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Ciena 3Q Net Falls 59%; Warns of Further Weak Orders

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NEW YORK (Dow Jones) Ciena Corp. warned of weaker orders for telecommunications gear in the coming quarters, sparking fear of broader weakness in technology.

Telecommunications equipment was seen as somewhat insulated from the broader economic weakness because of continued demand on communications services. But Ciena's warning, coupled with a number of somber comments from other vendors in the last several weeks, indicates the problems may be broader and longer lasting than previously thought.

Ciena President and Chief Executive Gary Smith warned the downturn in spending could last into next year.

"I think it's likely to be multi-quarter," Smith said in an interview with Dow Jones Newswires. "It's not likely to be terribly deep or long. But it could still be painful."

Ciena shares fell 25% to $13.07. Other telecom vendors were affected. Juniper Networks fell 6% to $23.72, ADC Telecommunications Inc. (ADCT) 5.2% to $9.18. Networking titan Cisco Systems fell 4.6% to $22.24.

The Dow Jones Wilshire U.S. Technology Index fell 2.6% Thursday.

Smith warned the delays were coming from the top-tier carriers. In the last annual report, Ciena said Sprint Nextel Corp. (S) and AT&T Inc. (T) each accounted for 10% of its revenue. The company is heavily reliant on the major U.S. carriers for much of its revenue.

As a result of the delay in orders, the company said it expects fiscal fourth-quarter revenue of $190 million to $210 million. Wall Street expected revenue of $263 million. Ciena didn't update its fiscal 2008 forecast. In the past, it had forecast revenue growth of up to 27%, while analysts were expecting 27% growth to $987 million.

Ciena also posted a 59% drop in fiscal third-quarter net income, hurt by losses related to commercial paper investments.

For the period ended July 31, the maker of optical-network equipment reported net income of $11.7 million, or 12 cents a share, down from $28.3 million, or 29 cents a share, a year ago.

The latest results included a $5.1 million loss related to commercial paper investments in Rhinebridge and SIV Portfolio. In July, the company expected a loss of $5 million to $6 million, and it previously recorded a loss of $13 million related to its investments in the two structured investment vehicles. Excluding the loss, earnings slipped to 37 cents from 41 cents.

Revenue rose 24% to $253.2 million.

The mean estimates of analysts polled by Thomson Reuters were for per-share earnings of 37 cents on revenue of $254 million.

Gross margin - a metric heavily scrutinized by Wall Street analysts - edged up to 49.6% from 47.6%. In June, the company projected a third-quarter gross margin in the low 50s on a percentage basis, somewhat below the second-quarter's 54%.

Ciena's sales have benefited from strong demand for networks capable of handling large music and video files. Smith said the dynamics of the business remain great, but acknowledged that no business was immune to the broader economic environment.

-By Roger Cheng, Dow Jones Newswires; 201-938-2020; roger.cheng@dowjones.com

(Shara Tibken contributed to this story.)

(END) Dow Jones Newswires

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