The Ciena Corporation (NYSE: CIEN) has become a market favorite because of the growth of the cloud and rising US-China tensions.
The Baltimore Sun describes Ciena (CIEN) as “the world’s biggest player in optical connectivity.” The Sun calls optical connectivity the backbone of the internet and mobile connections. Thus Ciena provides the infrastructure the cloud operates on.
Ciena has little exposure to China because it does not participate in the direct Chinese market. Conversely, Ciena has a massive market outside China. In 2018, The Sun listed Alphabet (GOOG), Apple (AAPL), Facebook (FB), Microsoft (MSFT), and Amazon (AMZN) as Ciena customers.
Thus, many investors will view Ciena as a cheaper alternative to those tech giants. For example, Mr. Market paid $57.63 for Ciena on 15 June 2021 and $3,383.13 for Amazon (AMZN) on the same day.
Ciena can be a cheap Amazon alternative because it makes many of the machines the Everything Store needs to run its platform. Those machines include platform servers and routers.
How Ciena Cashes in on the Cloud
Ciena (CIEN) designs and manufactures networking technology for optical connectivity. Many of Ciena’s products enable the cloud. For example, Ciena’s Converged Packet Optical platforms integrate Ethernet, Time-Division Multiplexing (TDM), and Wavelength-Division Multiplexing capabilities.
Converged Package Optical Platforms enable cloud solutions by optimizing bandwidth. Optimizing bandwidth can accelerate service delivery, optimize apps, and support analytics, automation, and intelligence software.
Ciena supports converged packet optical serves with its Routing and Switching platforms. Ciena supports Ethernet services with Routing and Switching platforms. The Routing and Switching platforms could support ultra high-definition video streaming, the Internet of Things (IoT), Artificial Intelligence (AI), Augmented/Virtual Reality (AR/VR), and mobile gaming.
Ciena’s Cloud Solutions
Another vital cloud product Ciena offers is Domain Control and Management Software. The Ciena software includes the Service-Aware Operating System (SAOS) which operates the Routing and Switching and Converged Packet Optical platforms.
Ciena’s Blue Planet Manage, Control and Plan (MCP) domain controller makes managing cloud solutions easier. PlannerPlus helps cloud users build out network capacity as bandwidth increases. Ciena’s Emulation Cloud functions as a virtual lab where developers can build and test new tools and scripts.
The Emulation Cloud could accelerate DevOps and integrate custom apps on a web-scale. The Intelligent Control Plane supports network automation.
The Blue Planet Intelligent Automation Portfolio uses deep knowledge to power adaptive optimization of networks and services. Intelligent Automation Solutions allows organizations to automate their network and cloud solutions.
How Much Money Does Ciena Corp make?
The Ciena Corp (CIEN) makes some money from its servers. For instance, Ciena reported a quarterly gross profit of $406.40 million and a quarterly operating income of $133.63 million on 30 April 2021.
However, Ciena is struggling a little in the pandemic. For instance, Ciena’s quarterly revenues fell from $894.05 million on 30 April 2020 to $833.93 on 30 April 2021. Similarly, the quarterly gross profit fell from $407.49 million on 30 April 2020. Yet the quarterly operating income grew from $127.49 million on 30 April 2021.
Therefore, Ciena’s business is not growing. Notably, Ciena reported a negative revenue growth rate of -6.73% on 30 April 2021. Conversely, the revenues grew by 3.36% in the quarter that ended on 30 April 2020.
Will COVID-19 Help Ciena Grow?
I think Ciena’s business revenues are shrinking because executives are afraid to buy new equipment. Executives were afraid to buy equipment because of the economic uncertainty COVID-19 generated. Now that the pandemic is easing, and the economy is recovering, I predict sales growth at Ciena Corp (CIEN).
Retailers, in particular, will buy many servers and routers because their online footprint is growing. Many organizations are moving more activities online because of coronavirus.
For example, more people work from home. Organizations need more cloud capacity to serve those people. To provide that capability, organizations will need more servers and routers that Ciena can provide.
How Much Cash can Ciena Corp generate?
Ciena (CIEN) can generate enormous amounts of cash. Ciena reported a quarterly ending cash flow of $1.029 billion on 31 January 2021.
In contrast, the quarterly ending cash flow fell to $173.74 million on 30 April 2021. However, the quarterly ending cash flow grew from $50.45 million on 30 April 2020.
Conversely, the quarterly operating cash flow grew from -$2.48 million on 31 January 2021 to $220.14 million on 30 April 2021. Additionally, the quarterly operating cash flow grew from $96.38 million on 30 April 2020.
Impressively, the Ciena Corp borrows little. Ciena reported a quarterly financing cash flow of -$32.37 million on 30 April 2021. The only positive quarterly financing cash flow Ciena reported in 2020 was $79.04 million on 30 April 2020.
What Value Does Ciena Have?
Ciena (CIEN) experienced some growth during the pandemic. The cash and short-term investments, for instance, grew from $988 million on 30 April 2020 to $1.355 billion on 30 April 2021.
Moreover, Ciena’s total assets grew from $3.857 billion on 30 April 2020 to $4.338 billion on 30 April 2021. Thus, Ciena grew during a pandemic.
Additionally, Ciena claims to have enormous value. For example, Ciena claims to own over 2,000 patents and employ over 2,700 research and development (R&D) specialists. In addition, Ciena claims to have over 1,700 customers in over 35 countries.
Is Ciena Corp a value investment?
Consequently, I consider Ciena to be a cheap value investment because it is an infrastructure company in an obscure business. Yet there is a growing demand for that business and Ciena’s services.
For example, Gartner forecasts that public cloud services spending worldwide could grow by 23.1% in 2021. Overall, Gartner estimates that cloud services spending will grow from $270 billion to $332.3 billion in 2021.
Moreover, Gartner estimates the largest public cloud services market segment is Software-as a-Service (SaaS). This growth increases demand for servers and routers because all the SaaS requires more bandwidth. Gartner estimates that the global SaaS market will grow to $122.6 billion in 2021.
In the final analysis I consider Ciena Corp (NYSE: CIEN) a cheap growth stock. If you want a cheap growth stock that will profit from the cloud’s growth, you need to investigate Ciena.
Originally published at https://marketmadhouse.com on June 15, 2021.