Analysts Highlight Supply Chain Constraints Hurting Ciena's Q3 Results; See Recovery In FY23

Ciena Corp CIEN reported a third-quarter FY22 revenue decline of 12.2% year-on-year to $868 million, missing the consensus.
The non-GAAP EPS of $0.33 was in-line with the consensus.
Needham analyst Alex Henderson reiterated a Buy and cut the price target from $88 to $70.
The supply chain, not demand, hurt Ciena's print and Q4 guide.
Ciena stated that a small set of low-priced ICs used in their high-margin transceivers had supply issues late in the quarter.
Ciena's backlog increased to $4.4 billion, equal to 135% of his FY23 Product Sales forecast. Ciena expects to continue to build backlog in Q4. The impact of the inability to ship is pronounced.
Ciena increased staffing by 11% resulting in a sharp contraction in near-term EPS.
It's challenging to craft the shape and timing, but Ciena should see a strong rebound once the supply improves.
Morgan Stanley analyst Meta Marshall reiterated an Overweight and price target of $60.
Marshall highlights that while demand conditions remain robust and the backlog continues to grow, supply chain challenges continue to increase for CIEN, causing a significant shortfall to revenue expectations for the remainder of the year, just as others are starting to see the supply chain loosen.
She notes that CIEN reported Q3 below her expectations.
She adds that the primary constraints are around decommits of low-value ICs from a small number of suppliers.
The analyst's immediate changes to estimates moving forward incorporate her view that the supply chain does not materially recover in Q4.
She thinks the solid cloud and service provider capex through year-end set CIEN up well over the next couple of quarters, balanced by her expectations for the supply chain to limit upside in the near term.
Rosenblatt analyst Mike Genovese reiterated a Buy and price target of $65.
Ciena missed Q3 revenues and gross margins and guided Q4 significantly below expectations due to the shortage of a few critical low-cost analog semis stopping it from shipping finished goods.
While the Q4 guide down on the supply chain was not unexpected, the magnitude was surprising.
However, he sees this as the trough of known industry issues, not something new.
FY23 should be a year of solid growth and margin expansion.
Raymond James analyst Simon Leopold reiterated Outperform but cut his price target to $55 from $64 following Ciena's Q3 report.
Shortages of a handful of crucial ICs, i.e., the golden screw, led to a sales miss and a much lower outlook.
The results reflect poor execution in a difficult situation, but Ciena's robust portfolio, customer relationships, and ~$4.4 billion backlog encouraged him to look past the supply chain issues.
The recovery will take time, but he sees Ciena as a share gainer with expanding margins.
Price Action: CIEN shares traded lower by 1.72% at $44.70 on the last check Friday.

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