Today, Ciena reported better than expected revenue of $1.12 billion in its 4th quarter, which was above analyst expectations of around $1.103 billion.  Orders were once again ahead of revenue, even though the company had expected orders to be below revenue just a few months ago. A closer look at key metrics reveals mixed results, with some segments like Software and Services showing strong growth (+20.6% year-over-year) and others like Routing and Switching experiencing significant declines (-38.4% year-over-year).

Increased demand for the company’s Reconfigurable Line Systems (RLS), primarily from large cloud providers. And he said the company was also doing well selling its WaveLogic coherent optical pluggables, which optimize performance in data centers as they support traffic from AI and machine learning.

Ciena’s Managed Optical Fiber Networks (MOFN) technology is designed for global service providers that are building dedicated private optical networks for cloud providers.  MOFN came about a few years ago when cloud providers wanted to enter countries where they weren’t allowed to build their own fiber networks. “They had to go with the incumbent carrier, but they wanted to have control of their network within country. It was sort of a niche-type play. But we’ve seen more recently, over the last 6-9 months, that model being more widely adopted,” Smith said.  MOFN is becoming more widely utilized, and the good news for Ciena is that cloud providers often request that Ciena equipment be used so that it matches with the rest of their network, according to Smith.

Image Credit: Midjourney for Fierce Network

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The company also said it now expects average annual revenue growth of approximately 8% to 11% over the next three years.   “Our business is linked heavily into the growth of bandwidth around the world,” CEO Gary Smith said after Ciena’s earnings call.  “Traffic growth has been between 20% and 40% per year very consistently for the last two decades,” Smith told Light Reading.

Ciena believes huge investments in data centers with AI compute servers will ultimately result in more traffic traveling over U.S. and international broadband networks. “It has to come out of the data center and onto the network,” Smith said of AI data.  “Now, quite where it ends up being, who can know. As an exact percentage, a lot of people are working through that, including the cloud guys,” he said about the data traffic growth rate over the next few years.  “But one would expect [AI data] to layer on top of that 30% growth, is the point I’m making,” he added.

AI comes at a fortuitous time for Ciena. “You’re having to connect these GPU clusters over greater distances. We’re beginning to see general, broader traffic growth in things like inference and training. And that’s going to obviously drive our business, which is why we’re forecasting greater than normal growth,” Smith said.

Smith’s positive comments on AI traffic are noteworthy in light of some data points showing a slowdown in the rate of growth in data traffic on global networks.  For example:

• OpenVault recently reported that monthly average broadband data consumption in the third quarter inched up 7.2%, the lowest rate of growth seen since the company began reporting these trends in 2012.
• In Ericsson’s newest report, Fredrik Jejdling, EVP and head of business area networks, said: “We see continued mobile network traffic growth but at a slower rate.”
• Some of the nation’s biggest Content Data Network (CDN) providers – including Akamai, Fastly and Edgio – are struggling to come to terms with a historic slowdown in Internet traffic growth. Such companies operate the content delivery networks that convey video and other digital content online.
• “In terms of traffic growth, it is growing very slowly – at rates that we haven’t seen in the 25-plus years we’ve been in this business. So it’s growing very, very slow,” Akamai CFO Ed McGowan said recently. “It’s just been a weak traffic environment.”

“The cloud providers themselves are building bigger infrastructure and networks, and laying track for even greater growth in the future as more and more of that AI traffic comes out of the data center,” Smithsaid. “So that’s why we’re predicting greater growth than normal over the next three years. It’s early days for that traffic coming out of the data center, but I think we’re seeing clear evidence around it. So you’re looking at an enormous step function in traffic flows over the next few years,” he concluded.

References:

https://www.lightreading.com/data-centers/ciena-ceo-prepare-for-the-ai-traffic-wave

https://www.fierce-network.com/broadband/cienas-ceo-says-companys-growth-linked-ai

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