Telecom vendors across the board have been hit hard by supply chain issues which have made it hard to get their hands on the chips and other components required to ship their products. And Ciena is no exception. But the Ciena CEO Gary Smith told Fierce that the recession many fear is coming could actually benefit equipment suppliers.
In an interview, Smith explained that a recession would likely slow purchases of consumer goods which use the same generic chips it needs for telecom products. Already he noted demand for things like automobiles and game consoles is starting to dip. That dynamic, coupled with the fact that many semiconductor companies are working to bring more production capacity online, could mean more chip availability for vendors like itself.
Smith acknowledged that the idea “certainly has some irony to it.” But he pointed out it just makes sense that an industry like telecom, which will likely see sustained demand even in a recession, would in theory benefit from “anything that kind of frees up that demand” from other industries for chipsets.
The CEO’s comments came after Ciena reported results for its fiscal Q2 2022, which ended on April 30. Revenue rose 14% year on year to $949.2 million, though net income fell 62.2% to $38.9 million.
On an earnings call, Smith and Ciena CFO Jim Moylan said the company faced an uphill battle in the quarter, with supply chain conditions worsening due to supplier decommitments around semiconductors. Covid lockdowns in China also hindered its ability to secure the integrated circuits that it needs to produce finished products. Executives on the call confirmed lead times for Ciena’s products currently remain around 12 months or more.
Despite this, the company added 16 new WaveLogic 5 Extreme customers in the period, raising its total to 172 and more than doubled shipments sequentially to reach a total of 35,000 to date.
“I want to be extremely clear. In this environment our revenue is not a function of demand or even production capacity for that matter. It is purely a matter of component supply availability,” Smith said on the call. “When our industry begins to see improvement in supply dynamics, our scale, investments, customer relationships and strong balance sheet puts us in the best possible position to service industry demand.”
Moylan said Ciena is currently forecasting revenue of between $870 million and $930 million in its fiscal Q3.
Demand
Smith told Fierce Ciena doesn’t segment demand out into 100G, 400G or 800G tiers since its WaveLogic 5 product can serve all of those. However, in terms of who is seeking its products, he noted demand is strong across all of its segments, including among cable and fiber players, mobile operators and hyperscalers.
By region, demand is strongest in North America with robust order volume also flowing from Europe. He argued the latter has generally underinvested in network infrastructure for the last decade due to the regulatory environment, and said Ciena is seeing the beginning of what is likely to be a multi-year uptick there as telecoms play catch up.
In terms of the prospects for ZR pluggable products, Smith told Fierce webscale players are currently the only adopters to date. He added he expects it will take more time before adoption takes off, in part because supply chain issues will make it harder for adopters to make the required router upgrades. He concluded he doesn’t expect Ciena to have material revenues from pluggables until 2023.