Ciena Corporation (NYSE:CIEN) Q2 2019 Earnings Conference Call Transcript

Jun 06, 2019 • 08:30 am ET

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Ciena Corporation (NYSE:CIEN) Q2 2019 Earnings Conference Call Transcript

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Q & A
Operator
Operator

Thank you. (Operator Instructions) And our first question comes from the line of Paul Silverstein from Cowen. Your line is open.

Analyst
Paul Silverstein

Thanks. Good morning, guys. So Jim, first a qualification, assuming 42% to 43% gross margin guidance that incorporates the potential for that 1% adverse impact. Is that correct?

Executive
James E. Moylan

No, it does not. No, 42% to 43% is our range of gross margin that we believe we'll see for the third quarter, and the rest of the year for that now.

Analyst
Paul Silverstein

So if the mix consists of a 5% proposed sales put in place, that'd be additional 1 percentage point impact, just to be clear?

Executive
James E. Moylan

Yes. No, very conservative. (multiple speakers) On emphasize that, that's a very conservative number.

Analyst
Paul Silverstein

All right. Now for the question to Garry and Jim. It sounds like you've had a pretty decent fee change in your outlook for the web-scale folks. I think 90 days ago you were talking about that group of customers has been softer in the second half of the year based on the growth you just put up, then I think of Gary comment that you're expecting a strong second half of the year out of that group. And obviously we're all aware in the investment community of your peers that have cited issues one step or another another. Can you revisit that and give us some insight, what's going on there? And then one related question, on the 600-gig versus 800-gig concern that you've now got competitors shifting 600-gig based platforms in the rest of Ciena, it doesn't sound like that's having an impact either, if you could address those two issues?

Executive
James E. Moylan

Let me start, Paul. Just to be clear, we never spoke of weakness with respect to the web-scale. We said that we were going to have a good year with web-scale. And -- but that we were not going to grow for this year as much as we grew last year. Remember, we grew 140% or something in that vertical, last year. We said we were going to have a good year and we're going to grow. All of the comments about weakness in our web-scale business came from other places, not from us.

I'll now let Gary address the other questions.

Executive
Gary B. Smith

Yes. So specifically, we still think the web-scale market is growing in the single to low-double digits. And we're going to grow above that market rate. Basically, we're going to continue to take share. And that's driven by two elements. One, the technology and innovation leadership that's appreciated there, and the embedded relationships that we have with them as well.

But I want to be clear, the growth that we're talking about in the second half is multifaceted. It is not just web-scale. We're doing very well in web-scale and we have a good visibility to that. But service provider business in North America, very strong. The wins that we've had with global Tier 1s are also beginning to play through, specifically markets like Japan, very strong.