Summary
- Ciena is a network strategy company, selling (hardware, software and services) to customers ranging from network operators to government departments.
- The company is a play on the infrastructure needed to support growing data consumption.
- Ciena’s growth drivers seem to be margin dilutive in the medium term.
- Despite gaining market share, Ciena’s stock pricehas been range bound.
- On balance, the stock price seems to offer limited (~10%) upside.
Despite a leadership position in network strategy market, the Ciena (CIEN) stock offers limited upside. This discrepancy is primarily due to a decline in network operator profitability.
As operators adopt an open and programmable approach to reduce costs, there has been a growing focus on creating a software-based abstraction. The abstraction allows for flexibility and modularity in the overall network architecture while addressing growing capacity requirements.
CIEN has responded by increasing focus on its software (Blue Planet) business. While the software revenues are expected to outpace the core business, the contribution of software to total revenue is expected to remain below 10%.
