Ciena Corporation (NYSE:CIEN) Q1 2023 Earnings Call Transcript

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Tim Long: Yes, two, if I could, as well. First, I wanted to touch on Routing and Switching, which seem to reflect a little bit higher in the quarter. Can you talk a little bit about kind of growth in use cases or sales or what it takes to keep that business scaling? And then secondly, a little bit higher level, looking at kind of the service businesses as a whole, continue to lag product. Most companies in the peer group have seemed to match revenue there. So could you talk a little bit about why we’ve seen service underperformance in a pretty weak gross margin accordingly this quarter?

Scott McFeely: The — let me take the second one first, the services piece. So it really has more to do with the project mix and timing of sort of product revenue delivery versus sort of installation projects. I don’t think there’s a sustainable difference in the performance of the services business relative to our equipment business here. It’s really just timing and project based, particularly on the installation based services. And that has both the revenue ratio that you pointed out, but also has a margin implication because we carry a bit of fixed cost on the services piece and the revenue timing is not — is off a bit, and you see it as a bit of a headwind from a margin perspective in the short term. So that’s the services dynamic.

On the Reading and Switching piece, you’re absolutely right. Good quarter in Routing and switching. There’s been a few in a row, so we’re pretty excited about the momentum there. In many of the use cases, we are challengers that are building, I’ll say, to next-generation architectures. So we think that the future is still very much in front of us in terms of getting at that expanded TAM that we talked about. And just to remind you, the key use cases that we’ve been focused on include wireless transport next-generation residential broadband with XGS-PON enterprise edge in both the physical and sort of virtual capability and then a converged metro core, benefiting both from our IP capabilities but also our optical strengths there. So we’re pretty excited about being the challenger in that space and the continued opportunities in front of us.

Operator: Our next question comes from Simon Leopold from Raymond James.

Simon Leopold: I’m going to ask sort of the two combined because I think they’re related, but I wanted to see if you could talk a little bit about your expectations for India. I picked up the comment from Gary on the quarter at $64 million. I think last year, you were about 2% of revenues. Just want to get a better sense of the sustainability and outlook for India. And the related question is, more broadly, your thoughts and updates on being able to displace Huawei, not just India but outside China, globally, how you see your position to win share from Huawei versus your competitors?

Gary Smith: Simon, let me take the India one. Yes, I think we’re beginning to see what we sort of generally anticipated in the industry, which is a strong build-out in India. You saw that in our results. I would expect India to have a very not just a good year, but probably a good three years for us, quite frankly. There’s a whole investment cycle there driven primarily by sort of the 5G build-out, but just generally, the investment there is the fastest-growing internet market in the world, and we have #1 market share are well positioned there. So we’re very positive about India. It’s going to be a strong cycle. And Huawei and actually to pick up on Huawei in India and then broaden out the question that you had, Simon. A lot of those decisions already been made.

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