UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||||||||
| For the fiscal year ended | |||||||||||
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
For the transition period from to | ||||||||
Commission file number 001-36250
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of
incorporation or organization)
(Address of principal executive offices)
(I.R.S. Employer
Identification No.)
(Zip Code)
Registrant’s telephone number, including area code: (410 ) 694-5700
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☑ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||||||||
| Emerging growth company | |||||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. o
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes ☐ No þ
The aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant as of April 26, 2024, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $6.7 billion based on the closing price of the Common Stock on the New York Stock Exchange on that date.
The number of shares of the registrant’s Common Stock outstanding as of December 13, 2024 was 142,115,595 .
DOCUMENTS INCORPORATED BY REFERENCE
Part III of the Form 10-K incorporates by reference certain portions of the registrant’s definitive proxy statement for its 2025 Annual Meeting of Stockholders, which is expected to be filed with the Commission not later than 120 days after the end of the fiscal year covered by this annual report.
CIENA CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED NOVEMBER 2, 2024
TABLE OF CONTENTS
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PART I
Cautionary Note Regarding Forward-Looking Statements
This annual report contains statements that discuss future events or expectations, projections of results of operations or financial condition, changes in the markets for our products and services, trends in our business, business prospects and strategies, and other “forward-looking” information. In some cases, you can identify “forward-looking statements” by words like “may,” “will,” “would,” “can,” “should,” “could,” “expects,” “future,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intends,” “potential,” “projects,” “targets,” or “continue” or the negative of those words and other comparable words. These statements may relate to, among other things: our competitive landscape; market conditions and growth opportunities; factors impacting our industry and markets, including macroeconomic conditions and global supply chain constraints; factors impacting the businesses of network operators, their network architectures and their adoption of next-generation network infrastructures; our strategy, including our research and development, supply chain and go-to-market initiatives and our efforts to increase the reach of our business into new or growing product, customer and geographic markets; our order volumes, backlog and seasonality in our business; expectations for our financial results, revenue, gross margin, operating expense and key operating measures in future periods; the adequacy of our sources of liquidity to satisfy our working capital needs, capital expenditures and other liquidity requirements; cybersecurity events; business initiatives including information technology (“IT”) and environmental, social and governance (“ESG”) initiatives; the impact of changes in tax law and our effective tax rates; and market risks associated with financial instruments and foreign currency exchange rates. These statements are subject to known and unknown risks, uncertainties and other factors, and actual events or results may differ materially from any future results, activity, performance, or achievements expressed or implied by these forward-looking statements, including due to factors such as those set forth below in “Risk Factors Summary.”
For a discussion of additional important factors that could cause actual results to vary materially from those anticipated in the forward-looking statements, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” in this annual report. We operate in a very competitive and dynamic environment and new risks and uncertainties emerge, are identified or become apparent from time to time, and therefore may not be identified in this annual report. We cannot predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this annual report. You should be aware that the forward-looking statements contained in this annual report are based on our current views and assumptions. We undertake no obligation to revise or update any forward-looking statements made in this annual report to reflect events or circumstances after the date hereof or to reflect new information or the occurrence of unanticipated events, except as required by law. The forward-looking statements in this annual report are intended to be subject to protection afforded by the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Unless the context requires otherwise, references in this annual report to “Ciena,” the “Company,” “we,” “us” and “our” refer to Ciena Corporation.
Risk Factors Summary
Investing in our securities involves a high degree of risk. The following is a summary of the principal factors that make an investment in our securities speculative or risky, as more fully described below in the section titled “Risk Factors.” This summary should be read in conjunction with the “Risk Factors” section and should not be relied upon as an exhaustive summary of the material risks facing our business. In addition to this summary, you should consider the information set forth in the “Risk Factors” section and the other information contained in this annual report before investing in our securities.
Risks Related to Our Business and Industry
•Our revenue, gross margin, and operating results can fluctuate significantly from quarter to quarter and, if we are not able to secure order growth, our revenue may not reach the levels we anticipate.
•A small number of customers account for a significant portion of our revenue. The loss of one or more of these customers, or a significant reduction in their spending, could have a material adverse effect on our business and results of operations.
•We face intense competition that could impact our sales and results of operations. We expect our competitive landscape to continue to broaden as we seek to expand our addressable market and solutions portfolio.
•Our failure to invest in the right technologies or to get an adequate return on such research and development investment could adversely affect our revenue and profitability.
•We have no guaranteed purchases and regularly must re-win business with existing customers.
•Network equipment sales often involve lengthy sales cycles and protracted contract negotiations that may require us to agree to commercial terms or conditions that negatively affect pricing, risk allocation, payment and the timing of revenue recognition.
•Accurately matching necessary inventory levels to customer demand within the current environment is challenging, and we may incur additional costs or be required to write off significant inventory that would adversely impact our results of operations.
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•If we are unable to adapt our business and solutions offerings to the evolving consumption models of our customers, our competitive position and results of operations could be adversely affected.
•As we introduce technologies that enable us to enter into new markets, we may experience difficulty monetizing these new solutions and be exposed to increased or new forms of competition.
•Our go-to-market activities and the distribution of our WaveLogic coherent modem technology within the market for high-performance transceivers/modems could expose us to increased competition and poses other risks that could adversely affect our existing systems business or results of operations.
•Supply chain challenges and constraints, including for semiconductor components, could adversely impact our growth, gross margins and financial results.
•Our exposure to the credit risks of our customers and resellers may make it difficult to collect receivables and could adversely affect our revenue and operating results.
•We may be required to write down the value of certain significant assets, which would adversely affect our operating results.
•Problems affecting the performance, interoperability, reliability or security of our products could damage our business reputation and negatively affect our results of operations.
•Strategic acquisitions and investments could disrupt our operations and may expose us to increased costs and unexpected liabilities.
•Emerging issues related to the development and use of AI could give rise to legal or regulatory action, damage our reputation, or otherwise materially harm of our business.
Risks Relating to the Macroeconomic Environment and our Global Presence
•Our business and operating results could be adversely affected by unfavorable changes in macroeconomic and market conditions and any reduction in the level of customer spending in response.
•The international scale of our sales and operations exposes us to additional risk and expense that could adversely affect our results of operations.
•Efforts to increase our sales and capture market share in targeted international markets may be unsuccessful.
•We may be adversely affected by fluctuations in currency exchange rates.
Risks Related to Our Operations and Reliance on Third Parties
•We may experience delays in the development and production of our products that may negatively affect our competitive position and business.
•We rely on third-party contract manufacturers, and our business and results of operations may be adversely affected by risks associated with their businesses, financial condition, and the geographies in which they operate.
•Our reliance on third-party component suppliers, including sole and limited source suppliers, exposes our business to additional risk, including risk relating to our suppliers’ businesses and financial position and risks arising as a result of geopolitical events, and could limit our sales, increase our costs and harm our customer relationships.
•We rely on third-party resellers, distributors and service partners, and our failure to manage these relationships effectively could adversely affect our business, results of operations, and relationships with our customers.
•We may be exposed to unanticipated risks and additional obligations in connection with our resale of complementary products or technology of other companies.
•Growth of our business is dependent on the proper functioning and scalability of our internal business processes and information systems. Adoption of new systems, modifications or interruptions of services may disrupt our business, processes and internal controls.
•Restructuring activities could disrupt our business and affect our results of operations.
•If we are unable to attract and retain qualified personnel, we may be unable to manage our business effectively.
Risks Related to Intellectual Property, Litigation, Regulation and Government Policy
•Our intellectual property rights may be difficult and costly to enforce.
•We may incur significant costs in response to claims by others that we infringe upon their intellectual property rights.
•Our products incorporate software and other technology under license from third parties, and our business would be adversely affected if this technology were no longer available to us on commercially reasonable terms.
•Data security breaches and cyber-attacks targeting our enterprise technology environment and assets could compromise our intellectual property, technology or other sensitive information and could cause significant damage to our business, reputation and operational capacity.
•We are a party to legal proceedings, investigations and other claims or disputes, which are costly to defend and, if determined adversely to us, could require us to pay fines or damages, undertake remedial measures, or prevent us from taking certain actions, any of which could adversely affect our business.
•Changes in trade policy, including the imposition of tariffs and other import measures, increased export control, sanctions and investment restrictions, and efforts to withdraw from or materially modify international trade agreements, as well as other regulatory efforts impacting the import and sale of foreign equipment, may adversely affect our business, operations and financial condition.
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•Changes in government regulations affecting the communications and technology industries and the businesses of our customers could harm our prospects and operating results.
•Government regulations related to the environment, climate change and social initiatives could adversely affect our business and operating results.
•Investor and other stakeholder scrutiny related to our environmental, social and governance practices, and our disclosed performance and aspirations for these practices, may increase costs and expose us to numerous risks.
•Changes in tax law or regulation, effective tax rates and other adverse outcomes with taxing authorities could adversely affect our results of operations.
•Failure to maintain effective internal controls over financial reporting could have a material adverse effect on our business, operating results and stock price.
Risks Related to Our Common Stock, Indebtedness and Investments
•Our stock price is volatile.
•Outstanding indebtedness under our senior secured credit facilities and senior unsecured notes may adversely affect our liquidity and results of operations and could limit our business.
•Significant volatility and uncertainty in the capital markets may limit our access to funding on favorable terms or at all.
Item 1. Business
Overview
We are a network technology company, providing hardware, software, and services to a wide range of network operators and enabling enhanced network capacity, service delivery, and automation. Our solutions support network traffic across a wide range of applications, including cloud, video, data, artificial intelligence (“AI”), and voice. Our network solutions are used globally by communications service providers, cable and multiservice operators, cloud providers, submarine network operators, governments, and enterprises across multiple industry verticals.
Our portfolio is designed to enable the Adaptive Network™, which is our vision for a network end state that leverages a programmable and scalable network infrastructure, driven by software control and automation capabilities, that is informed by network analytics and intelligence. By using our network solutions to transform network infrastructures into dynamic, programmable environments driven by automation and analytics, we believe network operators can realize greater business agility, adapt dynamically to changing end-user service demands, rapidly introduce new revenue-generating services, and scale networks to meet increased traffic demands. Our solutions are also designed to enable network operators to gain valuable, real-time network insights, allowing them to optimize network performance and maximize the return on their network infrastructure investment.
Our solutions include Networking Platforms, including our Optical Networking portfolio and our Routing and Switching portfolio, which can be applied from the network core to end-user access points, and which allow network operators to scale capacity, increase transmission speeds, allocate traffic efficiently, and adapt dynamically to changing end-user service demands. Our Optical Networking portfolio includes products that support long haul and regional networks, submarine and data center interconnect networks, and metro and edge networks. Our Routing and Switching portfolio includes products and solutions that enable efficient Internet Protocol (“IP”) transport in next-generation metro core, aggregation, and access networks, including converged IP, optical, and fiber-based broadband access applications.
To complement our Networking Platforms, we offer Platform Software, which includes our Navigator Network Control Software (“Navigator NCS”) (formerly known as Manage, Control and Plan (“MCP”)) and advanced applications that deliver multi-layer domain control and operations for network operators.
Through our Blue Planet® Automation Software, we also enable complete service lifecycle management automation with productized operational support systems (“OSS”), including inventory, orchestration, and assurance solutions that help our customers to achieve closed loop automation across multi-vendor and multi-domain environments.
In addition to our systems and software, we also offer a broad range of services that help our customers build, operate, and improve their networks and associated operational environments. These include network transformation, consulting, implementation, systems integration, maintenance, network operations center (NOC) management, learning, and optimization services.
Industry Background
Network Traffic Growth and Increased Capacity Requirements
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The markets into which we sell are dynamic and characterized by a high rate of change. Optical networks – which carry video, data, and voice traffic by encoding digital information on multiple wavelengths of light traveling across fiber optic cables – continue to experience strong demand for increased bandwidth due to traffic growth. This network traffic growth is being driven by a diverse set of communications services that often require on-demand service levels by enterprise and consumer end users, as well as cloud-based and AI services and applications:
•Cloud-Based Services. Enterprises and consumers continue to replace locally-housed computing and storage by adopting a broad array of innovative cloud-based models – including Platform as a Service (PaaS), Software as a Service (“SaaS”) and Infrastructure as a Service (IaaS) – and an expanding range of cloud-based services that host key applications, store data, enable the viewing and downloading of content, and utilize on-demand computing resources. In addition, content is increasingly moving to the network edge, creating capacity and traffic demands closer to the user.
•Generative AI (“Gen-AI”). In recent periods, Gen-AI platforms have experienced rapid and unprecedented user adoption with a notable array of new offerings entering the market across a diverse set of use cases. Gen-AI presents significant opportunities for businesses and other users to automate tasks, augment creativity, and improve operational efficiency. Given the Gen-AI adoption trajectory to date, and its potential to be a significant contributor to innovation and productivity, Gen-AI has been and will likely continue in future periods to be a significant stimulant or accelerator of network demand, both inside and outside of the data center.
•Over-the-Top (“OTT”) Services and Video Streaming. OTT content refers to video, multimedia and other applications provided directly from the content source to the viewer or end user across a third-party network. Traffic from streaming and OTT services, including high definition and ultra-high definition video, has expanded with the increased availability of, and end-user demand for, video content accessible through a variety of devices and media.
•Mobile Traffic and Fifth-Generation Wireless Broadband (“5G”). Traffic from mobile web applications, including video, internet, and data services, has expanded with the continued proliferation of smartphones and other wireless devices. Because much of wireless traffic ultimately travels across a wireline network to reach its destination, growth in mobile communications continues to place higher demands upon wireline networks, including the backhaul and fronthaul portions of networks emanating from cell sites. 5G technology is further enabling meaningful increases in bandwidth and performance and enabling emerging applications and services that 4G/LTE networks cannot support. To fully capitalize on these opportunities, network operators will need to consider the demands that 5G technology will place on their wireline infrastructures.
•Machine Learning (“ML”) and AI. By enhancing network intelligence and automation, ML and AI can enable improvements in network planning, operations, user experience and trouble resolution. Adoption of these technologies is expected to continue to increase as the IoT expands and additional services are created, and ML and AI are expected to continue to serve as drivers of further network traffic and solutions innovation, including driving bandwidth demands in various industries, including manufacturing, research and development, robotics, security, healthcare, and transportation.
•Fiber-Based Access Networks - Residential and Enterprise. In recent years there has been a shift in bandwidth demands, traffic patterns, and computing functions to the edge of networks, including due to increases in remote and hybrid working and distance learning. With a higher percentage of data flows concentrating closer to the network edge, more capacity and higher bandwidth to home and enterprise locations are required. Network densification initiatives by cable and multiservice operators seek to push more digital fiber closer to the end user in an effort to increase potential bandwidth, computing capability and data speeds to homes and enterprises, while decreasing power, space, and operating costs. Wireline service providers are responding to similar service and end customer demands by extending fiber to the home and deeper into access networks. In addition, a growing number of governments around the world are investing in rolling out access networks to underserved communities as part of an effort to bridge the digital divide.
Emerging technologies, services, and applications are further impacting, or are expected to impact, network infrastructures, particularly at the edge of networks, where increased computing power and automation are required to meet the quality of experience required by end users. Examples of these include:
•Internet of Things (“IoT”). As networked connections between devices and servers grow, machine-to-machine-related traffic (“M2M”) is expected to represent an increasing portion of traffic. These connections allow sharing of data that can be monitored and analyzed, including in smart grid applications, health care and safety monitoring, resource and
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inventory management, home entertainment, consumer appliances, connected transportation and other M2M data applications.
•Immersive Technologies and Ultra-High Definition Video (“UHD”). Immersive technologies like virtual reality (VR), augmented reality (AR), interactive experiences, gaming, and 360° video, as well as UHD (4K and 8K) video, are placing or likely to place further capacity demands on networks as adoption of these technologies grows. Consumer electronics and other technology companies are rapidly advancing these applications, which require high bandwidth and low latency, and are making the associated devices more widely available and affordable to consumers.
•Edge Computing. To provide end users with the required experience for a growing set of immersive cloud services, network operators have increased, and are expected to continue to increase, the number and capabilities of edge computing locations to allow these latency-sensitive workloads to be processed closer to users. These changes at the edge of networks may affect network topologies, demands, and traffic patterns.
We believe that increased adoption of these technologies, services, and applications and their performance requirements will further increase network traffic and place additional service challenges on network infrastructures. We also believe that, in turn, network operators will be required to invest in their metro, access, and aggregation networks, as well as their core networks.
Demand for Network Transformation
In the face of intense competition and disruptive business models, communications service providers globally are engaging in large network transformation efforts that aim to simplify and reduce operational costs and create agile, software-driven platforms from which to develop new revenue-generating services. As part of these efforts, providers are reimagining legacy processes and software in their business support systems (“BSS”) and operations support systems (“OSS”) and redefining how they want these software platforms to interact with network infrastructure. The goal of these initiatives is to enhance customer loyalty, create a more digital experience for their end users, reduce operational complexity and costs, and introduce greater service agility. As a result, we expect that network operators will continue to pursue strategies that better leverage AI, automation, consulting services, analytics, and software control capabilities in an effort to achieve this transformation.
We expect that service providers will also pursue closed loop automation between their software operations platforms and network infrastructure. Closed loop automation is a continuous cycle of communications between the programmable network infrastructure and software control elements to analyze network conditions, traffic demands, and resource availability to determine the best placement of traffic or network functions to deliver optimal service quality and resource utilization.
We believe that adoption of these network transformation strategies around OSS and BSS, and the related evolution of core, metro, aggregation and access network infrastructures, will require network operators and their network solutions vendors increasingly to look to utilize an ecosystem of cloud-native software, consulting and delivery services, and software-optimized and controlled physical and virtual network resources. We expect that these network architectural approaches, in turn, will require an increased degree of cooperation, collaboration and interoperability among networking solutions vendors.
Different Approaches to Design and Procure Network Infrastructure Solutions
Network operators are pursuing a diverse range of approaches, or “consumption models,” in their design and procurement of network infrastructure solutions. In addition to purchasing fully integrated network solutions including hardware, software and services from the same vendor, new consumption models include the procurement or use of:
•a fully integrated infrastructure solution from one vendor with the separate use of a network operator’s own software or that of another vendor;
•integrated photonic line systems with open interfaces from one vendor and the separate or “disaggregated” procurement of modem technology from a different vendor;
•open source software in concert with or as an alternative to integrated, proprietary third-party software solutions;
•open IP network operating systems running on off-the-shelf third-party equipment; and
•system integration services or customer self-integration to reconstitute the disaggregated components.
