Ciena Warns

Ciena , the last telecom equipment company still holding up, joined the earnings warning parade this morning.

Ciena slashed projected 2002 growth from 50% to less than 15% on its conference call a few minutes ago. The company plunged 6 points to 22 in pre-market trading.

Ciena, the next-generation equipment leader, is finally following other fallen leaders like Juniper and Cisco into the telecom spending slowdown. And it’s time once again to raise that unattractive little matter of pro forma (hypothetical) earnings versus the GAAP earnings that companies actually report to the SEC.

Under pro forma earnings, Ciena earned 17 cents a share, up from 10 cents a year ago. Revenues rose 96% to $458 million.

But that’s “press release” earnings. Under the GAAP earnings the company will report to the SEC, earnings fell from 9 cents a share in the year-ago quarter to 2 cents a share in the quarter that ended July 31. The two numbers were pretty close last year; they’re far apart this year.

Under GAAP earnings, Ciena’s price-to-earnings ratio, already about 200, will remain high when those earnings are reported to the SEC, despite the stock being off more than 80% from its 52-week high of 151.

But when telecom spending eventually rebounds, Ciena could emerge as the optical equipment leader, with a strong presence in intelligent optical networking, core switch, and long-haul transport. And next-generation equipment continues to draw capital spending away from legacy systems.

A look at Ciena’s chart below shows that the stock broke down out of a 5-6 point trading range yesterday, giving the stock minimum downside potential to the 23 area. 30 should now be resistance on the stock.

Ciena may someday emerge from the battered telecom equipment sector as a leader. But it appears that the company will have to struggle a little first.

And on a broader note, a drop in the CPI this morning is once again raising deflation concerns. But the good news is the market is reaching a short-term oversold level, and could begin to bounce today or tomorrow, just in time for that new moon turn. Amazing how often that old adage works: buy the new moon, sell the full.

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