• Ciena is one of the leading optical networking equipment sector vendors
• That sector is at the start of a new growth phase as increasing cloud, video and AI traffic volumes drive data transport capacity demands
• Ciena is reaping the benefits, reporting a 29.4% year-on-year increase in fiscal third-quarter revenues to $1.22bn

Ciena CEO Gary Smith will likely have a wry smile on his face today as the ongoing rollercoaster ride that is the optical networking equipment sector continues its latest climb and the company he has headed up for more than 20 years reaps the benefits of increasing investments in data network capacity driven by increasing volumes of cloud, video and, of course, AI-related traffic. 

After a couple of years of constrained spending by network operators, capital expenditure (capex) is on the rise again and that trend helped Ciena’s fiscal second-quarter results, which were announced in early June, when the vendor reported an impressive 23.6% rise in fiscal second-quarter revenues to almost $1.13bn.  

That wasn’t a blip.

On Thursday morning, Ciena reported a 29.4% year-on-year increase in revenues to $1.22bn for its fiscal third quarter that ended on 2 August. Adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA), after one-time costs, leaped by 60.4% to $158m, though the company’s adjusted gross margin did slip to 41.9% from 43.7% during the same period a year ago. 

All of Ciena’s business units grew their sales, but most of the sales ramp came from its networking platform division, which accounts for more than three-quarters of its sales. 

Ciena’s optical networking equipment revenues grew by 34.4% to $815.5m, while revenues from the company’s routing and switching products increased by 35.8% to $125.9m. 

Most of Ciena’s business is in North America, which accounted for almost 76% of all revenues. The vendor boasts the main US telcos and the hyperscaler giants as customers: All of those companies are investing heavily in the data transport networks that connect to datacentre facilities as AI demand fuels a new wave of data traffic growth. 

“We delivered another strong quarterly performance that reflects our leadership in high-speed connectivity and ongoing accelerated customer demand as the network becomes fundamental to the underpinning, growth and monetisation of AI,” stated CEO Smith. “With visibility well into fiscal year 2026, we are confident in the continued momentum of our business and remain focused on further expanding our operating leverage as we continue to grow,” he added. 

The results lit a fire under Ciena’s stock, with the vendor’s share price leaping by more than 13% in pre-marketing trading on the New York Stock Exchange on Thursday morning, taking it to $107.20. A year ago, Ciena’s shares could be bought for just $54.93. 

Ciena recently teamed up with industry analyst firm Heavy Reading to gauge the expected impact of AI in telco networks. It found that telcos expect AI traffic volumes to increase significantly in their metro and long-haul data transport networks over the next three years, but only a small minority of operators believe their networks are ready for the anticipated AI traffic deluge – see Are telco data transport networks ready for AI?

That suggests there’s a lot more spending on optical and data transport network equipment to come during the rest of this decade, a trend identified recently by research firm Dell’Oro Group, which noted that the optical transport networking technology sector, which shrank in value by 9% last year, is set to grow at an average rate of 5% for the next five years and be worth about $19bn in 2029. “We are anticipating that the time has come to interconnect all those new AI datacentres being built,” stated Dell’Oro VP and analyst Jimmy Yu.

The data network service opportunities afforded by the AI era is also a topic covered in the recent DSP Leaders free-to-download Trends in Telco AI Infrastructure Report. 

- Ray Le Maistre, Editorial Director, TelecomTV