Driven by the need to add capacity quickly and by restrictions in some jurisdictions on fiber ownership, some cloud providers are using managed optical fiber networks (“MOFN”) through which they lease lit fiber pairs from advanced optical networks owned by communications service providers in order to expand their reach and better serve their end users. In addition, some network operators are pursuing network strategies that emphasize the deployment of smaller form factor,
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pluggable modem technology, that can be housed in a switch or router platform or used in place of a modem in a traditional optical system.
The consumption models that ultimately emerge and their level of adoption will depend in significant part on the circumstances and strategies of certain network operators. While the adoption of these approaches has been limited to date, we expect that continued customer consideration of a variety of consumption models will require network operators and vendors alike to assess, and possibly broaden, their offerings and commercial models over time. We expect this dynamic will place a premium on a vendor’s ability to provide a range of network solutions with the maximum amount of flexibility and choice.
Supply Chain and Demand Environment Dynamics
In the face of demand across a range of industries, global supply for certain raw materials and components, including, in particular, semiconductor, integrated circuits, and other electronic components, experienced substantial constraint and disruption in recent prior periods. Though supply conditions have stabilized from their highest levels of disruption, they have yet to return to conditions experienced in the period prior to the COVID-19 pandemic. In response, governments and some of our network operator customers worldwide have intensified efforts to enhance supply chain resilience, emphasizing the need for robust risk management strategies.
During the most difficult periods of supply constraint, companies across many industries, including those of our end customers, deployed risk mitigation strategies to ensure continued operations. The strategies employed by some of our customers included increases in advance orders of networking equipment. With the stabilizing supply chain environment experienced in recent periods, customers’ strategies have shifted, resulting in their need to digest their excess inventory of networking equipment purchased during that period, which led to a period of lower demand for equipment.
The United States and various foreign governments have established certain trade and tariff requirements, and from time to time the U.S. government has indicated a willingness to revise, renegotiate, or terminate various existing multilateral trade agreements and to impose new taxes and restrictions on certain goods imported into the United States. Current dynamics between the United States and China are playing a pivotal role in shaping the global supply chain landscape, and have had an important impact on trade policies, resiliency efforts, and various domestic preference and investment initiatives. This changing bilateral relationship, which is marked by trade tensions and geopolitical complexities, has prompted both nations to reassess their economic strategies, creating a dynamic environment for many industries. This environment, characterized by tariffs and technological competition, may introduce reconfiguration of global supply chains and prompt companies to diversify sourcing and manufacturing locations. In addition, the incoming U.S. administration has announced an intent to impose additional tariffs, including on all imports from China, Mexico, and Canada. Simultaneously, there is a growing emphasis on domestic preference initiatives, as countries seek to bolster their own manufacturing capabilities in an effort to ensure greater economic autonomy. This evolving landscape presents challenges and opportunities for companies navigating the wide range of resulting regulatory, economic and supply chain management complexities.
Product Development and Sustainability
As network traffic and service expansion continue to grow, we believe network operators are seeking technology innovation to help support their business models in preparation for a low carbon future. Network operators are also increasingly looking to their technology vendors to help them manage the environmental impact of their networks, including energy use, greenhouse gas emissions, and waste. Market transition to a low carbon future and greener technology presents meaningful opportunities for enhanced competitive positioning and business growth for technology innovation leaders capable of advancing a product development strategy that addresses network performance and sustainability outcomes.
Strategy
Our strategy is to leverage our optical technology leadership to drive the profitable growth of our business and to expand our addressable market into complementary and adjacent network applications, in particular with respect to opportunities to apply coherent technologies inside and around the data center. The key pillars of our strategy are set forth below:
Expand Leadership in Optical Networking. We are focused on using our significant research and development investment capacity to push the pace of innovation in our traditional markets. We continue to innovate, increase the performance of, and enhance the capabilities for our leading WaveLogicTM coherent modem technology in multiple form factors. Specifically, we have brought to market the sixth generation of this technology in our WaveLogic6 Extreme performance-optimized form factor, and we intend to bring to market our WaveLogic6 Nano (“WL6n”) pluggable offering for users that prioritize power and space considerations. In addition, to capture opportunities to expand our market inside and around the data center, we intend to invest in photonic line systems and coherent pluggables for data center application.
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To address market trends toward disaggregated consumption models, we offer a range of networking solutions to enable the evolution of next-generation network infrastructures and promote choice in our markets. We have made our coherent optical technology available in integrated systems, pluggable form factors, and components that together address a range of technical and economic requirements of network operators. We are pursuing sales opportunities that leverage our WaveLogic technology in the form of high-performance transceivers/modems – the combination of a Ciena-designed optical chipset and application-specific integrated circuit (ASIC) – with other key optical components that are sold independently of integrated systems, including to original equipment manufacturers (“OEMs”), original design manufacturers, and value-added resellers. We are also pursuing opportunities with different go-to-market models for our passive optical network (“PON”) technology, such as our microplug Optical Line Terminal (“OLT”) transceiver, including through sales to network equipment manufacturers. By addressing multiple consumption models, including by offering component level solutions to the market, we seek to secure a larger portion of the world’s optical network wavelengths, expand our addressable market and access new customer verticals and applications.
Grow Addressable Market in Next Generation Metro and Edge Networking Solutions. To expand our addressable markets and capture additional opportunities in metro and edge applications, we are making significant investments in our Routing and Switching solutions. We are leveraging our optical expertise to offer new architectural approaches to address Metro and Edge network use cases. To enable this strategy, we offer solutions designed to integrate IP networking software with optical coherent transmission, including WaveRouter™, a purpose-built coherent metro router designed to converge IP and Optical layers in the metro network. We also offer our Navigator NCS multi-layer domain controller software, which operationalizes converged IP optical platforms. We are investing in broadband solutions, including innovative PON transmission technology, to intersect with public funding opportunities to bring broadband connectivity to underserved communities.
Drive Software-Led Transformation. To support our customers’ needs for rapid service introduction and optimized network operation, we seek to improve network layer automation and programmability by advancing our Navigator NCS software and applications. We are also focused on gaining adoption and expanding application for our Adaptive IP software, leveraging our Service-Aware Operating System (“SAOS”) embedded in our Routing and Switching products. We also seek to promote broader adoption of our Blue Planet Automation Software, highlighting its ability to automate the service management lifecycle. Through this automation, we believe that Blue Planet can help customers with their digital transformations by transitioning legacy networks into “service ready” networks, accelerating the creation, delivery and management of new services. A key part of our strategy is to grow our software business as a portion of our total business through expanded customer adoption and broader applications, and to build a strong automation business through the delivery of flexible, modular, and targeted automation solutions.
Deliver Innovative Global Services. Underpinning all aspects of our portfolio is our broad suite of value-added global services that help our customers to build, operate, and improve their networks. We are focused on broadening our advanced services capabilities with offerings to maximize our customers’ network infrastructure investment throughout the network lifecycle, including systems integration, multi-vendor migration, and transformation. Key to our delivery of strong services offerings is our close collaboration with our customers, which allows us to gain insight into the challenges they face and to provide services that meet their desired business outcomes.
Customers and Markets
We sell our product and service solutions through direct and indirect sales channels to network operators in the following customer and market segments:
•Communications Service Providers. Our communications service provider customers include regional, metro, national and international wireline and wireless carriers, and access network providers.
•Cloud Providers. Our cloud provider customers – also referred to in our markets as web-scale or hyper-scale providers – include internet content providers and providers of internet services and infrastructure, including data centers, cloud compute, SaaS, storage, AI, and web hosting services. In addition to their direct purchases, these customers are also significant purchasers of capacity on submarine and wireline networks globally, and they heavily influence networking solution alternatives by other network operators, including communications service providers.
•Cable and Multiservice Operators (MSO). Our customers include regional, metro, national, and international cable and multiservice operators.
•Submarine Network Operators. Our customers include service providers, cloud providers, and consortia operators of submarine communications networks across the globe.
•Enterprises. Our enterprise customers include large, multi-site commercial organizations, including participants in the financial, healthcare, transportation, utilities, energy, and retail industries.
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•Government and Research & Education. Our government customers include federal, state, and local agencies, as well as large, advanced research and education networks.
Products and Services
Our portfolio of products and services, which is designed to enable our Adaptive Network vision, includes the solutions described below within our Networking Platforms, Platform Software and Services, Blue Planet Automation Software and Services, and Global Services operating segments. We also offer solutions that bring together multiple products and services from across our operating segments and portfolios to address key customer use cases and infrastructure needs with an aim to enable our customers to evolve their existing network environments.
Networking Platforms
Our Networking Platforms segment consists of our Optical Networking and Routing and Switching portfolios.
Optical Networking. Our Optical Networking portfolio includes a range of products and solutions that use our WaveLogic coherent optical technology and our intelligent photonics solutions and are optimized for the convergence of coherent optical transport, open optical networking, Optical Transport Network (“OTN”) switching and IP routing and switching.
Our 6500 Packet-Optical Platform provides a flexible and scalable converged multi-layer transport solution that adds capacity to core, regional, metro and submarine networks and enables efficient data transport at high transmission speeds. This platform provides leading coherent wavelength capacities, from 100 gigabits per second (“100G”) to 1.6 terabits per second (“1.6T”), along with a flexible photonic layer and multi-layer control plane capabilities for scale and service differentiation. This platform, which includes several chassis sizes and a comprehensive set of line cards optimized for individual services or applications, can be used throughout the network, from customer premises to access and metropolitan networks, regional and core networks, and submarine cable landing sites.
Our Waveserver® family of products consists of compact, modular interconnect platforms that allow network operators to scale bandwidth and support high-bandwidth interconnect applications, such as high-speed data transfer from 100G to 1.6T, content delivery, including encrypted data transfer between data centers. Waveserver is purpose-built to address disaggregated transponder, data center and general space-constrained applications, using a small footprint and low power design. With its modern software architecture, open application programming interfaces (“APIs”), and common data models, Waveserver is easy to operate and integrate into existing networks and facilitates deployment of on-demand cloud and high-capacity connectivity services.
Our 6500 Reconfigurable Line System (“RLS”) is a compact, disaggregated, open intelligent photonic layer line system that improves scalability, reduces footprint, and offers flexibility and programmability. Its applications include subsea, long-haul and metro networks and data center interconnection and general network modernization and simplification. It offers increased fiber capacity through automated and integrated C- and L-band deployments and provides highly dense, remote optical add/drop multiplexing and switching features that enable network operators to react to unpredictable traffic requirements by scaling connectivity and capacity.
Our coherent-optimized edge line system, Coherent ELS, is a high-capacity disaggregated line system that is designed to address next-generation access photonic line system requirements, including the transport of coherent wavelengths originating from pluggables, through a compact, hardened form factor designed to accommodate outside plant deployments. With a focus on reducing operational complexity, our Coherent ELS open line system (OLS) uses integrated intelligence and automation to simplify and scale deployments.
Our O-NID is a purpose-built edge OTN demarcation device that modernizes OTN networks by delivering OTN to the edge in a compact, hardened form factor that is designed to flexibly address a range of applications while reducing cost, space, and power. The O-NID allows network providers to seamlessly extend the reach of their OTN networks closer to the edge and customer premises where space and power are limited and can efficiently deliver gigabit ethernet 1GbE/10GbE/100GbE services and 100/200G waves to the customer premises with a solution that simplifies deployments, service turn-up, and management.
We also offer footprint-optimized coherent pluggable transceivers, which utilize our WaveLogic technology, to address next-generation access, metro, regional and data center interconnect network applications, which are supported across both our systems and third-party equipment. Our opportunities with high-performance coherent pluggable transceivers are reflected within the Optical Networking product line of our Networking Platforms segment.
We also offer our 5400 family of Packet-Optical Platforms, which provide for optical transport, traffic aggregation at the network edge and switching that are optimized for handoff at the network core.
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Routing and Switching. Our Routing and Switching portfolio includes products and solutions that enable next-generation metro, access and aggregation, or “edge” networks, including solutions that allow customers to simplify their network designs while delivering new, revenue-generating services. These products route, aggregate, and switch IP-based traffic to support applications including IP services, Ethernet business services, cell site routing, mobile cross-haul, converged haul, 5G, fiber-based access networks, and residential broadband access. Our Routing and Switching products are based on our Adaptive IP approach, which delivers end-to-end IP-based services in an automated and more simplified manner than traditional IP network designs. Our Routing and Switching products enable operators to achieve improved network cost effectiveness, including reduced costs associated with power and space, as compared to more complex, traditional IP routing.
Central to our Routing and Switching platforms is our SAOS next-gen IP network operating system, which provides the software-based capabilities to support 5G, IP VPN services, access, PON, converged interconnect network (CIN) architectures, and coherent routing applications in our portfolio. SAOS provides automation-friendly intelligence and operational data to enable network-level programmability supported by open standards.
Our 3000 family of Service Delivery Platforms and our 5000 family of Service Aggregation Platforms support network access and aggregation, respectively, and have been principally deployed to support IP and Ethernet business services, wireless front haul, backhaul, and mid-backhaul applications, and residential broadband applications. Our 3000 family of platforms are purpose-built to fit small to large customer sites as well as multi-tenant offices, residential buildings or homes, and edge office or outside plant applications. Our 5000 family provides aggregation to fill higher capacity links within both the metro access and aggregation tiers of networks, allowing operators to reduce the number of router assets required in the core and to better implement edge cloud architectures.
Our 8100 Coherent Routing platforms combine high-capacity multi-terabit IP routing and switching from 1 gigabit ethernet (“GbE”) to 400GbE with high capacity WaveLogic 5 Nano coherent optical transport from 100/200/400GbE for next-generation metro and edge applications.
Our WaveRouter™ is a purpose-built coherent metro router designed to converge IP and Optical layers in the metro network. WaveRouter can flexibly scale Wide Area Network (“WAN”) traffic from 6-192T, with the ability to scale up and out, delivering capacity when and where needed. With optional WaveLogic™ capabilities, WaveRouter can support dense, high-capacity coherent routing and switching metro applications.
Our Vyatta virtual routing and switching technology and products include a cloud-grade router and software for enterprise and cloud networks that enable hardware-like routing performance for enterprises across multi-cloud and virtualized edge networks. This scalable and modular software can be deployed as a Virtual Machine (VM) application as well as in virtualized and disaggregated network environment.
Our 6500 Packet Transport System (“PTS”) combines packet switching, control plane operation, and integrated optics. Together with our 3900 platforms, PTS enables our service provider customers to migrate their legacy TDM (SONET/SDH/PDH) services to a scalable, lower operational cost packet solution.
Our Routing and Switching portfolio includes our fiber-based broadband access solutions. Our microplug OLT transceiver combines PON hardware and software for integration into a router to support broadband and other applications. Our Routing and Switching portfolio also includes cloud-native software solutions, including a virtual Broadband Network Gateway for access network. Our 3800 family of ONUs support fiber-based PON broadband access service delivery to residential or enterprise locations.
Our Routing and Switching portfolio also includes our 8700 Packetwave® Platform, a multi-terabit packet switching platform for high-density metro networks and inter-data center wide area networks.
Platform Software and Services
Our software offerings also include our Platform Software, which provides domain control management, analytics, data and planning tools and applications to assist customers in managing their networks, including by creating more efficient operations and more proactive visibility into their networks. Our Platform Software includes:
•Navigator NCS. Navigator NCS software provides intelligent, multi-layer network control of our routing, switching and optical solutions, enabling simplification, acceleration and automation of multi-layer network operations. Our Navigator NCS domain controller provides fault, configuration, accounting, performance, and security management for multi-layer, multi-vendor networks, in combination with services management and online network planning. Navigator NCS simplifies multi-layer lifecycle operations – including equipment commissioning, service provisioning, service assurance and performance monitoring. Navigator NCS uses Generative AI applications and analytics to allow customers to adopt AI operations approaches in their management of their networks.
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•Navigator NCS Apps. Our suite of Navigator NCS applications integrate software control and analytics applications in a unified interface that provides network performance data. Through our suite of Navigator NCS applications and open APIs, Navigator NCS software can integrate into network operators’ OSS and business processes, supporting our customers’ journeys towards automation of end-to-end operational workflows.
•Platform Software Services. To complement our Platform Software portfolio, we offer a range of related services that include software subscription services, consulting, network migration and integration, installation and upgrade support services, and technical support relating to our Platform Software offerings. These services are focused on enabling our customers to operate their Ciena networks most efficiently and to modernize their operations.
Our Platform Software offering also includes planning tools as well as a number of legacy software solutions, including our OneControl unified management system, that support our installed base of network solutions. As we achieve further customer adoption of our Navigator NCS software platform, and as we transition features, functionality and customers to that platform, we expect revenue to decline for our legacy Platform Software solutions.
Blue Planet Automation Software and Services
Our Blue Planet Automation Software is a comprehensive, cloud native, standards-based software portfolio that enables our service provider customers to accelerate their digital transformation. We believe digital transformation is critical for service providers to reduce the cost and complexity of their OSS, to reduce customizations, and to help them monetize their networks by automating service delivery across multiple vendors and domains. Our Blue Planet product applications are open and modular, and can be deployed either individually or in any combination on a single cloud-native platform. These applications include:
•Blue Planet Inventory (“BPI”). By integrating or “federating” data from multiple inventory systems and presenting it in a single dynamic view, BPI allows real-time visibility into the end-to-end topology and status of network, cloud, and service resources. Integrating with legacy OSS, BPI helps network providers simplify key operational processes such as service fulfillment, network planning, and service assurance. Through its comprehensive inventory of network services, devices, and virtual functions, BPI allows for observation of AI, analytics, assurance and other critical technologies in designing, planning, and operating a network.
•Multi-Domain Service Orchestration (MDSO). Network infrastructures are comprised of multiple technology layers and domains – such as the radio access network (“RAN”), data center, cloud, access, transport, and mobile core networks. With new 5G network implementations, it is often complex for network operators to offer automated, end-to-end services in this environment. Blue Planet provides model-driven, intent-based service orchestration across multiple physical and virtual network domains, multiple layers (Optical, Ethernet, IP, SD WAN, PON, Mobile Core, RAN, and slicing), across any set of hardware and software vendors.
•Multi-Cloud Orchestration (“MCO”). Operators are deploying a growing number of cloud-based services to meet the needs of their customers. Blue Planet MCO provides orchestration of Cloud-Native Functions (CNFs), Virtual Network Functions (VNFs) and other cloud-based resources. MCO uses an open, vendor-agnostic approach that allows network operators to manage the lifecycle of cloud-based resources within and across multiple clouds and cloud providers.
