Ciena (NYSE:CIEN) reported another record quarter for fiscal 2026, with management pointing to AI-related network demand from cloud providers and renewed spending by service providers as major drivers of growth.
On the company’s fiscal second-quarter earnings call, President and CEO Gary Smith said Ciena grew revenue 40% year over year to $1.57 billion, expanded adjusted gross margin to 44.9% and nearly quadrupled adjusted earnings per share from the year-ago period to $1.64. Smith said the results were achieved while the company continued to navigate “unprecedented demand and a constrained supply environment.”
“With the combination of a strong and growing backlog driving strong visibility, fueled by AI-led demand from both cloud and service providers, coupled with our leading technology portfolio, we are well-positioned to gain share and deliver long-term value to our customers and our owners,” Smith said.
AI Demand Drives Growth Across Cloud and Service Provider Markets
Smith said hyperscale cloud providers have increased their 2026 capital expenditure plans since Ciena’s prior earnings call, with indications of continued expansion into 2027 and beyond. He said Ciena expects a growing share of that spending to be directed toward network infrastructure as customers work to monetize compute investments.
Service providers are also reinvesting in network infrastructure after several years of lower optical spending, Smith said. He cited opportunities across long-haul, metro and managed optical fiber networks, or MOFN, and said service provider revenue rose 28% year over year.
Chief Financial Officer Marc Graff said direct cloud customer revenue grew 70% from the year-ago period. He added that India service provider revenue more than doubled year over year, reflecting demand for MOFN deployments.
Ciena had two customers, both cloud providers, that each contributed more than 10% of revenue in the quarter. Graff said those two customers together represented about one-third of fiscal second-quarter revenue.
HyperRail Order Marks New Line System Milestone
Smith highlighted Ciena’s next-generation intelligent line system, RLS HyperRail, as a key product for AI-driven network architectures. He said the platform was co-created with multiple hyperscalers and is designed to support multiple fiber pairs in parallel over hundreds of kilometers using advanced amplification.
Smith announced that Ciena received what he described as the industry’s first multi-rail order from a leading hyperscaler. He said the order validates early demand for the RLS HyperRail platform and reinforces Ciena’s position in high-speed optical connectivity.
During the question-and-answer portion of the call, Smith said the hyperscaler’s decision to standardize on HyperRail was strategic and that deployment is expected to begin in 2027. He said programs of this type vary in size but are “all hundreds of millions” of dollars over multiple years, and that Ciena is engaged with most major hyperscalers on similar discussions.
Graff later said HyperRail is expected to contribute meaningfully to revenue in 2027 and support company-level margin expansion as it ramps.
Routing and Switching Revenue Jumps on DCOM Ramp
Ciena’s Routing and Switching business grew 88% year over year, driven primarily by the ramp of its Data Center Out-of-Band Management solution, or DCOM, according to management. Smith said DCOM combines Ciena’s Routing and Switching products with its passive optical networking technology.
Smith said Meta remains an anchor customer for DCOM, and Ciena has received initial orders from a second hyperscaler. Lab qualifications are also progressing with a third hyperscaler, he said.
In response to an analyst question, Smith said DCOM is not a one-time refresh opportunity. He described it as a “multi-year, multifaceted application” for hyperscalers and potentially other customers, estimating that the total addressable market could reach $1 billion to $3 billion by 2029.
Backlog Rises as Supply Constraints Persist
Graff said Ciena’s backlog increased by more than $600 million sequentially to $7.7 billion in the second quarter, and he expects the company to exit fiscal 2026 with an even higher backlog. He said the backlog, customer collaboration and multi-phase programs provide visibility into 2027.
At the same time, Graff said industry supply remains unable to keep pace with demand. He said Ciena is investing with suppliers to secure capacity and is working with customers on what management called “value exchange” opportunities, including product mix, pricing and working capital terms.
Graff said about $6.4 billion of the backlog is hardware and that Ciena expects roughly 80% of that hardware backlog to be delivered over the next 12 months. He also said the current environment differs from the post-COVID backlog cycle because Ciena is not seeing signs of customer inventory buildup, delivery pushouts or order cancellations.
Executive Advisor Scott McFeely echoed that point, saying Ciena is seeing “quite the opposite” of the warehouse buildup and cancellation signals seen during the COVID-era supply cycle.
Ciena Raises Fiscal 2026 Outlook
For the fiscal third quarter, Ciena guided for revenue of approximately $1.625 billion, plus or minus $50 million, adjusted gross margin of 45%, plus or minus 50 basis points, and adjusted operating expenses of approximately $410 million, plus or minus $10 million. The company expects adjusted operating margin of 19% to 20%.
For fiscal 2026, Ciena raised its revenue outlook to $6.3 billion, plus or minus $100 million, implying midpoint growth of 32% year over year. The company expects full-year adjusted gross margin between 44.5% and 45%, adjusted operating expenses of about $1.61 billion, plus or minus $20 million, and adjusted operating margin of 19%, plus or minus 50 basis points.
Graff said the increase in operating expenses is largely tied to higher variable compensation due to stronger revenue and orders, with additional spending directed toward supply security. He said Ciena still expects to generate operating leverage, with revenue growing faster than operating expenses over time.
Smith said Ciena now sees its addressable market approximately doubling to about $50 billion by 2029, including traditional wide-area networking markets and faster-growing opportunities in and around data centers. He said the company’s portfolio across systems, interconnects, software and services positions it to participate in AI-driven demand for high-capacity, low-latency connectivity.
About Ciena (NYSE:CIEN)
Ciena Corporation (NYSE: CIEN) is a global supplier of telecommunications networking equipment, software and services. The company develops high-capacity optical transport systems and packet-optical platforms that enable service providers, cloud operators and large enterprises to build, manage and scale their networks. Ciena's product portfolio includes coherent optical solutions, packet networking platforms and a suite of network automation software designed to optimize bandwidth, reduce latency and simplify network operations.
In addition to hardware offerings, Ciena provides professional services and support, including network design, implementation and ongoing maintenance.
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