Ciena Corporation Q3 FY2025 earnings call

• Q3 2025 revenue was $1.22 billion, above guidance, with adjusted EPS of $0.67, up 60% sequentially and 91% year over year.
• Demand was broad-based and durable across cloud provider and service provider segments, with two 10% customers in the quarter and a new quarterly order book record.
• Cloud providers continue to invest in AI, with industry-first wins including a dedicated AI infrastructure project and a data center out-of-band network management solution. Neo scalers present emerging opportunities.
• Service providers show steady investment, with three of top five customers being service providers, driven by demand from cloud providers and AI-driven applications.
• Strategic investments redirected to coherent optical systems, interconnects, coherent routing, and innovative solutions like data center out-of-band management, with redirection of R&D from residential broadband access portfolio.

Revenue for Ciena Corporation's Fiscal Third Quarter 2025 was $1.22 billion, which exceeded the top end of guidance. Revenue was up 8% sequentially and nearly 30% year over year. Adjusted gross margin in Q3 was 41.9%, 90 basis points above guidance, primarily driven by benefits from sales of previously reserved material and lower net tariff impacts. Adjusted operating margin in Q3 was 10.7%, up 270 basis points year on year. The RLS optical products and routers and switches segment had a strong showing.

• Fiscal fourth quarter revenue expected in range of $1.24 billion to $1.32 billion. Adjusted gross margins expected 42-43%. Adjusted operating expense range $390 million to $400 million.
• Noncash charge in Q4 for redirection of R&D into certain technologies and restructuring expense for headcount reduction.
• Fiscal 2026 expected ~17% year over year revenue growth, gross margins ~43% plus or minus one point, OpEx flat to 2025 at ~$1.5 billion, accelerating long-term operating margin goal to 2026 from 2027.

• Tariff environment is a highly fluid risk with potential impacts on results. Supply chain constraints could affect revenue if not managed properly.

Q: George Notter from Wolfe Research asked about industry structure impact on gross margin and price potential.

A: Gary Smith and Mark Graff discussed competitive advantage from technology lead, structured approach to gross margins including product design, supply chain optimization, and value exchange.

Q: Samik Chatterjee from JPMorgan inquired about Neoscaler opportunity and 2026 guide composition.

A: Gary Smith mentioned Neoscalers as incremental opportunity scaling over time, with inclusion in 2026 guide.

Q: Meta Marshall from Morgan Stanley asked about gross margin upside sources and tariff impact.

A: Mark Graff and Scott McFeely discussed margin upside from scale of products and better tariff expectations than previous quarters.

Q: Ruben Roy from Stifel asked about residential broadband and Coherent Lite.

A: Gary Smith and Scott McFeely explained prioritization of AI-related investments over residential broadband, and Coherent Lite as an important future opportunity.

Q: Simon Leopold from Raymond James questioned DCI opportunity and routing/switching business.

A: Gary Smith and Scott McFeely detailed DCI opportunity as dedicated training network and routing/switching business drivers including service provider spending, coherent routing, and DCOM.

Q: Tim Long from Barclays asked about interconnect pluggable business and margin implications of a win.

A: Scott McFeely and Gary Smith discussed interconnect pluggable business growth and margin implications of a large order.

Q: Tim Savageaux from Northland Capital Markets asked about WaveLogic six and supply side.

A: Scott McFeely provided details on WaveLogic six customer additions and Gary Smith discussed supply chain investments.

Q: Amit Daryanani from Evercore asked about cloud revenue acceleration and co-development with customers.

A: Gary Smith and Mark Graff explained cloud revenue growth and co-development leading to market share expansion.

Q: David Voigt from UBS asked about DCOM opportunity and 2026 confidence.

A: Gary Smith and Mark Graff discussed DCOM opportunity scale and confidence from backlog and orders.

Q: Karl Ackerman from BNP Paribas asked about operating margin goal and 2027 order visibility.

A: Mark Graff explained operating margin acceleration to 2026 and Gary Smith discussed long-term order visibility in durable demand environment.

Q: Ryan Koontz from Needham asked about vertical integration and North American share.

A: Scott McFeely and Gary Smith discussed vertical integration in optical modem and North American market opportunities from service provider spending and technology lead.