•Route Optimization and Analysis (“ROA”). ROA combines routing, traffic, and performance analytics for real-time monitoring of IP services across domains and across the cloud. These capabilities provide enhanced network observability capabilities and enable troubleshooting of latent or transient network problems, and modeling, to predict the impact of network infrastructure, service, and workload changes, to build more resilient networks.
•Unified Assurance & Analytics (“UAA”). UAA leverages multi-layer/multi-domain assurance and AI-powered analytics to provide insights into the health and performance of network resources and services, ensuring an end-customer quality of experience and availability to meet dynamic service demands.
•Blue Planet Services. To complement our software portfolio, we offer a range of related services that include professional services for solution customization and OSS integration, software and solution support services, consulting and design, and technical support relating to our software offerings. These services are focused on enhancing network automation and network analytics, enabling multi-vendor integration and support, and implementing programmable multi-domain next-generation networks.
The Blue Planet Automation Software portfolio allows operators to fulfill services rapidly and to meet end-customer quality-of-experience expectations through an entire services lifecycle approach. It also advances network operators towards
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their vision of self-healing and self-optimizing networks through closed loop automation. Our entrance into the market relating to these software automation capabilities remains in the early stages and, accordingly, revenue from our Blue Planet Automation Software and Services segment continues to represent a relatively small portion of our total revenue.
Global Services
We offer a broad suite of value-added services that help our customers to build, operate, and improve their networks. We believe that our services offerings, and our close collaboration with our customers, provide us with insight into the network and business challenges they face, allowing us to provide services to meet their desired business outcomes. We continue to broaden our advanced services capabilities with offerings including systems integration, multi-vendor migration, and transformation.
Our Global Services portfolio includes a range of offerings to meet customer needs and maximize their network infrastructure investment throughout the network lifecycle. These include:
•Build. Consulting services to enhance network performance or plan migration to next-generation infrastructures, implementation services to deliver proper planning, design, and deployment services, systems integration services to integrate third-party solutions, and migration services to help customers adopt new technologies and retire legacy equipment;
•Operate. Maintenance services that provide end-to-end support for network hardware and software, and managed services to provide management of network infrastructure operations; and
•Improve. Optimization services designed to ensure that networks are running at peak performance, and learning services designed to enable customers to understand and operate their networks more effectively.
These services are delivered using a combination of our internal services resources, technical support engineers, and qualified and authorized third-party service partners.
Product Development
To remain competitive, we must continually invest in and enhance our solutions offerings, addressing new market opportunities, adding new features and functionality, and ensuring alignment with market demand. Our product development efforts seek to design and bring to market solutions that embrace our Adaptive Network vision through further advances in programmable systems and software, analytics, and control and automation. Through our development efforts, we seek to support network operators as they pursue new business models and sources of revenue from their network infrastructure. We seek to develop products aimed at optimizing price for performance, managing power consumption, reducing lifecycle operating costs and space requirements, and minimizing the environmental impact of our customers’ network operations. Our approach is also focused on designing products that address a range of emerging consumption models for networking solutions. Our current development efforts are focused on:
•Reinforcing our coherent optical leadership with continued development that advances reach, transmission speed, spectral efficiency, power-per-bit, and service automation and assurance;
•Executing on parallel innovation paths for our next generation modem technology, including our WaveLogic6 Extreme and WaveLogic6 Nano offerings;
•Delivering on our Adaptive IP approach and extending the IP/routing capabilities and use cases of our Routing and Switching solutions to include converged metro core routing and support for mobile network 5G routing and cross-haul, enterprise edge, and fiber-based access networks for enterprise and residential access service delivery;
•Extending capacity of our fiber-based broadband access technologies and solutions;
•Investing in photonic line systems and coherent pluggables for application inside and around the data center;
•Pursuing development to address different consumption models, including our module, pluggable, and component development initiatives;
•Enhancing our Adaptive Network vision through advances in hardware programmability and software-based domain control, automation and analytics through Navigator NCS and purpose-built applications;
•Advancing our software-led transformation strategy and product development for our Blue Planet Automation Software to enable generation OSS transformation and closed loop automation;
•Developing products that enhance security and reduce risk to our customers’ networks from cyber attacks; and
•Delivering products that minimize the lifecycle climate impacts of our customers’ networks and support their sustainability goals.
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Our research and development efforts are also geared toward portfolio optimization and engineering changes intended to drive product and manufacturing cost reductions across our platforms and enable muti-vendor sourcing of components. We follow a structured development lifecycle process aiming to supply products that are compliant with emerging security standards. Throughout certain phases of the development lifecycle, including testing and quality assurance, we leverage AI to increase productivity and to improve development efficiencies.
We regularly review our existing solutions offerings and prospective development of new features, components, or products in order to determine their fit within our portfolio and broader corporate strategy. We also assess the market demand, technology evolution, prospective return on investment, and growth opportunities, as well as the costs and resources necessary to develop and support these products. To ensure that our product development investments and solutions offerings are closely aligned with market demand, we regularly seek input from customers and promote collaboration among our product development, marketing, and sales organizations. In some cases, where we seek to utilize or gain access to complementary or emerging technologies or solutions, we may obtain technology through an acquisition or, alternatively, through initiatives with third parties pursuant to technology licenses, OEM arrangements, or other strategic technology relationships or investments. In addition, we participate in industry and standards organizations and, where appropriate, incorporate information from these affiliations throughout the product development process.
Global Customer Engagement
Our Global Customer Engagement organization includes a direct and indirect sales, system engineering, and services presence that is organized geographically around the following geographies and customer types: (i) the United States, Canada, the Caribbean and Latin America (“Americas”); (ii) “International”, which includes Europe, Middle East and Africa (“EMEA”) and Asia Pacific, Japan and India (“APAC”); and (iii) global cloud and content networking customers, which include cloud provider, content, and data center companies. Within each focus area, we maintain specific teams or personnel that focus on a particular region, country, customer, or market vertical. These teams include sales management, account salespersons, and sales engineers, as well as partner resources, field marketing, services professionals, and commercial management personnel, who are focused on maintaining a high-touch, consultative relationship with our customers.
We also maintain a global partner program that includes distributors, resellers, systems integrators, service providers, OEMs, original design manufacturers, and other third-party distributors who market and sell our products and services. We utilize these third-party channel partners to market and sell our solutions into specific geographies, applications, or customer verticals. We believe there are opportunities to leverage these relationships to expand our addressable market, while at the same time reducing the financial and operational risk of entering additional markets.
To support our global customer engagement efforts, we invest in marketing activities to generate demand for our products and services. Our marketing strategy is highly focused on building our brand to create customer preference for Ciena, engaging in thought leadership programs to illustrate how our innovations solve customer business problems, and enabling our sales teams to drive customer adoption of our solutions. Our marketing team supports our sales efforts through a variety of activities, including direct customer interaction, account-based marketing campaigns, portfolio marketing, industry events, media relations, industry analyst relations, social media, trade shows, our website and other marketing vehicles for our customers and channel partners.
A small number of customers currently account for a significant portion of our revenue. The loss of one or more of these customers or a significant reduction in their spending could have a material adverse effect on our business and results of operations. For further discussion of this concentration and the related risk, see the related discussion in “Risk Factors” under the heading “A small number of customers account for a significant portion of our revenue. The loss of one or more of these customers or a significant reduction in their spending could have a material adverse effect on our business and results of operations.”
Operations and Supply Chain Management
Most of the manufacturing for our products is conducted through third-party contract manufacturers. Our supply chain personnel manage the relationships with these third-party manufacturers and the global supply chain, addressing component sourcing, manufacturing, product testing and quality, fulfillment, distribution, and logistics relating to the support of our customers.
We utilize a sourcing strategy that focuses on control over supplier selection and commercial terms of components and products that ultimately support our customers. Our product manufacturing strategy is designed to support early life industrialization capabilities closer to our product engineering team, as well as manufacturing in lower labor cost regions for volume. We rely upon third-party contract manufacturers, including those with facilities in Canada, Mexico, Thailand, India,
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and the United States, to manufacture, support and ship our products, and therefore are exposed to risks associated with their businesses, financial condition and the geographies in which they operate, including political risk, changes in tax and trade policy involving such countries, including tariffs, and physical risk, including the impact of climate change. We also rely upon contract manufacturers and other third parties to perform design and prototype development, component procurement, full production, final assembly, testing, and distribution operations. Our manufacturers and component distribution partners procure components necessary for assembly and manufacture of our products based on our specifications, approved vendor lists, bills of materials and testing and quality standards. Our manufacturers and component distribution partners’ activity is based on rolling forecasts that we provide to them to estimate demand for our products. We work closely with these partners and our suppliers to manage material, quality, cost and delivery times, inventory levels, and we continually evaluate their services in an effort to ensure performance on a reliable and cost-effective basis. Generally, our agreements with our suppliers and contract manufacturers are frame agreements against which we place purchase orders and do not commit to long-term volume purchases.
We currently use partners and, in some cases, the same partners that support our manufacturing, to fulfill and deliver our products to customers. We believe that our sourcing, manufacturing, and distribution strategies allow us to conserve capital, lower costs of product sales, adjust quickly to changes in market demand, and operate without dedicating significant resources to manufacturing-related plant and equipment.
We continue to focus on a range of initiatives that seek to optimize our operations, improve our resiliency, and drive cost reductions and efficiencies. Our efforts include process optimization initiatives, such as vendor-managed inventory, and other operational models and strategies designed to drive improved efficiencies in our sourcing, production, logistics, and fulfillment. To enhance operational efficiency and modernize our supply chain operations, while driving long-term sustainability and resilience in the face of dynamic market conditions, we are pursuing a number of digital technology transformation efforts, including advanced analytics, automation, and other digital supply chain management solutions. We regularly assess and monitor our supply chain risks and have implemented various strategies to mitigate these risks and enhance resilience. These measures include dual-sourcing strategies, inventory management initiatives, multi-geography operational capabilities, and ongoing direct relationships with key suppliers to ensure transparency and alignment with our goals.
We actively work with our third-party vendors and business partners to promote socially responsible business practices within our global supply chain. To that end, we have adopted the principles set forth in the Responsible Business Alliance (“RBA”) Code of Conduct. The RBA Code of Conduct establishes standards that aim to ensure that working conditions in the electronics industry, or industries in which electronics are a key component, and in their supply chains are safe, that workers are treated with respect and dignity, and that business operations are environmentally responsible and conducted ethically. We promote these principles and require our suppliers to agree to adhere to these same standards. We also publish a Sustainability Report and maintain a Human Rights Policy applicable to suppliers, each of which includes more detail about our efforts to promote responsible business practices.
Seasonality
We have historically experienced seasonal quarterly fluctuations in customer activity in both orders and revenue, particularly with service provider customers. We have experienced reductions in order volume toward the end of the calendar year, as the procurement cycles of these customers slow and network deployment activity is curtailed. This period coincides with the first quarter of our fiscal year. This seasonality in our order flows has typically caused revenue for the first quarter of our fiscal year to be below that of the preceding quarter. These seasonal effects may not apply consistently in future periods and may not be a reliable indicator of our future revenue or results of operations. The effects of the dynamic demand environment we have experienced in recent periods, together with our backlog, have impacted and may continue to impact the traditional seasonality in our business. In addition, the growth as a percentage of our revenue of cloud provider customers, who do not necessarily follow the same seasonal ordering pattern, may also change this pattern in the future. For a more detailed discussion of the current demand environment and our backlog, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations– Overview” in Item 7 of Part II of this annual report.
Competition
Competition among networking solution vendors remains intense on a global basis. The market in which we compete is characterized by rapidly advancing technology, frequent introduction of new solutions, and aggressive selling efforts, including using significant pricing pressure to displace incumbent vendors and capture market share. Competition for sales of networking solutions, including our Networking Platforms and Platform Software and Services, is dominated by a small number of very large, multi-national companies. Our competitors include Nokia, Huawei (as defined below), Cisco, Juniper Networks, and ZTE. As compared to us, many of these competitors have substantially greater financial, operational and marketing resources, significantly broader product offerings, and more established relationships with customers. Because of their scale and resources,
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they may be perceived to be a better fit for the procurement or network strategies of larger network operators. We also continue to compete with several smaller but established companies that offer one or more products that compete directly or indirectly with our offerings or whose products address specific niches within the markets and customer segments we address. These competitors include Infinera, Ribbon Communications, Marvell Technology Group, and Adtran. We also compete with a number of companies that provide significant competition for a specific product, application, service, customer segment, or geographic market.
We also expect the competition in our industry to continue to broaden and to intensify as network operators pursue a diverse range of network strategies and consumption models. As these changes occur, we expect that our business will overlap more directly with additional networking solution suppliers, including IP router vendors, data center switch providers, and other suppliers or integrators of networking technology traditionally geared toward different network applications, layers or functions. We may also face competition from system and component vendors, including those in our supply chain, who develop pluggable modem technology or other networking products based on off-the-shelf or commoditized hardware technology, particularly where a customer’s network strategy seeks to emphasize deployment of such product offerings or the adoption of a disaggregated approach to the procurement of hardware and software. As we promote our corporate strategy and seek increased customer adoption of our Blue Planet Automation Software, we expect to compete more directly with software vendors and traditional IT services vendors. Competitors for our Blue Planet Automation Software include Cisco, Nokia, Amdocs, ServiceNow, Netcracker, and Ericsson.
Across our markets and segments, the principal competitive factors can include, among others:
•functionality, speed, capacity, scalability and performance of network solutions;
•the ability to meet business needs and drive successful outcomes, including meeting customer delivery time requirements;
•price for performance, cost per bit and total cost of ownership of network solutions;
•incumbency and strength of existing business relationships;
•technology roadmap, time-to-market in delivering products and features, and forward innovation capacity;
•company stability and financial health;
•ability to offer solutions that accommodate a range of different consumption models;
•operating costs and total cost of ownership;
•services and support capabilities;
•product security capabilities; and
•ability to help customers achieve their sustainability goals.
Our competitive landscape has been and is likely to continue to be impacted by international trade and related matters, in particular between the U.S. and China. For example, in 2019, the U.S. Department of Commerce amended the U.S. Export Administration Regulations (“EAR”) by adding Huawei Technologies Co., Ltd. (“Huawei”) and certain affiliates to the “Entity List” for actions contrary to the national security and foreign policy interests of the U.S., resulting in significant new restrictions on the export, reexport and transfer of U.S. regulated technologies and products to Huawei. In 2020, the U.S. Department of Commerce added additional Huawei affiliates to the Entity List, confirmed the expiration of a temporary general license applicable to Huawei, and amended the foreign direct product rule under the EAR in a manner that significantly expanded its application to Huawei. Separately, the U.S. government has taken steps to restrict federal agencies from doing business with, and U.S. wireless carriers from using federal subsidies to buy equipment from, Huawei and ZTE. The U.S. government has also encouraged other governments to consider similar restrictions. These actions, among others, have resulted in escalating tensions between the U.S. and China and retaliation by China, including a recent prohibition on export of certain rare minerals, and introduce a risk that the Chinese government may take further steps to retaliate against U.S. industries or companies. Trade regulations limiting or banning sales into, or purchases from, certain countries or companies have also impacted and may in the future impact our ability to transact business in certain countries and with certain customers. In addition, the incoming U.S. administration has announced an intent to impose additional tariffs, including tariffs on imports from Canada, Mexico, and China.
Patents, Trademarks and Other Intellectual Property Rights
The success of our business and technology leadership depends significantly on our proprietary and internally developed technology. We rely upon the intellectual property protections afforded by patents, copyrights, trademarks, and trade secret laws to establish, maintain, and enforce rights in our proprietary technologies and product branding. We regularly file applications for patents, and we have a significant number of patents in the United States and other countries in which we do business. As of December 2, 2024, we had approximately 2,300 issued patents and more than 700 pending patent applications worldwide.
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Enforcing proprietary rights, especially patents, can be costly, and we cannot be certain that the steps that we are taking will detect, prevent, or minimize the risks of all unauthorized use. The industry in which we compete is characterized by rapidly changing technology, a large number of patents, and frequent claims and related litigation regarding patent and other intellectual property rights. We have been subject to several claims related to patent infringement, and we have been requested to indemnify customers pursuant to contractual indemnity obligations relating to infringement claims made by third parties. Intellectual property infringement assertions could cause us to incur substantial costs, including settlement costs and legal fees in the defense of related actions. If we are not successful in defending these claims, our business could be adversely affected.
Our operating system software, Platform Software, Blue Planet Automation Software, and other solutions incorporate software and components under licenses from third parties, including software subject to various open source software licenses. Failure to obtain or maintain such licenses or other third-party intellectual property rights could affect our development efforts and market opportunities or could require us to re-engineer our products or to obtain alternate technologies. Moreover, there is a risk that open source and other technology licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our products.
Environment and Sustainability
Our environmental goals have been approved by the Science Based Target initiative and that align our decarbonization efforts with the Paris Climate Agreement goal to limit global warming to 1.5 degrees Celsius above pre-industrial levels. Our environmental strategy centers on continuing to innovate our products and services to help reduce the power, space, and materials required to operate them, engaging our suppliers and driving operational efficiencies to reduce our environmental impact, and promoting an employee experience that engages our workforce on sustainability.
Our products and product development efforts pursue power and space improvements aimed to create more efficient and sustainable networks for our customers and enabling their climate ambitions. We promote environmental sustainability through our efforts to improve the energy efficiency per gigabit of throughput in our networking solutions, as well as our initiatives to reduce the total number of network elements required to operate a network. We pursue opportunities to minimize the resource impacts in our product design, and to manage the life cycle impact of our products, including packaging and distribution, support, and end-of-life reuse, refurbishment, and recycling. We voluntarily submit CDP climate change and water disclosures and Ecovadis sustainability disclosures annually, and we are a member of the RBA. We seek to ensure that our key direct suppliers adopt the standards and principles set forth in the RBA Code of Conduct.
People and Culture
Our technology solutions are developed, marketed, sold and supported by our global workforce of 8,657 employees as of November 2, 2024, over 99% of whom were full-time employees. We have a broad base of talent in 39 countries, with approximately 56% in the Americas, 36% in APAC, and 8% in EMEA, the majority of whom are in engineering, operations, or sales roles.
We believe that our industry and innovation leadership is ultimately rooted in people. Competition for qualified personnel in the technology space is intense, and our success depends in large part on our ability to recruit, develop and retain a productive and engaged workforce. Accordingly, investing in our employees and their well-being, offering competitive compensation and benefits, and adopting progressive human capital management practices constitute a core element of our corporate strategy.
