY, making up nearly 13% of the company’s revenue.

Ciena’s Platform Software and Services segment saw revenue increase from $69.4 million to $85.4 million. Revenue from Blue Planet went down from $20.6 million to $14.4 million.