Fiscal 2013 was another strong year for Ciena: we grew revenue 14% in a flat market; we tripled our adjusted operating profit; and we achieved leading market share in the emerging packet-optical space – all while continuing to build Ciena for long-term success.
The investments we’ve been making in the business during the past several years drove our success in 2013 and position us well for the next phase of growth and long-term profitability. Specifically, we are focused on increasing our market differentiation by expanding the capabilities in our portfolio and creating a unique engagement model that gives us unrivaled customer intimacy – all toward strengthening our role as the network specialist.
Fiscal 2013: A Year of Strength
Our fiscal 2013 performance squarely positions us as a global leader in next-generation network infrastructure. Building on the strong foundation we established following the successful integration of the Nortel MEN assets, we exited fiscal 2013 with more than $2 billion in revenue and $1 billion in backlog of orders. But our success was not limited to those accomplishments. In addition, we achieved:
- Industry-leading annual revenue growth rate of 14%, in a market that was roughly flat for the year
- $1+ billion revenue run-rate in the fourth quarter for the 6500 – our flagship packet-optical platform – an amount representing nearly the entirety of Ciena’s revenue in fiscal 2010
- Year-on-year order growth of 12%
- Improved profitability across several metrics – tripling of our adjusted operating profit; 190 basis point increase of adjusted gross margin; 2% reduction of adjusted operating expenses as a percentage of revenue
- Stronger balance sheet – $216 million reduction of convertible debt and a five-year extension of half of the original principal amount of our 2015 convertible notes
We also continued to outperform the overall market, claiming number one market share in several segments throughout the year. We are winning the battle for mindshare as well, claiming the number one position virtually across the board in market research firm Infonetics' recent customer perception survey.
Winning the Battle for Customer Preference
As I put to you in 2011, “the network matters again” and network operators are moving toward next-generation architectures that enhance the value of their networks. This period of significant architectural change is focused on ensuring the ability to efficiently adapt to rising traffic volumes and greater network and service agility, as well as to capture additional revenue – or monetization – opportunities. As service providers around the globe lay out their plans for the next several years to address this shift, we are ideally positioned to be their partner of choice in enhancing the value of their networks.
Our OPn architecture is designed to directly address this shift toward converged, open network environments that are simpler, less proprietary, and more programmable and automated. We combine OPn with our collaborative approach to customer engagement that includes transformational planning designed to help customers migrate, consolidate, and build out new networks while maximizing revenue and profitability. Our customers favor that combination because they want partners who are experts in solving strategic business – not just technical – problems and identifying new opportunities to execute network transformation. As the network specialist, we believe Ciena is that preferred partner as demonstrated by our continued ability to outperform the rest of the market.
Expanding Ciena’s Opportunities
Our execution during the past several years, including the investments we’ve made and the trust we have earned as a network specialist, positions us exceptionally well for these long-term engagements. To extend that leadership and continue delivering differentiated performance, we are focused on broadening Ciena’s role in the industry and reach in the market.
For example, we are going beyond connectivity solutions with our network operator customers to address a wide range of applications like submarine, wireless backhaul, and business services. In fact, 17 of our top 20 customers take advantage of our portfolio for multiple applications and across network domains. Moreover, we are diversifying our business to expand our addressable markets and bringing to market solutions designed for emerging customer bases. In fact, in fiscal 2013, approximately 25% of our revenue came from outside of our traditional telco segment. This demonstrates our ability to identify opportunities and bring to market solutions designed for emerging customer bases, such as Cable & Multiservice Operators, Content Service Providers, research and education networks, and enterprises.
To that end, we are extending our packet capabilities to deliver greater density, more flexibility, and lower cost and we are developing solutions that enable our customers to realize the promise of emerging software control and service creation trends such as Software Defined Networking (SDN) and Network Function Virtualization (NFV). With more than 75% of our revenue growth in fiscal 2013 driven by packet, switching, software, and services, we expect these developments to further extend our technology leadership and significantly enhance our strategic customer engagements.
2014 and Beyond
We believe our strategy, our momentum, and our financial progress positions us to lead this era of architectural change and drive strong success for Ciena in 2014 and beyond. Fundamental demand drivers remain intact and more customers are choosing architectures and partners that offer a path to open, programmable networking. I have often said that Ciena’s success is less about the absolute spend of our customers and more about the parts of the network on which they are spending. Today, we are seeing their spend weighted toward converged next-generation packet-optical solutions, which is our sweet spot and will be the driving force behind our strong, near term growth.
The differentiated performance seen in our financial results goes well beyond our technology leadership and customer preference. Our success is rooted in a unique culture that simply cannot be replicated by our competition. The ability to establish unwavering trust and long-standing relationships with our customers is in our DNA. Every Ciena employee is an ambassador for integrity, velocity, innovation and a customer-first view. We are recognized for this behavior and it is cited by our customers as a central component of their decisions to engage with Ciena. We firmly believe this is a fundamental and very unique part of Ciena’s business model.
With that momentum at our back and with most customers in the early stages of their efforts, we believe fiscal 2014 will be another strong revenue year for Ciena. We expect that we will continue to take share and grow faster than the overall market, and we see opportunities to continue broadening our role and reach in the industry and expand our addressable markets. We also expect to improve our profitability in fiscal 2014, as measured by both adjusted operating expenses as a percentage of revenue and adjusted operating margin.
Many thanks go to our customers, partners, employees, and stakeholders. We look forward to another prosperous year together.
Gary B. Smith
President and Chief Executive Officer