Our Board of Directors oversees our corporate strategy, which includes management’s design and execution of our “people strategy.” This strategy seeks to ensure that we continue to attract and retain the talent necessary to execute on our business plans, and that we have programs, initiatives, rewards and recognition that are well aligned and support these goals. Through our “People Promise,” we promote a workplace environment where our employees are empowered, feel included, and have an opportunity to make a difference through their work at Ciena. In doing so, we seek to cultivate for employees a culture of belonging and happiness, enabling us to be an attractive employer of choice within our markets. Our executive team is actively involved in and sponsors key initiatives and employee resource groups intended to promote this corporate culture. To that end, our people strategy is focused on the following:
•Promote a Diverse, Inclusive, and Equitable Culture. We believe inclusivity and diversity contribute to business success. We promote an inclusive and diverse workplace, where all individuals are respected and feel they belong regardless of their age, race, national origin, gender, religion, disability, sexual orientation or gender identity. We do this through recruiting outreach, internal networking and resource groups, inclusivity networks, and mentoring programs. We regularly monitor our recruitment process in consideration of the diversity of our workforce and candidate pool and continue to offer Conscious Inclusion workshops to deepen understanding within our diverse
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groups. In addition, we support multiple active internal networking and resource groups, including our Women at Ciena group, Black & African Heritage at Ciena group, LatinX at Ciena group, Asian at Ciena group, Pride at Ciena group, Vets at Ciena group, and Next at Ciena early in career group. In fiscal 2023, we continued to run a targeted development program aimed at strengthening underrepresented individuals’ sense of belonging and enhancing communication, confidence, self-awareness and financial acumen.
•Support Employee Wellbeing and Engagement. We prioritize supporting the overall wellbeing of our employees and their eligible dependents. We provide a broad and diverse suite of programs that focus on physical, mental and emotional, financial and social wellbeing, and have expanded our offerings to include a focus on key life events such as aging and retirement readiness. Our wellbeing programs are deployed through a variety of means, including expense reimbursement benefits, wellbeing challenges and rewards, 24x7 crisis support, employee assistance resources, mental health coaching, and a library of resources accessible to participants digitally and through hosted webinars. We regularly seek input from employees through employee engagement and pulse surveys on specific issues that are intended to assess our degree of success in promoting an environment that supports our People Promise and measures our culture of compliance. Our fiscal 2024 employee engagement survey had a participation rate of approximately 84% and resulted in an engagement score that exceeded industry benchmarks. Our global wellbeing program also includes a long-standing practice of remote and flexible working arrangements and flexible paid time off in many of our geographies, which allows us to broaden our potential talent pool for employees.
•Offer Competitive Compensation and Ensure Pay Equity. We strive to ensure that our employees receive competitive, fair and transparent compensation, and progressive benefits offerings. We conduct an annual pay equity assessment of gender globally and of ethnicity in the U.S. and take action to ensure that we are paying individuals performing similar work equitably. We deploy Syndio’s workplace equity platform to fine-tune our methodology and enable regular global pay equity assessments. To align performance and stockholder interest, we base our annual incentive compensation on both business and individual performance. We maintain an employee stock purchase plan, and in recent years we have broadly expanded employee participation in equity compensation, particularly within technology roles in engineering and sales, and have increased the percentage of employees receiving equity awards from approximately 21% in fiscal 2020 to approximately 50% in fiscal 2024. We also offer comprehensive family leave, including global family leave to support employees throughout various life stages, carer’s leave, bereavement leave, parental leave that includes a minimum of 18 weeks paid time off for new mothers (including eight weeks recovery and ten weeks bonding) and ten weeks paid time off for new fathers and adoptive parents, and financial assistance for adoptive parents, and offer flexible paid time-off to more than 98% of our workforce globally. We offer meaningful retirement benefits, including a recently introduced post-retirement equity vesting benefit for long-tenured employees, and programs to promote retirement readiness among our employees. In recent years, we have enhanced employer contributions to our North America retirement plans, added our first ESG fund option for employees and, as of November 2, 2024, achieved greater than 99% participation of eligible employees in the U.S. and Canada in our defined contribution retirement plans.
•Provide Programs for Employee Recognition. We also offer rewards and recognition programs to our employees, including peer and management-initiated awards to recognize employees who achieve noteworthy accomplishments and who best exemplify our core values, as well as patent incentive and distinguished engineer awards. We believe that providing these recognition programs helps drive strong employee performance.
•Create Opportunities for Growth and Development. We focus on creating opportunities for employee growth, development, training, and education at all career stages. We provide opportunities to cultivate talent and identify candidates for new roles from within the Company and deliver early in career and new graduate networking and development programs, management and leadership development programs, coaching and mentoring programs, and support for continuing education through tuition reimbursement. We operate a leadership succession planning process that aims to develop and retain key talent and ensure business continuity for key roles. We also recently launched a program to identify individuals throughout the organization who have been identified as having high potential for future growth and development, so that this earlier in career talent can be nurtured for future leadership roles.
•Promote Community Outreach and Support. We believe it is important to give back and promote community outreach and support through corporate giving, charitable matching, and employee volunteerism in the communities in which we live and work. Through our “Ciena Cares” community program, we provide corporate matching of employee charitable donations, flexible volunteering during work time, and corporate rewards for service hours that can be donated by employees to their charity of choice. Our Digital Inclusion initiative aims to mobilize our global workforce, leverage our innovation leadership, and collaborate with customers, suppliers and other partners to help bridge the
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digital divide. Through this initiative, we have funded programs to support underserved students in communities across the globe by providing greater connectivity, access to enabling technologies and digital skills development.
•Promote a Strong Ethical Business Culture. We believe that commitments to good corporate governance and the highest ethical standards are essential to our long-term success, and we are dedicated to instilling in our employees a commitment to integrity and business ethics. We maintain a Code of Business Conduct and Ethics that sets standards of conduct for Ciena’s directors, officers and employees. All employees are required to complete training on our Code of Business Conduct and Ethics, and we conduct recurring employee affirmations with respect to our Code of Business Conduct and Ethics and periodic training and communication related to specific topics contained therein. In addition, we maintain a Corporate Compliance Committee that promotes integrity and compliance leadership throughout Ciena, and a dedicated function focused exclusively on Compliance and Ethics. We also maintain several easily accessible internal and external methods by which our employees, business partners, and investors can report concerns relating to the ethical operation of our business, including anonymously where permitted. We conduct surveys of all employees on our compliance program and culture of integrity in order to assess and strengthen our culture and practices, and received feedback from approximately 68% of our employees on these surveys in fiscal 2024.
Governmental Regulations
Environmental Matters
Environmental regulation is increasing across various jurisdictions, and we expect that our domestic and international operations may be subject to additional environmental compliance requirements, which could require us to incur additional costs. To date, our compliance actions and costs relating to environmental regulations have not resulted in a material cost or effect on our capital expenditures, earnings, or competitive position. Our business and operations are currently subject to environmental laws in various jurisdictions around the world, including the Waste Electrical and Electronic Equipment (“WEEE”) and Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (“RoHS”) regulations adopted by the EU. We are also subject to disclosure and related requirements that apply to the presence of “conflict minerals” in our products or supply chain. We seek to operate our business in compliance with applicable laws relating to the materials and content of our products and product takeback and recycling, and have programs, policies, and customer offerings that help us to address these laws.
Other Regulations
As a company with global operations, we are subject to complex foreign and U.S. laws and regulations, including trade regulations, tariffs, import and export regulations, anti-bribery and corruption laws, antitrust or competition laws, data privacy laws and regulations, such as the European Union (“EU”) General Data Protection Regulation (the “GDPR”), cybersecurity laws and regulations, and environmental regulations, among others. We have policies and procedures in place to promote compliance with these laws and regulations. To date, our compliance actions and costs relating to these laws, rules and regulations have not resulted in a material cost or effect on our capital expenditures, earnings or competitive position. Government regulations are subject to change and, accordingly, we are unable to assess the possible effect of compliance with future requirements or whether our compliance with such regulations will materially impact our business in the future. For further discussion of how government regulations may affect our business, see the related discussion in “Risk Factors – Risks Related to Intellectual Property, Litigation, Regulation and Government Policy.”
Access to SEC Reports
Our website address is www.ciena.com. We make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, available free of charge in the “Investors” section of our website as soon as reasonably practicable after we file these reports with the Securities and Exchange Commission (the “SEC”). We routinely post these reports, recent news and announcements, financial results and other important information about our business on our website at www.ciena.com. Information contained on our website is not a part of this annual report.
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Information About Our Executive Officers
The table below sets forth certain information concerning our executive officers serving as of the filing of this annual report:
| Name | Age | Position | ||||||||||||
| Gary B. Smith | 64 | President and Chief Executive Officer | ||||||||||||
| Joe Cumello | 53 | Senior Vice President and General Manager of Blue Planet | ||||||||||||
| Dino DiPerna | 63 | Senior Vice President, Global Research & Development | ||||||||||||
| Brodie Gage | 49 | Senior Vice President, Global Products & Supply Chain | ||||||||||||
| Sheela Kosaraju | 52 | Senior Vice President and General Counsel, and acting Chief People Officer | ||||||||||||
| James E. Moylan, Jr. | 73 | Senior Vice President and Chief Financial Officer | ||||||||||||
| Andrew C. Petrik | 61 | Vice President and Controller | ||||||||||||
| Jason M. Phipps | 52 | Senior Vice President, Global Customer Engagement | ||||||||||||
| David M. Rothenstein | 56 | Senior Vice President, Chief Strategy Officer and Secretary | ||||||||||||
__________
Gary B. Smith joined Ciena in 1997 and has served as President and Chief Executive Officer since May 2001. Mr. Smith has served on Ciena’s Board of Directors since October 2000. Prior to his current role, his positions with Ciena included Chief Operating Officer and Senior Vice President, Worldwide Sales. Mr. Smith previously served as Vice President of Sales and Marketing for INTELSAT and Cray Communications, Inc. Mr. Smith previously served on the boards of directors of CommVault Systems, Inc. and Avaya Inc. Mr. Smith serves on the Wake Forest University Entrepreneurship Advisory Council, and participates in initiatives with the Center for Corporate Innovation.
Joe Cumello has served as Senior Vice President and General Manager of Blue Planet, a division of Ciena, since January 2023. Mr. Cumello is responsible for managing Ciena’s Blue Planet Automation Software and Services portfolio. From November 2020 to January 2023, Mr. Cumello served as Ciena’s Senior Vice President, Global Marketing & Communications, from February 2017 to November 2020 served as Vice President, Global Marketing and Partners, and from August 2015 to February 2017 served as Vice President, Portfolio Marketing. Mr. Cumello initially joined Ciena in 2004 through our acquisition of Internet Photonics. Following that, he held executive roles at Sidera Networks and SafeNet. He then joined Cyan, Inc. in 2013, where he served as Chief Marketing Officer, before rejoining Ciena in 2015 through our acquisition of Cyan, Inc.
Dino DiPerna joined Ciena in 2010 through our acquisition of Nortel’s optical business and has served as Senior Vice President of Global Research and Development since October 2023, in which capacity he is responsible for directing the development of Ciena’s portfolio of Optical Networking, Network Control and Planning, and Routing and Switching products and solutions. From August 2013 to October 2023, Mr. DiPerna served as Ciena’s Vice President, Converged Packet Optical Research & Development, and from March 2010 to July 2013, served as Vice President, Optical Networks Research & Development. Prior to joining Ciena, Mr. DiPerna held senior engineering roles at Nortel for more than two decades.
Brodie Gage joined Ciena in 2010 through our acquisition of Nortel’s optical business and has served as Senior Vice President of Global Products and Supply Chain since October 2023, in which capacity he oversees functions including Product Line Management, Global Supply Chain, and Solutions, Engineering, and Introduction. From November 2017 to October 2023, Mr. Gage served as Ciena’s Vice President of Product Line Management and Solutions. Prior to joining Ciena, Mr. Gage held global leadership roles across engineering, marketing, business development, and product line management at Nortel.
Sheela Kosaraju joined Ciena in 2010 and has served as Senior Vice President and General Counsel since January 2023, and as acting Chief People Officer since August 2023. From August 2020 to January 2023, Ms. Kosaraju served as Vice President, Deputy General Counsel and Head of International Legal, from May 2017 to August 2020 served as Vice President, International General Counsel. Prior to joining Ciena, Ms. Kosaraju served as general counsel for two early-stage companies, HomeCom Communications and Closedloop Solutions.
James E. Moylan, Jr. joined Ciena in 2007 and has served as Senior Vice President and Chief Financial Officer since December 2007.
Andrew C. Petrik joined Ciena in 1996 and has served as Vice President, Controller since August 1997. He also served as Treasurer from August 1997 to October 2008. Effective immediately following the filing of this annual report, Mr. Petrik will
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cease to be an executive officer, but he will remain an employee of Ciena pending his previously announced April 2025 retirement.
Jason M. Phipps joined Ciena in 2002 and has served as Senior Vice President, Global Customer Engagement (formerly titled Senior Vice President, Global Sales and Marketing) since February 2017, in which capacity he is responsible for Ciena’s global sales, systems engineering, services, and partner organization. From January 2014 to February 2017, Mr. Phipps served as Vice President and General Manager, North America Sales, during which time he also oversaw the Global Partners & Channels practice, and from March 2011 to December 2013 he served as Vice President, Global Sales Operations. Mr. Phipps has also previously held a number of sales and marketing leadership positions with Ciena.
David M. Rothenstein joined Ciena in January 2001 and, after serving as acting Chief Strategy Officer since March 2022, has served as Senior Vice President and Chief Strategy Officer since January 2023. From November 2008 to January 2023, he served as Senior Vice President, General Counsel and Secretary. Prior to that, he served as Vice President and Associate General Counsel from July 2004 to October 2008 and previously as Assistant General Counsel.
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Item 1A. Risk Factors
Investing in our securities involves a high degree of risk. In addition to the other information contained in this annual report, you should consider the following risk factors before investing in our securities.
Risks Related to Our Business and Industry
Our revenue, gross margin, and operating results can fluctuate significantly from quarter to quarter and, if we are not able to secure order growth, our revenue may not reach the levels we anticipate.
Our revenue, gross margin, and results of operations can fluctuate significantly from quarter to quarter. Our budgeted expense levels are based on our intent to invest to maintain or increase our technology advantage, our visibility into customer spending plans, and our projections of future revenue and gross margin. Visibility into customer spending levels can be uncertain, spending patterns are subject to change, and reductions in our expense levels can take significant time to implement. Historically, a significant portion of our quarterly revenue was generated from customer orders received during that same quarter (which we refer to as “book to revenue”) and was therefore less predictable and subject to fluctuation due to a quarterly shortfall in orders from expectations. During fiscal 2022, however, we generated a significant backlog of customer orders as a result of supply chain constraints and, during fiscal 2023, our revenue grew as we consumed a significant portion of this backlog. Customer order volumes began to moderate in the fourth quarter of fiscal 2022, and we experienced order levels below revenue during fiscal 2023 and the first half of fiscal 2024 and, as a result, our backlog decreased. We expect our backlog to continue to reduce in fiscal 2025. As that happens, we expect our reliance upon securing quarterly book to revenue orders to grow and those orders to represent a more typical composition of our quarterly revenue over time. Our future revenue growth will depend, in part, on securing increased orders, particularly book to revenue orders.
Within these dynamics, our results for a particular period can be difficult to predict and a range of factors, including those set forth below, can materially adversely affect quarterly revenue, gross margin, and operating results:
•changes in spending levels or network deployment plans by customers, particularly with respect to our service provider and cloud provider customers;
•order timing and volume, including book to revenue orders;
•the timing of revenue recognition on sales, particularly relating to large orders;
•availability of components and manufacturing capacity;
•shipment and delivery timing, including any deferral of delivery;
•backlog levels;
•the level of competition and pricing pressure in our industry;
•the pace and impact of price erosion that we regularly encounter in our markets;
•the impact of commercial concessions or unfavorable commercial terms required to maintain incumbency or secure new opportunities with key customers;
•the mix of revenue by product segment, geography, and customer in any particular quarter;
•our level of success in achieving targeted cost reductions and improved efficiencies in our supply chain;
•our incurrence of start-up costs, including lower margin phases of projects required to support initial deployments, to gain new customers, or to enter new markets;
•our level of success in accessing new markets and obtaining new customers;
•long- and short-term changing behaviors or customer needs that impact demand for our products and services, or the products and services of our customers;
•technology-based price compression and our introduction of new platforms with improved price for performance;
•changing market, economic, and political conditions, including the impact of tariffs and other trade restrictions or efforts to withdraw from or materially modify international trade agreements;
•factors beyond our control such as natural disasters, climate change, acts of war or terrorism, and public health emergencies, such as epidemics and pandemics like the COVID-19 pandemic;
•the financial stability of our customers and suppliers;
•consolidation activity among our customers, suppliers, and competitors;
•installation service availability and readiness of customer sites;
•adverse impact of foreign exchange; and
•any potential seasonal effects in our business.
As a result of these factors and other conditions affecting our business and operating results, we believe that quarterly comparisons of our operating results are not necessarily a good indication of future performance. Quarterly fluctuations from the above and other factors may cause our revenue, gross margin, and results of operations to underperform in relation to our
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guidance, long-term financial targets or the expectations of financial analysts or investors, which may cause volatility or decreases in our stock price.
A small number of customers account for a significant portion of our revenue. The loss of one or more of these customers, or a significant reduction in their spending, could have a material adverse effect on our business and results of operations.
A significant portion of our revenue is concentrated among a small number of communications service provider and cloud provider customers. For example, our ten largest customers contributed 57.9% of our revenue for fiscal 2024 and 53.7% of our revenue for fiscal 2023. A cloud provider customer accounted for approximately 13.3% of our total revenue for fiscal 2024 and 12.8% of our total revenue for fiscal 2023, and AT&T accounted for approximately 11.8% of our total revenue for fiscal 2024 and 10.6% of our total revenue for fiscal 2023. As a result of efforts in recent years to diversify our business, the customer segments and geographies that comprise our customer base and top customers by revenue have changed. During fiscal 2024, four cloud providers were among our top ten customers. Cloud provider customers have been important contributors to our revenue through both our direct sales to them, including for data center interconnection, and their indirect impact on purchases by other network operators.
Because of our concentration of revenue with communications service providers and cloud providers, our business and results of operations can be significantly affected by market, industry, regulatory, consolidation or competitive dynamics adversely affecting these customer segments. These dynamics have in the past had an adverse effect on network spending levels by certain of our largest customers and they could materially adversely affect our business and results of operations. Consequently, our financial results and our ability to grow our business are closely correlated with the spending of a relatively small number of customers. Our business and results of operations could be materially adversely impacted by the loss of a large customer within or outside of these customer segments as well as by reductions in spending or capital expenditure budgets, changes in network deployment plans, or changes in consumption models for acquiring networking solutions by our largest customers.
