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CIENA Reports Fiscal 1998 Revenue of $508.1 Million, Net Income of $0.77 per Share, Exclusive of One-Time Charges

Ciena Corporation (NASDAQ: CIEN) today reported revenue for the fiscal year ended October 31, 1998 of $508.1 million, compared to revenue of $413.2 million reported for fiscal 1997.¹ Excluding the effect of one-time charges associated with purchased research and development, litigation and merger costs, net income for the year was $83.2 million, or $0.77 per share compared to $120.5 million or $1.15 per share for the same period a year ago.¹

Revenue for the fourth quarter of fiscal 1998 totaled $91.2 million as compared to revenue of $130.1 million for the same period in 1997. Excluding the effect of charges related to the proposed merger with Tellabs, the Company reported a net loss for the quarter of $3.6 million, or $0.03 per share, compared to net income of $39.5 million, or $0.37 per share, for the fourth fiscal quarter of 1997, exclusive of charges associated with the Pirelli litigation.¹ The Company’s results for the fourth fiscal quarter were slightly better than First Call consensus expectations for the period.

Ciena continued to make progress toward its goal of diversifying its customer base, recognizing revenue during the quarter from a record 14 customers, including two new announced customers: DDI in Japan purchased Ciena’s 16-channel MultiWave Sentry^TM system, while Enron Communications selected the 40-channel MultiWave Sentry system as the transport equipment for its new Pure IP^sm backbone network.

"Traditional equipment suppliers have realized the optical transport layer represents a key strategic beachhead in the data network revolution and that market share and footprint in this emerging space will be critical," said Patrick Nettles, Ciena’s president and chief executive officer. "During the last several quarters we’ve seen the competition turn to one of the only levers they have to attempt to gain share from Ciena – price. Our gross margins in the fourth quarter reflect that pricing pressure, as well as what we believe will be a short-term impact of underutilized manufacturing capacity."

In a separate release today, Ciena disclosed the findings of a wavelength division multiplexing (WDM) market analysis done by international telecommunications researcher, Ovum. Based on Ovum’s findings, which were consistent with Ciena’s internal market research, Ciena claimed approximately 38 percent of the estimated $1.2 billion worldwide WDM market in 1998. Ciena estimates its share of the dense wavelength division multiplexing (DWDM, or 16-channel and greater) systems market is significantly larger.

"Ovum’s findings, and those of other industry analysts suggest that Ciena is effectively competing on a global basis with the larger suppliers," said Ciena’s Nettles. "It’s our goal to win every deal, but ultimately, there will be those we don’t. We’re encouraged that collectively, industry analysts expect the overall WDM market to continue to grow, with room for a number of players."

The Company also disclosed that a blind survey of service providers conducted on behalf of the Company by Yankelovich Partners, Inc., showed a high degree of customer recognition and satisfaction with Ciena and its MultiWave® products. In the survey, Ciena was rated best among competing equipment suppliers for overall service and support. Survey participants also rated Ciena the easiest supplier to work with. "From the start, Ciena has believed that customers value quick response and superior service and support. We’re pleased that the Yankelovich findings validate our commitment in those areas," stated Nettles.

Nettles offered the following comments relative to Ciena’s forward-looking expectations: "Overall bid activity suggests that the demand for bandwidth remains robust, however, as has been typical of our business at the end of a calendar year, there is limited visibility much beyond the current quarter. While it appears that Ciena may be on track to resume modest sequential revenue growth in the first fiscal quarter, we continue to encourage conservative expectations."

"Pursuit of our strategy to preserve and enhance our market leadership, combined with continued investment in selling, marketing and customer service activities, as well as in ongoing product development, will likely limit our operating profitability during at least the first half of fiscal 1999 and may result in near-term operating losses," Nettles concluded. "We firmly believe that successfully securing footprint and market share now will better position Ciena for longer-term growth."

"Pure IP" is a service mark of Enron Communications

(Consolidated Statements of Operations and Consolidated Balance Sheets follow)