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

I think I would characterize India as moving very quickly relative to other parts of the world on the displacement of Huawei. And we’ve certainly benefited from that. We’ve had wins that we’re now rolling out, which is direct replacement. I think Europe is the other sort of market area, particularly where they are changing out Huawei. But that is a multiyear process in Europe. And I think we’re winning our fair share of that in Europe. And that will continue over the next few years as they replace their infrastructure. Their initial focus was not building with them in the wireless space. The kind of transport stuff is they kind of get into it when they get to it. And they are beginning to get to it, and that will continue. Other parts of the world are less sort of responsive generally speaking, you look at Africa, you look at Latin America, there’s not as much movement to replace Huawei as you see in the geopolitical stuff in — particularly in Europe and in certain other countries in Asia, too.

So that’s sort of holding course and speed, I would describe it like that. Simon.

James Moylan: I would add that Huawei has a pretty significant market share in the PON area. And that’s one of the reasons why it’s interesting to us because we believe that they will have the same resistance in the PON area as they’re having in the core of the networks.

Simon Leopold: Just to clarify the India comments. I think the prior peak, I think 2018 was about 9% of revenue. So a smaller revenue base. Just wondering, is this business likely to be material enough to not maybe consistently, but at least get close to 10% of revenue? Or is this sort of $64 million-ish a sustainable level? How do we think about that?

Gary Smith: I think it’s possible to grow in absolute percentage terms as a part of our revenue. Now everything else is growing as well and you look at sort of the uptick in switching and routing and well, you look at the uptick, particularly in web scale, et cetera. So would it touch 10% again, that’s probably a little high, but it can certainly be a major contributor to us. There’s no doubt about that.

Operator: The next question comes from Meta Marshall from Morgan Stanley.

Meta Marshall: Great. A couple of questions for me. Just maybe starting on gross margins. Just as you think about the year and supply chain, seemingly releasing a little bit sooner than expected, understanding you’re leaving kind of gross margins about the same for the year. But just is there anything that we should think of differently as more new deployments, less supply chain overhead, just anything they consider there? And then second, just given the topical nature of it right now, just wondering how you guys see the AI opportunity for DCI and whether it’s relatively small because it’s mostly in data center traffic or whether you think that, that could be kind of an additional growth driver for you guys?