We face intense competition that could impact our sales and results of operations. We expect our competitive landscape to continue to broaden as we seek to expand our addressable market and solutions portfolio.
We face intense global competition on a global basis, as we and our competitors aggressively seek to capture market share and displace incumbent equipment vendors. Our industry has historically been dominated by a small number of very large vendors, some of which have substantially greater financial, marketing and research and development resources, broader product offerings and more established relationships with service providers and other customer segments than we do. Moreover, acquisition activity among our competitors and peers has increased. For example, in 2024 Nokia announced its proposed acquisition of Infinera. Consolidation in our industry may result in competitors with greater resources, pricing flexibility, or other competitive benefits. We also compete with a number of smaller companies that provide significant competition for specific products, applications, customer segments or geographic markets. Due to the narrower focus of their efforts, these competitors may be more attractive to customers in a particular product niche or commercial opportunity.
Generally, competition in our markets is based on any one or a combination of the following factors:
•functionality, speed, capacity, scalability and performance of network solutions;
•the ability to meet business needs and drive successful outcomes, including meeting customer delivery time requirements;
•price for performance, cost per bit and total cost of ownership of network solutions;
•incumbency and strength of existing business relationships;
•technology roadmap and forward innovation capacity, including the ability to invest significant sums in research and development;
•time-to-market in delivering products and features;
•company stability and financial health;
•ability to offer comprehensive networking solutions, consisting of hardware, software and services;
•flexibility and openness of platforms, including ease of integration, interoperability and integrated management;
•ability to offer solutions that accommodate a range of different consumption models;
•operating costs and total cost of ownership;
•software and network automation capabilities;
•ability to manage challenging supply chain environments, including manufacturing and lead-time capability;
•services and support capabilities;
•security of enterprise, product development, support processes, and products;
•space requirements and power consumption of network solutions; and
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•ability to offer solutions that help customers manage the lifecycle impacts of their networks and achieve their sustainability goals.
We expect the competition in our industry to continue to broaden and to intensify, particularly as we seek to expand our addressable market opportunities, and as network operators pursue a diverse range of network strategies, sourcing practices and consumption models. An increase in the breadth or intensity of competition we face may adversely impact our business and results of operations.
Our failure to invest in the right technologies or to get an adequate return on such research and development investment could adversely affect our revenue and profitability.
The market for communications networking hardware and software solutions is characterized by rapidly evolving technologies, changes in market demand and increasing adoption of software-based networking solutions. We continually invest in research and development to sustain or enhance our solutions and to develop or acquire new technologies. There is often a lengthy period between commencing these development initiatives and bringing solutions to market. Accordingly, there is no guarantee that our new products or product enhancements will achieve market acceptance or that the timing of market adoption will be as predicted. As a general matter, there is a significant possibility that some of our development decisions, including significant expenditures on acquisitions, research and development, or investments in technologies, will not meet our expectations, and that our investment in some projects will be unprofitable. There is also a possibility that we may miss a market opportunity because we failed to invest or invested too late in a technology, product or enhancement sought by our customers or the markets into which we sell. Changes in market demand or investment priorities may also cause us to discontinue development for new products or features, which can have a disruptive effect on our relationships with customers. In addition, failure to develop new, innovative solutions that are attractive to customers and profitable to us could have a material adverse effect on our business, results of operations, financial condition and cash flows.
We have no guaranteed purchases and regularly must re-win business with existing customers.
Generally, our customer contracts do not require customers to purchase any minimum or guaranteed volumes, and we conduct sales through framework contracts under which customers place purchase orders for which they often have the right to modify or cancel. We must regularly compete for and win business with existing customers across all of our customer segments. In addition, cloud providers tend to operate on shorter procurement cycles than some of our traditional customers, which can require us to compete to re-win business with these customers more frequently than required with other customers segments. Accordingly, there is no assurance that we will maintain our incumbency with any given customer or that our revenue levels from a customer in a particular period can be achieved in future periods. Customer spending levels can be unpredictable, and our sales to any customer could significantly decrease or cease at any time.
Network equipment sales often involve lengthy sales cycles and protracted contract negotiations that may require us to agree to commercial terms or conditions that negatively affect pricing, risk allocation, payment and the timing of revenue recognition.
Our sales efforts, particularly with communications service providers, cloud providers and other large customers, often involve lengthy sales cycles. These selling efforts often involve a significant commitment of time and resources that may include extensive product testing, laboratory or network certification, network or region-specific product certification and homologation requirements for deployment in networks. Even after a customer awards its business to us or decides to purchase our solutions, the length of time before deployment can vary depending on the customer’s schedule, site readiness, the size of the network deployment, the degree of custom configuration required and other factors. Additionally, these sales also often involve protracted and sometimes difficult contract negotiations in which we may deem it necessary to agree to unfavorable contractual or commercial terms that adversely affect pricing, expose us to penalties for delays or non-performance, and require us to assume a disproportionate amount of risk. To maintain incumbency with key customers, we have in the past and may in the future be required to offer discounted pricing, make commercial concessions or offer less favorable terms as compared to our historical business arrangements with these customers. We may also be requested to provide deferred payment terms, vendor or third-party financing or other alternative purchase structures that extend the timing of payment. Alternatively, customers may insist on terms and conditions that we deem too onerous or not in our best interest, and we may be unable to reach a commercial agreement. As a result, we may incur substantial expense and devote time and resources to potential sales opportunities that never materialize or result in lower than anticipated sales and gross margin.
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Accurately matching necessary inventory levels to customer demand within the current environment is challenging, and we may incur additional costs or be required to write off significant inventory that would adversely impact our results of operations.
From the second quarter of fiscal 2021 through the third quarter of fiscal 2022, we received unprecedented orders for our products and services, during a period when the supply environment was constrained. We took a number of steps to mitigate these challenges, including extending our purchase commitments and placing non-cancellable, advanced orders with or through suppliers, particularly for long lead-time components. As of November 2, 2024, we had $1.7 billion in outstanding purchase order commitments to our contract manufacturers and component suppliers for inventory. We also expanded our manufacturing capacity and accumulated available raw materials inventory to prepare us to be able to produce finished goods more quickly as supply constraints eased for those components in shorter supply. As a result of this strategy, our inventory increased from $374.3 million at the end of fiscal 2021 to $1.1 billion at the end of fiscal 2023. While our inventory reduced to $820.4 million at the end of fiscal 2024, these inventory practices and their associated costs have had, and could in the future continue to have, an adverse impact on our cash from operations.
These inventory practices, particularly when considered in the context of our backlog, further introduce obsolescence risk that can impact our results of operations and financial condition. In addition, during fiscal 2023 and fiscal 2024, certain customers, including communications service providers and cable and multiservice operators in North America, that had earlier placed significant advanced orders, rescheduled deliveries for or cancelled a portion of such orders. Accordingly, our inventory needs for a particular period can fluctuate and be difficult to predict. If our customers were to cancel or delay orders for extended periods, inventory could become obsolete, and we could be required to write off or write down the inventory associated with those orders. In addition, if customers were to cancel or delay existing or forecasted orders for which we have significant outstanding commitments to our contract manufacturers or suppliers, we may be required to purchase inventory under these commitments that we are unable to sell. If we are required to write off or write down a significant amount of inventory, our results of operations for the applicable period would be materially adversely affected. For example, we recorded charges for excess and obsolete inventory of $77.3 million, $29.5 million and $16.2 million in fiscal 2024, 2023 and 2022, respectively, primarily related to a decrease in the forecasted demand for certain Networking Platforms products primarily sold to communications service providers. Our inability to effectively manage the matching of inventory with customer demand, particularly within any supply constrained environment, could adversely impact our results of operations and financial condition, and could result in loss of revenue, increased costs, or delays that could adversely impact customer satisfaction.
If we are unable to adapt our business and solutions offerings to the evolving consumption models of our customers, our competitive position and results of operations could be adversely affected.
Growing bandwidth demands and network operator efforts to reduce costs are resulting in a diverse range of approaches to the design and procurement of network infrastructure. We refer to these different approaches as “consumption models.” These consumption models can include: the traditional systems procurement of fully integrated solutions including acquiring hardware, software and services from the same vendor; the procurement of a fully integrated hardware solution from one vendor with the separate use of a network operator’s own software-denied network-based controller; the procurement of an integrated photonic line system with open interfaces from one vendor and the separate or “disaggregated” procurement of modem technology from a different vendor; or the development and use of published reference designs and open source specifications for the procurement of “white box” hardware to be used with open source software. In parallel, network operators are also exploring procurement alternatives for software solutions, ranging from integrated and proprietary software platforms to fully open source software. Some network operators are pursuing the deployment of smaller form factor, pluggable modem technology, particularly within switching and routing solutions, as an alternative to integrated optical networking platforms. Other network operators, including certain of our cloud provider customers, are playing a leading role in the transition to software-defined networking, the standardization of communications network solutions and the assembly of their own hardware platforms based on enabling third-party components. We believe that the potential for different approaches to the procurement of networking infrastructure will require network operators and vendors to evolve and broaden their existing solutions and commercial models over time. If we are unable to adapt our business to these new consumption models and offer attractive solutions and commercial models that meet our customers’ needs, our competitive position and results of operations could be adversely affected.
As we introduce technologies that enable us to enter into new markets, we may experience difficulty monetizing these new solutions and be exposed to increased or new forms of competition.
A key part of our strategy is to expand our addressable market into complementary and adjacent network applications by investing in new technologies, including solutions related to data center, PON, routing and switching, and automation software and services. As we do so, we expect to compete more directly with a broader range of suppliers, including IP router vendors, component vendors, software vendors, and integrators of networking technology.We have a limited history in commercializing and selling these solutions and the market and competitive landscape for them is dynamic, and it is difficult to predict important
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trends, including the potential growth, if any, of certain of these markets. If the markets relating to these solutions do not develop as we anticipate, or if we are unable to commercialize, increase market awareness of, or gain adoption of our solutions within those markets, revenue from these products may not grow, a key part of our strategy for growth would be adversely affected and our financial results may suffer.
Our go-to-market activities and the distribution of our WaveLogic coherent modem technology within the market for high-performance transceivers/modems could expose us to increased competition and poses other risks that could adversely affect our existing systems business or results of operations.
To expand our addressable market and address a range of customer consumption models, we recently entered the market for high-performance transceivers/modems. Making our critical coherent optical technology available in this manner could adversely impact the sale of products in our existing systems business. For example, our customers may choose to adopt disaggregated consumption models or third-party solutions that embed Ciena-designed optical modules instead of purchasing systems-based solutions directly from us. Accordingly, we may encounter situations where we are competing for opportunities in the market directly against a system from one of our competitors that incorporates Ciena-designed modules or other component technologies. Making this key technology available and enabling third-party sales of Ciena-designed modules may adversely affect our competitive position and increase the risk that third parties misappropriate or attempt to use our technology or related intellectual property without our authorization. These and other risks, unanticipated liabilities, or costs associated with the sales of our WaveLogic coherent technology could harm our reputation and adversely affect our business and our results of operations.
Supply chain challenges and constraints, including for semiconductor components, could adversely impact our growth, gross margins and financial results.
In the face of demand across a range of industries, global supply for certain raw materials and components, including, in particular, semiconductor, integrated circuits, and other electronic components used in most of our products, experienced substantial constraint and disruption in recent prior periods. As a result, we experienced significant component shortages, extended lead times, increased costs, and unexpected cancellation or delay of previously committed supply of key components across our supplier base. While reliability of supply has improved, extended lead times and elevated component costs could continue to adversely impact our revenue, our cost of goods sold, and our ability to reduce the cost to produce our products in a manner consistent with prior periods. It is unclear when the supply environment will fully stabilize, and there can be no assurance that we will not experience similar supply challenges or constraints in future periods. These challenges have affected, and could adversely affect, component availability, lead times and cost, which can adversely impact our revenue and have an impact on customer purchasing decisions. Supply chain challenges could also impact customer satisfaction or future business opportunities with customers, and result in increased use of cash, engineering design changes, and delays in new product introductions, each of which could adversely impact our business and financial results.
Our exposure to the credit risks of our customers and resellers may make it difficult to collect receivables and could adversely affect our revenue and operating results.
In the course of our sales to customers and resale channel partners, we may have difficulty collecting receivables, and our business and results of operations could be exposed to risks associated with uncollectible accounts. Lack of liquidity in the capital markets, macroeconomic weakness and market volatility may increase our exposure to these credit risks. Our attempts to monitor customer payment capability and to take appropriate measures to protect ourselves may not be sufficient, and it is possible that we may have to write down or write off accounts receivable. Such write-downs or write-offs could negatively affect our operating results for the period in which they occur, and, if large, could have a material adverse effect on our revenue and operating results.
We may be required to write down the value of certain significant assets, which would adversely affect our operating results.
We have a number of significant assets on our balance sheet as of November 2, 2024, the value of which can be adversely impacted by factors related to our business and operating performance, as well as factors outside of our control. As of November 2, 2024, our balance sheet includes a net deferred tax asset of $885.9 million. The value of our net deferred tax assets can be significantly impacted by changes in tax policy, changes in future tax rates, or by our tax planning strategy. If any write-downs are required, our operating results may be materially adversely affected.
As of November 2, 2024, our balance sheet also includes $444.7 million of goodwill. We test each reporting unit for impairment of goodwill on an annual basis and between annual tests, if an event occurs or circumstances change that would, more likely than not, reduce the fair value of the reporting unit below its carrying value. As of November 2, 2024, our balance sheet also includes $608.1 million in long-lived assets, which includes $165.0 million of intangible assets. Valuation of our long-lived assets requires us to make assumptions about future sales prices and sales volumes for our products. These assumptions are used to forecast future, undiscounted cash flows on which our estimates are based. If market conditions or our forecasts for our
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business or any particular operating segment change, we may be required to reassess the value of these assets. We could be required to record an impairment charge against our goodwill and long-lived assets or a valuation allowance against our deferred tax assets. Any write-down of the value of these significant assets would have the effect of decreasing our earnings or increasing our losses in such period. If we are required to take a substantial write-down or charge, our operating results would be materially adversely affected in such period.
Problems affecting the performance, interoperability, reliability or security of our products could damage our business reputation and negatively affect our results of operations.
The development and production of sophisticated hardware and software for communications network equipment is highly complex. Some of our products can be fully tested only when deployed in communications networks or when carrying traffic, and software products may contain bugs that can interfere with expected performance. As a result, undetected defects or problems affecting quality, interoperability, reliability, security and performance are often more acute for initial deployments of new products or enhancements. We have recently launched, or are in the process of launching, a number of new hardware and software offerings, including new evolutions of our WaveLogic coherent optical modem technology and new Routing and Switching platforms. Unanticipated product performance problems can relate to the design, manufacturing, installation, operation and interoperability of our products. Undetected errors can also arise as a result of defects in third-party technologies, components or software, including open source software, or manufacturing, installation or maintenance services supplied by third parties. The introduction of new and complex technologies, such as AI, can also increase security risks and the risk of defects. From time to time, we have had to replace certain components, provide software remedies or other remediation in response to defects or bugs, and we may have to do so again in the future. Such remediation costs could materially adversely impact our business and results of operations. In addition, we have encountered and may continue to encounter unanticipated security vulnerabilities relating to our technology, including as a result of the activities of our supply chain and our use of third-party software. Communications technologies, given their capability to transmit sensitive information, have frequently been the target of attacks from a range of threat actors including nation states and other malicious parties. Any actual or perceived exposure of our solutions to vulnerabilities, malicious software or cyber-attacks, as well as any product performance, reliability, security and quality problems, may result in some or all of the following effects:
•damage to our reputation, reduced demand, declining sales and order cancellations;
•increased costs to remediate defects or replace products;
•payment of liquidated damages, contractual or similar penalties, or other claims for performance failures or delays;
•write-offs of inventory or property;
•increased warranty expense or estimates resulting from higher failure rates, additional field service obligations or other rework costs related to defects;
•regulatory enforcement penalties or settlements;
•higher charges for increased inventory obsolescence;
•disruption to the operation of our network operator customers;
•reporting and other publication to customers or regulatory bodies;
•costs, liabilities and claims that may not be covered by insurance coverage or recoverable from third parties; and
•delays in introducing new products and services, recognizing revenue, or collecting accounts receivable.
These and other consequences could negatively affect our business and results of operations.
Strategic acquisitions and investments could disrupt our operations and may expose us to increased costs and unexpected liabilities.
From time to time, we acquire or make investments in other technology companies, or enter into other strategic relationships, to expand the markets we address, diversify our customer base or acquire, or accelerate the development of, technology or products. To do so, we may use cash, issue equity that could dilute our current stockholders, or incur debt or assume indebtedness. Strategic transactions can involve numerous additional risks, including:
•failure to consummate or delay in consummating such transactions;
•failure to achieve the anticipated transaction benefits or the projected financial results and operational synergies;
•greater than expected acquisition and integration costs;
•disruption due to the integration and rationalization of operations, products, technologies and personnel;
•diversion of management attention;
•difficulty completing projects of the acquired company and costs related to in-process projects;
•difficulty managing customer transitions or entering into new markets;
•the loss of key employees;
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•disruption or termination of business relationships with customers, suppliers, vendors, landlords, licensors and other business partners;
•ineffective internal controls over financial reporting;
•dependence on unfamiliar suppliers or manufacturers;
•assumption of or exposure to unanticipated liabilities, including intellectual property infringement or other legal claims; and
•adverse tax or accounting impact.
As a result of these and other risks, our acquisitions, investments or strategic transactions may not realize the intended benefits and may ultimately have a negative impact on our business, results of operation and financial condition.
Emerging issues related to the development and use of AI could give rise to legal or regulatory action, damage our reputation, or otherwise materially harm of our business.
Our development and use of AI technology in our products and operations remains in the early phases. While we aim to develop and use AI responsibly and attempt to mitigate ethical and legal issues presented by its use, we may ultimately be unsuccessful in identifying or resolving issues before they arise. AI technologies are complex and rapidly evolving, and the technologies that we develop or use may ultimately be flawed. Moreover, AI technology is subject to rapidly evolving domestic and international laws and regulations, which could impose significant costs and obligations on the Company. For example, in 2023 the U.S. government issued an executive order on safe, secure and trustworthy AI, and the EU’s Artificial Intelligence Act, which establishes EU-wide rules on data quality, transparency, human oversight and accountability with respect to the use of AI, was enacted in August 2024. Emerging regulations may also pertain to data privacy, data protection, and the ethical use of AI, as well as clarifying intellectual property considerations. Our use of AI could give rise to legal or regulatory action or increased scrutiny or liability, and maydamage our reputation or otherwise materially harm our business.
