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Supply chain improving faster than anticipated, India revenue growth up 88% YoY

“Overall, we performed better than expected with respect to revenue in the second quarter and indeed for the first half of fiscal 2023. This was driven largely by the supply chain improving faster than anticipated, which enabled us to ship significantly more product to more customers in recent quarters.

And to help you understand the magnitude of this dynamic, supply chain improvements have enabled us to improve our lead times to customers by more than 50% year-to-date. Consequently, as the supply chain improves and lead times come down, customers no longer need to place advanced orders to secure supply. As a result, and as expected, orders were lower than revenue in Q2.

Previously, we had discussed some pushouts of orders by our cloud provider customers as they reprofile their spend to align with their budgets. In recent weeks, we’ve begun to see similar behavior by certain of our large North American service provider customers. And to be really clear, customers are not canceling orders. They are pushing some existing orders into subsequent quarters to better align with their budgets and scheduling capabilities. And this is purely a matter of timing. It is not the result of CapEx cuts, rather it is one of operating within their existing CapEx and logistical capabilities. Therefore, we continue to expect to exit fiscal 2023 with a backlog that is at least double our historical levels on an absolute basis.

However, as a result of this transitionary period, as Jim will discuss, we do expect a wider range of potential revenue outcomes for fiscal year 2023. I would also stress that none of the shorter-term transitional supply demand dynamics are in any way a reflection of the durability and strength of the underlying demand drivers in the industry and, of course, our business. But rather, they reflect the transition back to a more balanced supply-and-order environment that is aligned to our annual CapEx spend.

Overall, we are very encouraged by conversations we’re having with our customers, which are once again more strategic in nature, addressing how they can meet the growing demands of their networks. And whilst we are mindful of macroeconomic uncertainty, fundamental demand for bandwidth persists as it has done consistently for many years, including through difficult macro conditions.

The key demand drivers behind this are strong and are very durable. These range from continued 5G rollouts and increasing cloud adoption to broadband access and the growing need for more automation. In fact, all of these were strong demand drivers prior to COVID and the supply chain challenges of the past few years and are arguably even stronger today. We are now clearly in a transitionary period, one that is moving from an environment where orders vastly outstrip supply to one where supply and order flow are beginning to come into some kind of balance. Consequently, this is driving a near-term shift in customer ordering and shipment dynamics and behavior.

We also continue to drive growth outside of the U.S. In particular, in Q2, Asia Pacific revenue was up 60% year-over-year. This was largely driven by continued revenue growth in India, which was up 88% year-over-year in Q2 to about $70 million, reflecting consistent strong demand from service providers in that market.

In summary, as supply and order flow are coming into balance, providing demand is proving strong and very durable. We are incredibly well positioned with a market-leading set of technologies, including new platform releases that advance our leadership and expand our opportunities,” said Gary B. Smith Ciena Corporation – CEO, President & Director.

Also read,

CT Bureau (Extracts from Q2 2023 Ciena Corp earnings call)

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