Ciena Set To Beat Q2 Estimates But AI Ambitions Face Margin Math And Marvell-ous Rivals

Rosenblatt analyst Mike Genovese is questioning how successful Ciena CIEN will be over the next one to five years, taking on companies like Marvell Technology MRVL and Broadcom Inc AVGO.

What Happened: The analyst maintains a Neutral rating and raised the price target from $65 to $85, according to a Tuesday research note.

Ciena will report second-quarter results on June 5 before the open.

Genovese expects good results and guidance, likely slightly ahead of consensus, driven by substantial revenues and orders.

Ciena’s upcoming report comes as the market for transceivers and components changes. The proliferation of AI-focused data centers, for example, demands extremely high bandwidth.

Ciena uses Coherent lite optics — a lightweight, more cost-effective version of high-end coherent optics — and IM/DD (Intensity Modulation/Direct Detection).

The analyst questioned whether the company would increase fiscal 2025 revenue guidance from its current “high-end of 8% to 11%” range.

Also Read: Ciena Q1 Earnings: Revenue and EPS Beat Estimates, CEO Eyes AI, Cloud Network Tailwinds

Why It Matters: Genovese wonders whether the company will achieve mid-40s gross margins within the next three years and whether there is upside to mid-40s gross margins in 3 to 5 years if it successfully wins a share of AI Data Center campus, fabric, and cluster applications.

Genovese said Ciena sells Metro, LH, and Subsea Data Center Interconnect to every major U.S. Cloud Provider and Metro and LH Optical transport. U.S. Tier 1 Telco orders continue to be significantly higher than a year ago.

Second-quarter revenues should hover around $1.09 billion. That’s up 20% year over year versus an easy comp and up 2% quarter over quarter.

Genovese noted that Ciena could slightly exceed second-quarter revenue expectations. The company could also keep its backlog consistent with the prior quarter at ~$2.3 billion or grow its backlog due to strong orders. The consensus hurdles for gross margins, operating margins, and EPS are 42.6%, 10.0%, and $0.52, all of which look slightly beatable, he says.

DCI is Ciena’s primary market exposure. Genovese said the revenue mix shift keeps going toward Cloud Providers from Service Providers. The company’s heavy DCI exposure is unlikely to support mid-40s gross margins, he says.

According to the analyst, significant progress in generating inside-the-datacenter and software revenues will be needed to achieve sustainable mid-40s gross margins.

Price Action: CIEN stock is up 1.63% at $84.62 at last check Wednesday.

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