Risks Relating to the Macroeconomic Environment and our Global Presence
Our business and operating results could be adversely affected by unfavorable changes in macroeconomic and market conditions and any reduction in the level of customer spending in response.
Our business and operating results depend significantly on general market and economic conditions. Market volatility and weakness in the regions in which we operate have previously resulted in sustained periods of decreased demand that have adversely affected our operating results. The current global macroeconomic environment is volatile and continues to be significantly and adversely impacted by inflation, geopolitical trends impacting global supply chains, and a dynamic environment for customer spending. Market conditions could also be adversely affected by a variety of political, economic or other factors in the United States and international markets that could in turn adversely affect spending levels of our customers and their end users, and could create volatility or deteriorating conditions in the markets in which we operate. Due to our concentration of revenue in the United States, we would expect to incur a more significant impact from any adverse change in the capital spending environment or market weakness in the United States. Macroeconomic uncertainty or weakness could result in:
•reductions in customer spending and delay, deferral or cancellation of network infrastructure initiatives;
•increased competition for fewer network projects and sales opportunities;
•increased pricing pressure that may adversely affect revenue, gross margin and profitability;
•decreased ability to forecast operating results and make decisions about budgeting, planning and future investments;
•increased overhead and production costs as a percentage of revenue;
•tightening of credit markets needed to fund capital expenditures by us or our customers;
•customer financial difficulty, including order cancellations, delivery deferrals, longer collection cycles and difficulties collecting accounts receivable or write-offs of receivables;
•business and financial difficulties faced by our suppliers or other partners, including impacts to material costs, sales, liquidity levels, ability to continue investing in their businesses, ability to import or export goods, ability to meet development commitments and manufacturing capability; and
•increased risk of charges relating to excess and obsolete inventories and the write-off of other intangible assets.
Reductions in customer spending in response to unfavorable or uncertain macroeconomic and market conditions, globally or in a particular region where we operate, would adversely affect our business, results of operations and financial condition.
The international scale of our sales and operations exposes us to additional risk and expense that could adversely affect our results of operations.
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We market, sell and service our products globally, maintain personnel in numerous countries, and rely on a global supply chain for sourcing important components and manufacturing our products. Our international sales and operations are subject to inherent risks, including:
•adverse social, political and economic conditions, such as continued inflation and rising interest rates;
•effects of adverse changes in currency exchange rates;
•greater difficulty in collecting accounts receivable and longer collection periods;
•difficulty and cost of staffing and managing foreign operations;
•higher incidence and risk of corruption or unethical business practices;
•less protection for intellectual property rights in some countries;
•tax and customs changes that adversely impact our global sourcing strategy, manufacturing practices, transfer-pricing, or competitiveness of our products for global sales;
•compliance with certain testing, homologation or customization of products to conform to local standards;
•significant changes to free trade agreements, trade protection measures, tariffs and other import measures, such as those proposed by the incoming U.S. administration, export compliance, economic sanctions measures, domestic preference procurement requirements, qualification to transact business and additional regulatory requirements;
•natural disasters and severe weather events (including related to climate change), acts of war or terrorism, and public health emergencies or pandemics; and
•uncertain economic, legal and geopolitical conditions in Europe, Asia and other regions where we do business, including, for example, as a result of continued impacts of Brexit on the relationship between the United Kingdom and Europe, the ongoing military conflicts between both Russia and Ukraine and Israel and groups based in surrounding regions, including related maritime impacts in the Red Sea, and changes in China-Taiwan and U.S.-China relations.
We utilize a sourcing strategy that emphasizes global procurement of materials, and that has direct or indirect dependencies upon a number of vendors with operations in the Asia-Pacific region. Our international operations are subject to complex foreign and U.S. laws and regulations, including trade regulations, anti-bribery and corruption laws, antitrust or competition laws, and data privacy laws, such as the GDPR, among others. In particular, recent years have seen a substantial increase in anti-bribery law enforcement activity by U.S. regulators, and we currently operate and seek to operate in many parts of the world that are recognized or perceived as having greater potential for corruption. Violations of any of these laws and regulations could result in fines and penalties, criminal sanctions against us or our employees, prohibitions on the conduct of our business and on our ability to offer our products and services in certain geographies, and significant harm to our business reputation. Our policies and procedures to promote compliance with these laws and regulations and, to mitigate these risks, may not protect us from all acts committed by our employees or third-party vendors, including contractors, agents and services partners or from the misinterpretation or changing application of such laws. Additionally, the costs of complying with these laws (including the costs of investigations, auditing and monitoring) could adversely affect our current or future business.
Our business, operations and financial results could also be adversely impacted by instability, disruption or destruction in a significant geographic region, including as a result of war, terrorism, riot, civil insurrection or social unrest; natural or man-made disasters; severe weather events; public health emergencies; or economic instability or weakness. For example, in February 2022, armed conflict escalated between Russia and Ukraine. The United States and certain other countries have imposed sanctions on Russia (and Belarus for its support of Russia) and could impose further sanctions, which could damage or disrupt international commerce and the global economy. We are complying with a broad range of U.S. and international sanctions and export control requirements imposed on Russia and, in March 2022, we announced our decision to suspend our business operations in Russia. Although this decision did not materially impact our results of operations for fiscal 2022 or 2023 due to the limited amount of business that we conducted in Russia historically, it is not possible to predict the broader or longer-term consequences of this conflict, which could include further sanctions, export control and import restrictions, embargoes, regional instability, geopolitical shifts and adverse effects on macroeconomic conditions, security conditions, currency exchange rates and financial markets. In addition, the conflict between Israel and groups based in surrounding regions, and related regional impacts have resulted in damage to submarine cables in the Red Sea and disruption of networks using those cables, which could impact future projects by our customers in this region. Such geopolitical instability and uncertainty could have a negative impact on our ability to sell to, ship products to, collect payments from, and support customers in certain countries and regions based on trade restrictions, sanctions, embargoes and export control law restrictions, and logistics restrictions including closures of air space, and could increase the costs, risks and adverse impacts from supply chain and logistics challenges.
The success of our International sales and operations will depend, in large part, on our ability to anticipate and manage these risks effectively. Our failure to manage any of these risks could harm our international operations, reduce our international sales, and could give rise to liabilities, costs or other business difficulties that could adversely affect our operations and financial results.
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Efforts to increase our sales and capture market share in targeted international markets may be unsuccessful.
Part of our business and growth strategy is to expand our geographic reach and increase market share in international markets through a combination of direct and indirect sales resources. We are also aggressively pursuing opportunities with service provider customers in additional geographies, including in Africa, the Middle East, and South Asia. This diversification of our markets and customer base has been a significant component of the growth of our business in recent years. Our efforts to continue to increase our sales and capture market share in international markets may ultimately be unsuccessful or may adversely impact our financial results, including our gross margin. Our failure to continue to increase our sales and market share in international markets could limit our growth and could harm our results of operations.
We may be adversely affected by fluctuations in currency exchange rates.
As a company with global operations, we face exposure to movements in foreign currency exchange rates. Due to our global presence, a portion of our revenue, operating expense and assets and liabilities are non-U.S. Dollar denominated and therefore subject to foreign currency fluctuation. We face exposure to currency exchange rates as a result of the growth in our non-U.S. Dollar denominated operating expense in Canada, Europe, Asia and Latin America. An increase in the value of the U.S. Dollar could increase the real cost to our customers of our products in those markets outside the United States where we sell in U.S. Dollars, and a weakened U.S. Dollar could increase the cost of local operating expenses and procurement of materials or service that we purchase in foreign currencies. From time to time, we hedge against currency exposure associated with anticipated foreign currency cash flows or assets and liabilities denominated in foreign currency. Such attempts to offset the impact of currency fluctuations are costly, and we cannot hedge against all foreign exchange rate volatility. Losses associated with these hedging instruments and the adverse effect of foreign currency exchange rate fluctuation may negatively affect our results of operations.
Risks Related to Our Operations and Reliance on Third Parties
We may experience delays in the development and production of our products that may negatively affect our competitive position and business.
Our hardware and software networking solutions, including our WaveLogic modem technology and the components thereof, are based on complex technology, and we can experience unanticipated delays in developing, manufacturing and introducing these solutions to market. Delays in product development efforts by us or our third-party partners may affect our reputation with customers, affect our ability to capture market opportunities and impact the timing and level of demand for our products. We are regularly introducing new products and enhancements and each step in their development cycle presents serious risks of failure, rework or delay, any one of which could adversely affect the cost-effectiveness and timely development of our products. Reworks, in particular, if required, can be a very expensive and time-consuming effort. We may encounter delays relating to engineering development activities and software, design, sourcing and manufacture of critical components, and the development of prototypes. The development of new technologies may increase the complexity of supply chain management or require the acquisition, licensing or interworking with the technology of third parties. In addition, intellectual property disputes, failure of critical design elements and other execution risks may delay or even prevent the release of these products. If we do not successfully develop or produce products in a timely manner, our competitive position may suffer, and our business, financial condition and results of operations could be harmed.
We rely on third-party contract manufacturers, and our business and results of operations may be adversely affected by risks associated with their businesses, financial condition, and the geographies in which they operate.
We rely on third-party contract manufacturers, including those with facilities in Canada, Mexico, Thailand, and the United States, to perform a substantial portion of our supply chain activities, including component sourcing, manufacturing, product testing and quality, and fulfillment and logistics relating to the distribution and support of our products. There are a number of risks associated with our dependence on contract manufacturers, including:
•reduced control over delivery schedules and planning;
•reliance on the quality assurance procedures of third parties;
•potential uncertainty regarding manufacturing yields and costs;
•availability of manufacturing capability and capacity, particularly during periods of high demand;
•the impact of wage inflation and labor shortages on cost;
•the impact of supply chain constraints on our contract manufacturers’ costs and business models;
•risks associated with the ability of our contract manufacturers to perform to our manufacturing needs;
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•the impact of commercial or contractual disputes on our relationships with or the performance of our manufacturing partners;
•risks and uncertainties associated with the locations or countries where our products are manufactured, including disruption of manufacturing, logistics, or transit to final destinations caused by factors such as natural and man-made disasters, severe weather events, information technology system failures, commercial disputes, economic, business, labor, political, social, geopolitical, environmental, trade, or public health;
•risks associated with data security incidents, including disruptions, interdiction, or cyber-attacks targeting or affecting our third-party manufacturers, including manufacturing disruptions or unauthorized access to or acquisition of information;
•changes in law or policy governing tax, trade, manufacturing, development, and investment in the countries where we currently manufacture our products, including the World Trade Organization Information Technology Agreement or other free trade agreements;
•inventory liability for excess and obsolete supply;
•limited warranties provided to us; and
•potential misappropriation of our intellectual property.
In addition, a range of physical and transitional risks related to climate change in the regions in which our contract manufacturers operate could have short-term or long-term adverse impacts on our business. Physical impacts could include severe weather events occurring more frequently or with more intensity, or changing weather patterns. This could impact the cost and availability of raw materials and other product inputs, disrupt our supply chain operations, manufacturing and distribution of our products, result in facilities closures, repairs or retrofitting, that could have an adverse impact on our business, operating results, and financial condition.
If our contract manufacturers are unable or unwilling to manufacture our products or components of our products to our expected level of performance, or if we experience a disruption in manufacturing, we may be required to identify and qualify alternative manufacturers. The process of qualifying a new contract manufacturer and commencing volume production is complex and time-consuming, and such transitions can be disruptive and costly. There can be no assurance that such transitions would not result in significant business disruption, including shipment delays or inability to meet our customer requirements that impact our revenue. These and other risks associated with our contract manufacturers’ businesses, financial condition, and the geographies in which they operate could impair our ability to fulfill orders, harm our sales and impact our reputation with customers in ways that adversely impact our business and results of operations.
Our reliance on third-party component suppliers, including sole and limited source suppliers, exposes our business to additional risk, including risk relating to our suppliers’ businesses and financial position and risks arising as a result of geopolitical events, and could limit our sales, increase our costs and harm our customer relationships.
We maintain a global sourcing strategy and depend on a diverse set of third-party suppliers in international markets that comprise our supply chain. We rely on these third parties for activities relating to product design, development and support, and in the sourcing of products, components, subcomponents and related raw materials. Our products include optical and electronic components for which reliable, high-volume supply is often available only from sole or limited sources. We do not have any guarantees of supply from our third-party suppliers, and in certain cases we have limited contractual arrangements or are relying on standard purchase orders. In recent periods, delays and lower-than-expected deliveries from a small group of our suppliers of integrated circuit components that are essential for delivering finished products had a disproportionate, adverse impact on our results of operations. There is no assurance that we will be able to secure the components or subsystems that we require, in sufficient quantity and quality, within our preferred timelines and on reasonable terms.
The loss of a source of supply, or lack of sufficient availability of key components, could require that we locate an alternate source or redesign our products, either of which could result in business interruption and increased costs. Increases in market demand or scarcity of raw materials or components have resulted, and may in the future result, in shortages in availability of important components for our solutions, supply allocation challenges, deployment delays and increased cost, lead times and delivery cycle timelines. There are a number of significant technology trends or developments underway or emerging – including AI, the IoT, autonomous vehicles, and advances in mobile communications such as 5G technologies – that have previously resulted in, and we believe will continue to result in, increased market demand for key raw materials or components upon which we rely.
A number of our key technology vendors rely upon sales to customers, including our competitors, in China for a material portion of their revenue. There have been a number of significant geopolitical events, including trade tensions and regulatory actions, involving the governments of the United States and China. In May 2019, the U.S. Department of Commerce amended the EAR by adding Huawei and certain affiliates to the “Entity List” for actions contrary to the national security and foreign
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policy interests of the United States, imposing significant new restrictions on export, reexport and transfer of U.S. regulated technologies and products to Huawei. In August 2020, the U.S. Department of Commerce added additional Huawei affiliates to the Entity List, confirmed the expiration of a temporary general license applicable to Huawei and amended the foreign direct product rule in a manner that represents a significant expansion of its application to Huawei. More recently, the U.S. Department of Commerce has expanded the scope of the EAR by amending the foreign direct product rule, resulting in more products made outside the United States becoming subject to the EAR for purposes of exports or transfers to certain countries and/or parties, which increases compliance risks and licensing obligations for companies dealing with such products. Several of our third-party component suppliers, including certain sole and limited source suppliers, sell products to Huawei and, in some cases, Huawei is a significant customer for such suppliers. At this time, there can be no assurance regarding the scope or duration of these restrictions, including the foreign direct product rule, or further actions imposed on Huawei and other companies located and operating in China, and any future impact on our suppliers. Any continued restriction on our suppliers’ ability to make sales to Huawei and other companies may adversely impact their businesses and financial position. In addition, China is in the midst of executing a five-year plan to improve China’s capabilities in the optoelectronics industry. There can be no assurance that this initiative, or similar efforts in China such as the Made in China 2025 initiatives (and actions taken by the U.S. government in response to such efforts), will not have an adverse impact on the business of our suppliers or our access to necessary components. These and similar industry, market and regulatory disruptions affecting our suppliers could, in turn, expose our business to loss or lack of supply or discontinuation of components that could result in lost revenue, additional product costs, increased lead times and deployment delays that could harm our business and customer relationships. Our business and results of operations would be negatively affected if we were to experience any significant disruption or difficulties with key suppliers affecting the price, quality, availability or timely delivery of required components.
We rely on third-party resellers, distributors and service partners, and our failure to manage these relationships effectively could adversely affect our business, results of operations, and relationships with our customers.
To complement our global field resources, we rely on a number of third-party resellers, distributors and sales agents, both domestic and international, and we believe that these relationships are an important part of our business. There can be no assurance that we will successfully identify and qualify these resources or that we will realize the expected benefits of these sales relationships. We also rely on a number of third-party service partners, both domestic and international, to complement our global service and support resources. We rely on these partners for certain installation, maintenance and support functions and may increasingly use them for an expanding range of design, construction, integration and operation of networks, to address customer requirements. Certain service partners may provide similar services for other companies, including our competitors. We may not be able to manage our relationships with our service partners effectively, and we cannot be certain that they will be able to perform necessary services in the manner or time required, that we will be able to maintain the continuity of their services, or that they will adhere to ethical business practices. We may also be exposed to a number of risks or challenges relating to the performance of our service partners, including:
•delays in recognizing revenue;
•liability for injuries to persons, damage to property or other claims relating to the actions or omissions of our service partners;
•our services revenue and gross margin may be adversely affected; and
•our relationships with customers could suffer.
We must assess and qualify distribution partners, third-party resellers, sales agents and service partners in order to ensure their understanding of, and willingness and ability to adhere to, our standards of conduct and business ethics. Certain third-party business partners may not have the same operational history, financial resources and scale that we have. We may be held responsible or liable for the actions or omissions of these third parties or their violations of law. If we do not effectively manage our relationships with these third-party business partners, our business, financial results and relationships with customers could be adversely affected.
We may be exposed to unanticipated risks and additional obligations in connection with our resale of complementary products or technology of other companies.
We have entered into agreements with strategic supply partners that permit us to distribute their products or technology. We may rely on these relationships to add complementary products or technologies, to diversify our product portfolio, or to address a particular customer or geographic market. We may enter into additional OEM, resale or similar strategic arrangements in the future. We may incur unanticipated costs or difficulties relating to our resale of third-party products. Our third-party relationships could expose us to risks associated with the business, financial condition, intellectual property rights and supply chain continuity of such partners, as well as delays in their development, manufacturing or delivery of products or technology. We may also be required by customers to assume warranty, indemnity, service and other commercial obligations, including potential liability to customers. These liabilities could exceed the commitments, if any, made to us by our technology partners.
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Some of our strategic supply partners are relatively small companies with limited financial resources. If they are unable to satisfy their obligations to us or our customers, we may have to expend our own resources to satisfy these obligations. Exposure to these risks could harm our reputation with key customers and could negatively affect our business and our results of operations.
Growth of our business is dependent on the proper functioning and scalability of our internal business processes and information systems. Adoption of new systems, modifications or interruptions of services may disrupt our business, processes and internal controls.
