Ciena Set to Fire on All Cylinders

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The Ciena selloff of September 2020 was fast and furious, but since that time the fiber components giant has quietly regained lost ground. Ciena was one of the few companies supporting wireless connectivity that didn’t see demand increase throughout the COVID-19 pandemic. By September of last year, the company said it was clear that the pandemic was hurting its business, and many investors bailed. 

Now it seems like the tide is turning in Ciena’s favor. As AT&T’s largest optical systems supplier, Ciena stands to benefit from the carrier’s decision to boost capex by spinning off WarnerMedia and cutting its dividend. But those changes are at least a year away for AT&T.

In the near term, there are other industry trends that will benefit Ciena. In addition to fiber backhaul, 5G network architectures will rely on fiber fronthaul and now “midhaul” in open RAN networks, which require a distributed unit and a centralized unit as components of the baseband. Dish Network has said it will use open RAN for its entire greenfield 5G network. Even traditional RAN architectures will need more fiber to enable faster communication between radio and baseband units as operators deploy 5G.

In addition, the U.S. government is preparing to funnel billions of dollars into rural broadband, between the Rural Digital Opportunity Fund, the 5G Fund for Rural America, and a likely multi-trillion dollar infrastructure package. Even with this federal funding, running fiber to rural homes probably won’t be economical, but as tower companies know, 5G fixed wireless will become financially feasible in more areas with federal help. And those installations will almost certainly need fiber at the tower sites. 

In rural America, Ciena could also benefit from the U.S. government’s “rip and replace” initiative, which is expected to subsidize regional operators to replace Huawei and ZTE’s gear. Huawei competes with Ciena in the optical networking equipment market, so rural operators replacing fiber networks could turn to Ciena for components. More importantly, European operators could spend exponentially more replacing Huawei and ZTE gear with Ciena.

“The prospects of replacing Huawei provides a once in a lifetime opportunity,” analyst Simon Leopold of Raymond James & Associates wrote in an investor note on Ciena published in late March. “Europe is likely the main battleground,” he said. 

Ciena has another ace up its sleeve. It was the first vendor to ship a modem that can send 800 billion bits per second over an optical channel, and the company says market response has been very strong. Ciena said recently that 75 customers around the globe are now deploying its 800 gigabit modems, news that is both positive for Ciena and indicative of the need for speed and bandwidth network operators are facing.

Although Ciena doesn’t own towers or spectrum, its products are integral to helping the wireless industry realize the potential of 5G. As operators deploy their hard-won 5G C-band spectrum, Ciena could be the vendor in the right place at the right time.   

Veteran telecom industry editor and journalist Martha DeGrasse is an Inside Towers Contributing Analyst with features appearing twice per month. DeGrasse owns Network Builder Reports and contributes regularly to several publications. She was formerly a writer and editor with RCR Wireless and a TV business news producer.

By Martha DeGrasse, Inside Towers Contributing Analyst

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