We rely on internal business processes and information systems to support key business functions, and the efficient operation of these processes and systems is critical to managing our business. Our business processes and information systems must be sufficiently scalable to support the growth of our business and may require modifications or upgrades that expose us to operational risks. We regularly pursue initiatives to transform and optimize our business operations through the reengineering of certain processes, investment in automation, and engagement of strategic partners or resources to assist with certain business functions. For example, to enhance operational efficiency and modernize our supply chain operations, we are pursuing a number of digital technology transformation efforts, including advanced analytics, automation, and other digital solutions. In addition, our business may begin to operate in new markets and through new supply chain models that may require different internal processes to manage. These changes require a significant investment of capital and human resources and may be costly and disruptive to our operations, and they could impose substantial demands on management time. These changes may also require changes in our information systems, modification of internal control procedures and significant training of employees or third-party resources. Our IT systems, and those of third-party IT providers or business partners, may also be vulnerable to damage or disruption caused by circumstances beyond our control, including catastrophic events, power anomalies or outages, natural disasters, severe weather events, or impacts of climate change, data security related incidents, and computer system or network failures. There can be no assurance that our business systems or those of our third-party business partners will not be subject to similar incidents, exposing us to significant cost, reputational harm and disruption or damage to our business.
Restructuring activities could disrupt our business and affect our results of operations.
We have taken steps, including reductions in force, office closures, and internal reorganizations to reduce the cost of our operations, improve efficiencies, or realign our organization and staffing to better match our market opportunities and our technology development initiatives. We may take similar steps in the future as we seek to realize operating synergies, to achieve our target operating model and profitability objectives, or to reflect more closely changes in the strategic direction of our business or the evolution of our site strategy and workplace. These changes could be disruptive to our business, including our research and development efforts, and could result in significant expense, including accounting charges for inventory and technology-related write-offs, workforce reduction costs and charges relating to consolidation of excess facilities. Substantial expense or charges resulting from restructuring activities could adversely affect our results of operations and use of cash in those periods in which we undertake such actions.
If we are unable to attract and retain qualified personnel, we may be unable to manage our business effectively.
Our future success and ability to maintain a technology leadership position depend upon our ability to recruit and retain the services of executive, engineering, sales and marketing, and support personnel. Competition to attract and retain highly skilled technical, engineering and other personnel with experience in our industry is intense, and our employees have been the subject of targeted hiring by our competitors. Competition is particularly intense in certain jurisdictions where we have research and development centers, including the Silicon Valley area of northern California, and for engineering talent generally. The lasting impact of the COVID-19 pandemic has resulted in higher employee costs, increased attrition, and significant shifts in the labor market and employee expectations. We may experience difficulty retaining and motivating existing employees and attracting qualified personnel to fill key positions. In addition, labor shortages and employee mobility may make it more difficult to hire and retain employees. None of our executive officers is bound by an employment agreement for any specific term. Because we rely on equity awards as a significant component of compensation, particularly for our executive team, a lack of positive performance in our stock price, reduced grant levels, or changes to our compensation program may adversely affect our ability to attract and retain key employees. If we are unable to attract and retain qualified personnel, we may be unable to manage our business effectively, and our operations and financial results could suffer.
In addition, a number of our team members are foreign nationals who rely on visas or work-entry permits in order to legally work in the United States and other countries. Changes in government policy and global events, such as pandemics, may interfere with our ability to hire or retain personnel who require these visas or entry permits. Our business may be materially adversely affected if legislative or administrative changes to immigration or visa laws and regulations impair our hiring processes or projects involving personnel who are not citizens of the country where the work is to be performed. For example, potential changes in U.S. immigration policy and regulations, including potential changes following the recent U.S. federal elections, such as the implementation of restrictive interpretations by the U.S. Citizenship and Immigration Services of
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regulatory requirements for H-1B, L-1 and other U.S. work visa categories, may also adversely affect our ability to hire or retain key talent, which could have an impact on our business operations.
Risks Related to Intellectual Property, Litigation, Regulation and Government Policy
Our intellectual property rights may be difficult and costly to enforce.
We generally rely on a combination of patents, copyrights, trademarks and trade secret laws to establish and maintain proprietary rights in our products and technology. Although we own numerous patents, and other patent applications are currently pending, there can be no assurance that any of these patents or other proprietary rights will not be challenged, invalidated or circumvented, or that our rights will provide us with any competitive advantage. In addition, there can be no assurance that patents will be issued for our pending applications or that claims allowed on any patents will be sufficiently broad to protect our technology. Further, the laws of some foreign countries may not protect our proprietary rights to the same extent as do the laws of the United States.
We are subject to the risk that third parties may attempt to access, divert or use our intellectual property without authorization. We are also vulnerable to third parties who illegally distribute or sell counterfeit, stolen, or unfit versions of our products, which could have a negative impact on our reputation and business. Protecting against the unauthorized use of our products, technology and other proprietary rights is difficult, time-consuming and expensive, and we cannot be certain that the steps that we are taking will detect, prevent or minimize the risks of such unauthorized use. In addition, our intellectual property strategy must continually evolve to protect our proprietary rights in new solutions, including our software solutions. Litigation may be necessary to enforce or defend our intellectual property rights or to determine the validity or scope of the proprietary rights of others. Such litigation could result in substantial cost and diversion of management time and resources, and there can be no assurance that we will obtain a successful result. Any inability to protect and enforce our intellectual property rights could harm our ability to compete effectively.
We may incur significant costs in response to claims by others that we infringe upon their intellectual property rights.
From time to time third parties may assert claims or initiate litigation or other proceedings related to patent, copyright, trademark and other intellectual property rights to technologies and related standards that are relevant to our business. We have been subject to several claims related to patent infringement, and we have been requested to indemnify customers pursuant to contractual indemnity obligations relating to infringement claims made by third parties. The rate of infringement assertions by patent assertion entities remains high, particularly in the United States. Generally, these patent owners neither manufacture nor use the patented invention directly, and they seek to derive value from their ownership solely through royalties from patent licensing programs.
We could be adversely affected by litigation, other proceedings or claims against us, as well as claims against our manufacturers, suppliers or customers, alleging infringement of third-party proprietary rights by our products and technology, or components thereof. Regardless of the merit of these claims, they can be time-consuming, divert the time and attention of our technical and management personnel, and result in costly litigation or otherwise require us to incur substantial costs, including legal fees. These claims, if successful, could require us to:
•pay substantial damages or royalties;
•comply with an injunction or other court order that could prevent us from offering certain of our products;
•seek a license for the use of certain intellectual property, which may not be available on commercially reasonable terms or at all;
•develop non-infringing technology or modify certain products, services, or features, which could require significant effort and expense and ultimately may not be successful; and
•indemnify our customers or other third parties pursuant to contractual obligations to hold them harmless or pay expenses or damages on their behalf.
Any of these events could adversely affect our business, results of operations and financial condition. Our exposure to risks associated with the use of intellectual property may increase as a result of acquisitions, as we would have a lower level of visibility into the development process with respect to the acquired technology and the steps taken to safeguard against the risks of infringing the rights of third parties.
Our products incorporate software and other technology under license from third parties, and our business would be adversely affected if this technology were no longer available to us on commercially reasonable terms.
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We integrate third-party software and other technology into our operating system, network management, and intelligent automation software and other products. As a result, we may be required to license certain software or technology from third parties, including competitors. Licenses for software or other technology may not be available or may not continue to be available to us on commercially reasonable terms. Failure to obtain or maintain such licenses or other third-party intellectual property rights could affect our development efforts and market opportunities, or could require us to re-engineer our products or to obtain alternate technologies. Third-party licensors may insist on unreasonable financial or other terms in connection with our use of such technology. Our failure to comply with the terms of any license may result in our inability to continue to use such license, which may result in significant costs, harm our market opportunities and require us to obtain or develop a substitute technology.
Some of our solutions, including our operating system software, Platform Software, and Blue Planet Automation Software, utilize elements of open source or publicly available software. As network operators seek to enhance programmability and automation of networks, we expect that we and other communications networking solutions vendors will increasingly contribute to and use technology or open source software developed by standards setting bodies or other industry forums that seek to promote the integration of network layers and functions. The terms of such licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our products. This increases our risks associated with our use of such software and may require us to seek licenses from third parties, to re-engineer our products, or to discontinue the sale of such solutions. Difficulty obtaining and maintaining technology licenses with third parties may disrupt development of our products, increase our costs and adversely affect our business.
Data security breaches and cyber-attacks targeting our enterprise technology environment and assets could compromise our intellectual property, technology or other sensitive information and could cause significant damage to our business, reputation and operational capacity.
In the ordinary course of our business, our network environment and assets, and the networks and assets of our third-party business partners, including our supply chain and other vendors, maintain certain information that is confidential, regulated, proprietary or otherwise sensitive in nature to our business. This information may include intellectual property and product information, personal data, financial information and other confidential business information relating to us and our employees, customers, suppliers and other business partners. The frequency, sophistication and unpredictability of cybersecurity events globally have increased, and can be more acute during times of geopolitical tension or instability between countries. In addition, companies in the technology industry, and in particular, manufacturers of networking and communications products, have been increasingly subjected to a wide variety of data security incidents, including cyber-attacks, attacks against products, and other attempts to gain unauthorized access to network assets, infrastructure or sensitive information. Our network systems, devices, storage and other business applications, and those that we rely on, and that are maintained by our third-party providers, have been in the past, and may be in the future, subjected to security incidents including attack, exploitation, intrusion, disruption and other malfeasance or attempts to gain unauthorized access or conduct other unauthorized activities. Further, our network systems, devices, storage and other business applications may be targeted for data security incidents as a vicarious method to target our customers. Such data security incidents may be caused by malice or negligence from either third-party or internal actors. These threats arise from actions by nation states, independent hackers, hacktivist groups, organized cybercrime entities, and other third parties, as well as from malicious actors from within or supporting our organization. Further, evolving technologies, including AI, pose new threats. In some cases, it is difficult to anticipate, detect or identify indicators of such incidents and assess the damage caused thereby. If an actual or perceived data security incident affects our network or any of our third-party providers’ networks, we could incur significant costs, our technology and operations could be impacted, our customers and other stakeholders and/or their network environments could be impacted, our reputation could be harmed, and we may become involved in litigation, including with respect to allegations of breach of contract. We may also be subject to increased regulatory oversight, including governmental investigations, enforcement actions, and regulatory fines. We could also experience delays in reporting our financial results, and we may lose revenue and profits as a result of our inability to timely produce, distribute, invoice, and collect payments for our products and services. Additionally, a data security incident may result in significant remediation expenses and increased cybersecurity protection and insurance costs.
While we work to safeguard our enterprise network systems and products and to diligence the security of our third-party providers to mitigate these potential risks, including through information security policies, employee awareness and training, and other technical, procedural and administrative controls, there is no assurance that such actions will be sufficient to prevent future data security incidents or insider threats. We have been subjected in the past, and expect to be subjected in the future, to a range of incidents including phishing, emails purporting to come from a company executive or vendor seeking payment requests, malware, and communications from look-alike corporate domains, as well as security-related risks created by malicious internal actors internally and our use of third-party software and services. We have also been subject to unauthorized access and exfiltration of confidential data as a result of the exploitation of vulnerabilities involving our use of third-party applications. While these types of incidents to which we have been subjected have not had a material effect on our business, technology,
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operations or our network security to date, future data security incidents could compromise material confidential or otherwise protected information, seize, destroy or corrupt data, impact our customers’ data or systems through attacks on our products in our customers’ environments, or otherwise disrupt our operations or impact our customers or other stakeholders. We and our network environment may also be subject in the future to ransomware attacks, nation-state cyber attacks or other types of cyber attacks. A failure to promptly disclose such material incidents as required by law may result in additional financial or regulatory consequences. We have incurred, and will continue to incur, expenses to comply with cybersecurity, privacy, and data protection standards and protocols imposed by law, regulation, industry standards and contractual obligations. Increased regulation of data collection, use and retention practices, and product security regulations, including self-regulation and industry standards, changes in existing laws and regulations, enactment of new laws and regulations, increased enforcement activity, and changes in interpretation of laws, could increase our cost of compliance and operation. And while we may be entitled to damages if our third-party providers fail to satisfy their security-related obligations to us, any award may be insufficient to cover our damages, or we may be unable to recover such award. While we have purchased cybersecurity insurance, there are no assurances that the coverage would be adequate in relation to any incurred losses or not subject to any exclusions. Moreover, as cyber-attacks increase in frequency and magnitude, we may be unable to obtain cybersecurity insurance in amounts and on terms we view as adequate for our operations.
We are a party to legal proceedings, investigations and other claims or disputes, which are costly to defend and, if determined adversely to us, could require us to pay fines or damages, undertake remedial measures, or prevent us from taking certain actions, any of which could adversely affect our business.
In the course of our business, we are, and in the future may be, a party to legal proceedings, investigations and other claims or disputes, which have related and may relate to subjects including commercial transactions, intellectual property, securities, employee relations, or compliance with applicable laws and regulations. Legal proceedings and investigations are inherently uncertain, and we cannot predict their duration, scope, outcome or consequences. There can be no assurance that these or any such matters that have been or may in the future be brought against us will be resolved favorably. In connection with any government investigations, in the event the government takes action against us or the parties resolve or settle the matter, we may be required to pay substantial fines or civil and criminal penalties and/or be subject to equitable remedies, including disgorgement or injunctive relief. Other legal or regulatory proceedings, including lawsuits filed by private litigants, may also follow as a consequence. These matters are likely to be expensive and time-consuming to defend, settle and/or resolve, and may require us to implement certain remedial measures that could prove costly or disruptive to our business and operations. They may also cause damage to our business reputation. The unfavorable resolution of one or more of these matters could have a material adverse effect on our business, results of operations, financial condition or cash flows.
Changes in trade policy, including the imposition of tariffs and other import measures, increased export control, sanctions and investment restrictions, and efforts to withdraw from or materially modify international trade agreements, as well as other regulatory efforts impacting the import and sale of foreign equipment, may adversely affect our business, operations and financial condition.
The United States and various foreign governments have established certain trade and tariff requirements under which we have implemented a global approach to the sourcing and manufacture of our products, as well as distribution and fulfillment to customers around the world. From time to time, the U.S. government has indicated a willingness to revise, renegotiate, or terminate various existing multilateral trade agreements and to impose new taxes and restrictions on certain goods imported into the U.S. Because we rely on a global sourcing strategy and third-party contract manufacturers in markets outside of the U.S. to perform substantially all of the manufacturing of our products, such steps, if adopted, could adversely impact our business and operations, increase our costs, and make our products less competitive in the U.S. and other markets.
For example, our supply chain includes certain direct and indirect suppliers based in China who supply goods to us, our manufacturers, or our third-party suppliers. Recently, there have been a number of significant geopolitical events, including trade tensions and regulatory actions, involving the governments of the United States and China. The U.S. government has raised tariffs, and imposed new tariffs, on a wide range of imports of Chinese products, including component elements of our solutions and certain finished goods products that we sell. For example, U.S. tariff policy involving imports from China was subject to a lengthy, now-completed review by the U.S. government in 2023 and the first three quarters of 2024, and the incoming U.S. administration has announced an intent to impose an additional 10% tariff on all imports from China. The U.S. government has also introduced broad new restrictions on imports from China allegedly manufactured with forced labor, and the EU and the UK have recently adopted similar restrictions. China has retaliated by raising tariffs, and imposing new tariffs, on certain exports of U.S. goods to China, introducing blocking measures to restrict the ability of domestic companies to comply with U.S. trade restrictions, and recently prohibiting the export of certain rare minerals from China to the United States, and could take further steps to retaliate against U.S. industries or companies. In May 2020, the U.S. introduced significant further restrictions limiting access to controlled U.S. technology to additional Chinese government and commercial entities, including certain of our
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competitors based in China. More recently, in October 2022, the U.S. Department of Commerce imposed additional export control restrictions targeting the provision of certain semiconductors and related technology to China that could further disrupt supply chains that could adversely impact our business. In addition, the U.S. Federal Communications Commission (the “FCC”) in November 2022 prohibited communications equipment deemed to pose an unacceptable risk to national security from obtaining the equipment authorization that allows the products to be imported, marketed, or sold in the U.S. This prohibition currently includes telecommunications equipment produced by Huawei, its affiliates and subsidiaries, and four other Chinese companies, and additional entities may be subsequently added to this list. In addition, U.S. Department of Treasury’s Office of Foreign Assets Control has increasingly designated as Specially Designated Nationals and Blocked Persons (“SDNs”) companies in China for their alleged activities involving Russia, Iran, North Korea or forced labor practices in the Xinjiang province of China, and such SDN designation includes not only an asset freeze but also broad prohibitions on any direct or indirect dealings with designated SDNs, or non-designated entities owned by one or more SDNs at 50% or greater level. The situation involving U.S.-China trade relations remains volatile and uncertain, and there can be no assurance that further actions by either country will not have an adverse impact on our business, operations and access to technology, or components thereof, sourced from China. See also the risk factor with the caption beginning “Our reliance on third-party component suppliers…” above.
At this time, it remains unclear what additional actions, if any, will be taken by the U.S. or other governments with respect to international trade agreements, the imposition of tariffs on goods imported into the U.S., tax policy related to international commerce, increased export control, sanctions and investment restrictions, import or use of foreign communications equipment, or other trade matters. However, the incoming U.S. administration announced an intent to impose tariffs on imports from Canada, Mexico, and China. We estimate that products or components that make up a significant portion of our revenue are either manufactured in or distributed from Mexico. Although the ultimate scope and timing of any such tariffs is indeterminable, if implemented, they could have a significant impact on our financial condition and results of operations. Based on our manufacturing practices and locations, there can be no assurance that any future executive or legislative action in the United States or other countries relating to tax policy and trade regulation would not adversely affect our business, operations and financial results.
Government regulation of usage, import or export of our products, or our technology within our products, changes in that regulation, or our failure to obtain required approvals for our products, could harm our international and domestic sales and adversely affect our revenue and costs of sales. Failure to comply with such regulations could result in enforcement actions, fines, penalties or restrictions on export privileges. In addition, costly tariffs on our equipment, restrictions on importation, trade protection measures and domestic preference requirements of certain countries could limit our access to these markets and harm our sales. These regulations could adversely affect the sale or use of our products, substantially increase our cost of sales and adversely affect our business and revenue.
Changes in government regulations affecting the communications and technology industries and the businesses of our customers could harm our prospects and operating results.
The FCC has jurisdiction over many companies in the U.S. telecommunications industry, and similar agencies have jurisdiction over the communications industries in other countries. Many of our largest customers, including service providers and cable and multiservice network operators, are subject to the rules and regulations of these agencies, while others participate in and benefit from government-funded programs that encourage the deployment of network infrastructures. These regulatory requirements and funding programs and related laws are subject to changes that may adversely impact our customers, with resulting adverse impacts on our business.
In April 2024, the FCC reclassified broadband internet access service (“BIAS”) as a telecommunications service under Title II of the Communications Act and reinstated net neutrality obligations on BIAS providers. States and localities are also increasingly proposing new regulations impacting communications services. Any of these regulations could affect our customers and their legal and compliance costs, with resulting adverse impacts on our business.
Changes in regulatory requirements or uncertainty associated with the regulatory environment could delay or serve as a disincentive to investment in network infrastructures by network operators, which could adversely affect the sale of our products and services. Similarly, changes in regulatory tariff requirements or other regulations relating to pricing or terms of carriage on communications networks could slow the development or expansion of network infrastructures and adversely affect our business, operating results, and financial condition. Legislators and regulators have also enacted and may in the future enact laws and rules that impose significant fines or other liability on communications companies that experience cyber attacks, information or security breaches, or technology disruptions or failures. Such events may therefore have an adverse effect on our company or our customers’ businesses.
Separately, certain of our cloud provider customers have been the subject of regulatory and other government actions, including inquiries and investigations, formal or informal, by competition authorities in the United States, Europe and other
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jurisdictions. For example, in July 2019, the U.S. Department of Justice announced that it would commence an antitrust review into significant online technology platforms, and in September 2019, various state attorneys general announced antitrust investigations involving certain technology companies. In addition, certain committees of the U.S. Congress have held hearings and pursued investigations to consider the businesses associated with these platforms, their impact on competition, and their conduct. Further, in November 2024, reports emerged that the Federal Trade Commission opened an investigation into potentially anticompetitive practices by at least one large company in the cloud computing market. There can be no assurance that these government actions will not adversely impact the network spending, procurement strategies, or business practices of our cloud provider customers in a manner adverse to us.
Government regulations related to the environment, climate change and social initiatives could adversely affect our business and operating results.
Our operations are regulated under various federal, state, local and international laws and regulations relating to the environment and climate change and in many of the jurisdictions in which we operate, governmental authorities are increasingly enacting new legislation and regulations relating to the environment and climate change. These laws and regulations directly impact us and may indirectly impact our operations as a result of required compliance by our customers or supply chain. Inconsistency across laws and regulations may affect the costs of compliance with such laws and regulations. Assessments of the potential impact of future climate change legislation, regulation, and international treaties and accords are uncertain, given the wide scope of potential regulatory change in countries in which we operate. Increased public awareness and worldwide focus on environmental and climate changes may lead to new or strengthened regulations, legislation or other governmental requirements or industry standards, such as increased demand to meet voluntary criteria related to reduction of greenhouse gas emissions and increasing energy efficiency. These requirements will, and other increased regulation of climate change concerns could, subject us to additional costs and restrictions, and could require us to make certain changes to our manufacturing practices and product designs, which could negatively impact our business, results of operations, financial condition and competitive position. If we were to violate or become liable under these laws or regulations, we could incur fines, costs related to damage to property or personal injury and costs related to investigation or remediation activities.
Our product design efforts and the manufacturing of our products are also subject to evolving requirements relating to the presence of certain materials or substances in our equipment, including regulations that make producers for such products financially responsible for the collection, treatment and recycling of certain products. For example, our operations and financial results may be negatively affected by environmental regulations, such as the WEEE and RoHS regulations that have been adopted by the EU. Compliance with these and similar environmental regulations may increase our cost of designing, manufacturing, selling and removing our products. The SEC requires disclosure regarding the use of “conflict minerals” mined from the Democratic Republic of the Congo and adjoining countries (the “DRC”) and disclosure with respect to procedures regarding a manufacturer’s efforts to prevent the sourcing of such minerals from the DRC. Certain of these minerals are present in our products. SEC rules implementing these requirements may have the effect of reducing the pool of suppliers that can supply “conflict free” components and parts, and we may not be able to obtain conflict free products or supplies in sufficient quantities for our operations. Because our supply chain is complex, we may face reputational challenges with our customers, stockholders and other stakeholders if we are unable to verify sufficiently the origins for the “conflict minerals” used in our products and cannot assert that our products are “conflict free.” Environmental or similar social initiatives may also make it difficult to obtain supply of compliant components or may require us to write off non-compliant inventory, which could have an adverse effect on our business and operating results.
Investor and other stakeholder scrutiny related to our environmental, social and governance practices, and our disclosed performance and aspirations for these practices, may increase costs and expose us to numerous risks.
Investors, media, business partners, employees, legislators, regulators, and other stakeholders are increasingly focused on ESG matters, including climate change and greenhouse gas emissions, human and civil rights, and diversity, equity and inclusion. As expectations have changed, we have established and communicated various initiatives, goals and aspirations related to ESG matters. Any disclosed goals and aspirations reflect our current initiatives and plans and assumptions as of the date of their disclosure, involve risks and uncertainties, may require investments, may depend in part on third-party performance or data that is outside our control, are subject to assumptions that could change over time, and may not be achieved. In addition, the standards and laws by which ESG efforts are tracked and measured are in many cases new, have not been harmonized, and continue to evolve. Our efforts to abide by these standards and laws and to accomplish and accurately report on our initiatives, goals and aspirations present numerous operational, reputational, financial, legal, and other risks. Our processes and controls may not always align with evolving standards, our interpretation of standards may differ from others, and standards may continue to change over time, any of which could result in significant revisions to our goals, our reported progress toward those goals, or other ESG information we disclose. In addition, any failure or perceived failure to pursue, further or fulfill our previously stated goals, targets and objectives, satisfy various reporting standards within the timelines we announce, or at all,
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adhere to our public statements, comply with environmental, social and governance laws and regulations, and meet evolving and varied stakeholder expectations and standards, could result in legal and regulatory proceedings against us and materially adversely affect our business, reputation, results of operations, financial condition and stock price.
Changes in tax law or regulation, effective tax rates and other adverse outcomes with taxing authorities could adversely affect our results of operations.
Our future effective tax rates could be subject to volatility or adversely affected by changes in tax laws, regulations, accounting principles, or interpretations thereof. The impact of income taxes on our business can also be affected by a number of items relating to our business. These may include estimates for, and the actual, geographic mix of our earnings; changes in the valuation of our deferred tax assets; the use or expiration of net operating losses or research and development credit arrangements applicable to us in certain geographies; and changes in our methodology for transfer pricing, valuing developed technology or conducting intercompany arrangements.
The Organization for Economic Co-operation and Development (the “OECD”) has introduced a framework to implement a global minimum tax of 15% for certain highly profitable multinational companies, referred to as Pillar Two or the minimum tax directive. While it is uncertain whether the United States will enact legislation to adopt Pillar Two, certain countries in which we operate have enacted legislation, and other countries are in the process of introducing draft legislation to implement the minimum tax directive. Many aspects of Pillar Two will be effective for Ciena beginning in fiscal 2025 with additional components becoming effective beginning in fiscal 2026. Pillar Two taxes are considered an alternative minimum tax accounted for as a period cost that will impact the effective tax rate in the year the Pillar Two tax obligation arises. Therefore, deferred taxes will not be recognized or adjusted for the estimated effects of future minimum taxes. We have assessed the impact of Pillar Two and do not currently anticipate any material effect on our effective tax rate, financial results or cash flows for fiscal 2025 based on currently enacted laws; however, our analysis is ongoing as the OECD continues to release additional guidance and countries enact legislation. To the extent additional legislative changes take place in the countries in which we operate, it is possible that these changes may yield an adverse impact on our effective tax rate, financial results and cash flows.
We are subject to the continuous examination of our income and other tax returns by the Internal Revenue Service and other tax authorities globally, and we have a number of such reviews underway at any time. It is possible that tax authorities may disagree with certain positions we have taken, and an adverse outcome of such a review or audit could have a negative effect on our financial position and operating results. There can be no assurance that the outcomes from such examinations, or changes in tax law or regulation impacting our effective tax rates, will not have an adverse effect on our business, financial condition and results of operations.
Failure to maintain effective internal controls over financial reporting could have a material adverse effect on our business, operating results and stock price.
Section 404 of the Sarbanes-Oxley Act of 2002 requires that we include in our annual report a report containing management’s assessment of the effectiveness of our internal controls over financial reporting as of the end of our fiscal year and a statement as to whether or not such internal controls are effective. Compliance with these requirements has resulted in, and is likely to continue to result in, significant costs and the commitment of time and operational resources. Certain ongoing initiatives, including efforts to transform business processes or to transition certain functions to third-party resources or providers, will necessitate modifications to our internal control systems, processes and related information systems as we optimize our business and operations. Our expansion into new regions could pose further challenges to our internal control systems. We cannot be certain that our current design for internal control over financial reporting, or any additional changes to be made, will be sufficient to enable management to determine that our internal controls are effective for any period, or on an ongoing basis. If we are unable to assert that our internal controls over financial reporting are effective, market perception of our financial condition and the trading price of our stock may be adversely affected, and customer perception of our business may suffer.
Risks Related to Our Common Stock, Indebtedness and Investments
Our stock price is volatile.
Our common stock price has experienced substantial volatility in the past and may remain volatile in the future. Volatility in our stock price can arise as a result of a number of the factors discussed in this “Risk Factors” section. From fiscal 2020 through fiscal 2024, our closing stock price ranged from a high of $77.60 per share to a low of $34.50 per share. The stock market has experienced significant price and volume fluctuation that has affected the market price of many technology companies, with such volatility often unrelated to the operating performance of these companies. Divergence between our actual results and our forward-looking guidance for such results, the published expectations of investment analysts, or the expectations of the market generally, can cause significant swings in our stock price. Our stock price can also be affected by market conditions in our industry as well as announcements that we, our competitors, vendors or our customers may make. These may include
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announcements by us or our competitors of financial results or changes in estimated financial results, technological innovations, the gain or loss of customers, or other strategic initiatives. Our common stock is also included in certain market indices, and any change in the composition of these indices to exclude our company could adversely affect our stock price. In addition, if the market for technology stocks or the broader stock market experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition or results of operations. These and other factors affecting macroeconomic conditions or financial markets may materially adversely affect the market price of our common stock in the future.
Outstanding indebtedness under our senior secured credit facilities and senior unsecured notes may adversely affect our liquidity and results of operations and could limit our business.
We are a party to credit agreements relating to a $300 million senior secured revolving credit facility, an outstanding senior secured term loan with approximately $1.2 billion due 2030, and an outstanding senior unsecured indenture pursuant to which we issued $400 million in aggregate principal amount of 4.00% senior notes due 2030. The agreements governing these credit facilities contain certain covenants that limit our ability, among other things, to incur additional debt, create liens and encumbrances, pay cash dividends, redeem or repurchase stock, enter into certain acquisition transactions or transactions with affiliates, repay certain indebtedness, make investments, or dispose of assets. The agreements also include customary remedies, including the right of the lenders to take action with respect to the collateral securing the loans, that would apply should we default or otherwise be unable to satisfy our debt obligations.
Our indebtedness could have important negative consequences, including:
•increasing our vulnerability to adverse economic and industry conditions;
•limiting our ability to obtain additional financing, particularly in unfavorable capital and credit market conditions;
•debt service and repayment obligations that may adversely impact our results of operations and reduce the availability of cash resources for other business purposes;
•limiting our flexibility in planning for, or reacting to, changes in our business and the markets; and
•placing us at a possible competitive disadvantage to competitors that have better access to capital resources.
We may also enter into additional debt transactions or credit facilities, including equipment loans, working capital lines of credit, senior notes, and other long-term debt, which may increase our indebtedness and result in additional restrictions on our business. In addition, major debt rating agencies regularly evaluate our debt based on a number of factors. There can be no assurance that we will be able to maintain our existing debt ratings, and failure to do so could adversely affect our cost of funds, liquidity and access to capital markets.
Significant volatility and uncertainty in the capital markets may limit our access to funding on favorable terms or at all.
The operation of our business requires significant capital. We have accessed the capital markets in the past and have successfully raised funds, including through the issuance of equity, convertible notes and other indebtedness, to increase our cash position, support our operations and undertake strategic growth initiatives. We regularly evaluate our liquidity position, debt obligations and anticipated cash needs to fund our long-term operating plans, and we may consider it necessary or advisable to raise additional capital or incur additional indebtedness in the future. If we raise additional funds through further issuance of equity or securities convertible into equity, or undertake certain transactions intended to address our existing indebtedness, our existing stockholders could suffer dilution in their percentage ownership of our company, or our leverage and outstanding indebtedness could increase. At times, capital market conditions, including the impact of inflation, have increased borrowing rates and could significantly increase our cost of capital should we seek additional funding. Moreover, global capital markets have undergone periods of significant volatility and uncertainty in the past, and there can be no assurance that such financing alternatives will be available to us on favorable terms or at all, should we determine it necessary or advisable to seek additional capital.
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Item 1B. Unresolved Staff Comments
Not applicable.
Item 1C. Cybersecurity
Oversight and Governance
Our Board of Directors and the Audit Committee of our Board of Directors (the “Audit Committee”) are responsible for overseeing and assessing management’s execution of and approach to cybersecurity risk management. Our Chief Information Security Officer (“CISO”), who reports directly to our Chief Financial Officer, is primarily responsible for assessing cybersecurity risks and managing our cybersecurity program on a day-to-day basis, with support from other members of senior management.
Our CISO is an accomplished security professional with 20 years of experience in cybersecurity and risk management across numerous industries and holds degrees in computer science and information assurance, and additional executive education in building and leading cybersecurity programs. The CISO and his team (the “Security Team”), which includes trained cybersecurity professionals, are responsible for implementing and maintaining our cybersecurity strategy and program and its related processes. We also maintain a Security Advisory Committee (“SAC”), which is chaired by our Chief Financial Officer and composed of members of executive leadership and other functional leaders, including our General Counsel, CISO, Chief Digital Information Officer, and Vice President of Internal Audit. The SAC meets regularly to, among other things, review cybersecurity program developments and serves as a path of escalation and decision-making in certain situations, including incident response.
We, and our managed security partners, regularly monitor our environment for indicators of malicious or suspicious activity and security relevant events. The potential risk and impact of any such event is evaluated by a cross-functional team that includes members of our Security Team, legal department and other business functions as necessary and appropriate. Materiality determinations related to escalated events are made by the SAC without unreasonable delay. The CISO, on a quarterly basis, generally provides the Audit Committee a summary of relevant cybersecurity events, with certain events escalated to the Audit Committee outside of these quarterly meetings depending upon their nature.
As part of our Board of Directors’ oversight of risk management, they devote time and attention to cybersecurity related risks. The Audit Committee is responsible for overseeing cybersecurity, data privacy and information technology-related programs, policies and other efforts to manage or mitigate cybersecurity risks. As part of its standing agenda, the Audit Committee receives quarterly updates on cybersecurity risks and initiatives from our CISO. These updates have included reviews of our cybersecurity risk management efforts, including the development of relevant processes and policies, the implementation of technologies and systems, or use of third-party partners to safeguard our information systems, the conduct of education and training initiatives with employees and business partners, and incident response preparedness, including simulations and tabletop exercises. The Audit Committee regularly updates the Board of Directors on such matters. Separately, and in addition to such quarterly reporting, our Board of Directors also receives an annual update from our CISO on information and cybersecurity risks and related initiatives. These Board updates have included briefings from our CISO, as well as external counsel and third-party security advisors, which have included continuing education sessions as our Board of Directors seeks to enhance its understanding of cybersecurity risk, leading practices and an evolving cyber threat landscape.
Risk Management and Strategy
The safeguarding of information systems, that house employee and customer data, and proprietary information, are of paramount importance to us, our business and our reputation. We maintain a robust and proactive enterprise cybersecurity program designed to identify, assess and manage cybersecurity risks that may impact our business or assets.
Cybersecurity Strategy
Our cybersecurity strategy focuses on (i) maintaining a cybersecurity framework and set of controls to assess and manage security risks and (ii) protecting against threats by deploying and monitoring security controls and mitigating exposures and potential threats. We maintain a security program designed to align with industry standards, principles, and frameworks, such as those set by the National Institute of Standards and Technology (NIST) and the International Organization for Standardization (ISO). Our program is also informed by various legal requirements including contractual requirements from our customers. In addition, we maintain internal policies and procedures that govern the measures we take to secure our information technology environment. These include a wide variety of capabilities designed to prevent, detect, or address risks to systems and data. We
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also employ a range of tools and services, including regular network and endpoint monitoring, penetration testing, and vulnerability assessments, to inform our risk identification and management strategy.
Security Risk Management
Our Security Team regularly assesses cybersecurity risks, including their likelihood and potential impact, to develop mitigation strategies. The team utilizes enterprise governance, risk, and compliance solutions and tools licensed from third-party vendors to conduct various analytic assessments, including cloud and container security, detection and response, threat intelligence, and application security assessments. We also routinely evaluate and update our understanding of our cybersecurity threat landscape and evolve our related assessments and mitigation strategies accordingly.
We regularly review our cybersecurity program for compliance with evolving regulations and to protect against emerging cyber threats. Because we operate in a dynamic threat landscape, we conduct regular reviews of our program and procedures, and we periodically engage third parties to supplement and review our cybersecurity practices. We also maintain a cybersecurity risk insurance policy as part of our risk management efforts, and regularly engage and collaborate with peers, industry groups, and U.S. government partners relating to cybersecurity risk management and the evolving threat environment.
We seek to identify and address cybersecurity threats and risks that can arise from our use of third parties, including those that comprise our information systems, supply chain operations or who have access to certain data. We utilize supplier risk management practices, including enhanced due diligence assessments, that seek to identify cybersecurity risks associated with our use of third-party providers and the scope and nature of their work with us. These risks are assessed and prioritized based on, among other things, supplier assessments, threat intelligence, and industry practices. We consider these risks at the time of supplier onboarding and endeavor to assess changes in risk throughout the lifecycle of our relationship with suppliers.
Promoting an engaged and aware workforce is a key part of our cybersecurity defense program. We carry out regular security awareness training for our personnel to help them better identify and address potential cybersecurity issues. This includes regular exercises to simulate and detect phishing attempts, various awareness and communication initiatives and required online security awareness training at the time of hire and generally on an annual basis thereafter.
Incident Response Readiness
We utilize a combination of internal and third-party resources to monitor for threats to our network, systems and data. To promote cybersecurity readiness and advance the preparedness of our teams, our cross-functional incident response teams maintain an incident response plan, in addition to more technical response playbooks, and meet regularly to assess these resources. Among other things, they perform “tabletop” simulation exercises, internally and with third-party experts, to outline their roles and responsibilities during a cybersecurity event and to refine risk identification and management practices.
We have in the past, and may in the future, utilize third-party cyber security assessors or consultants to review our program, to share their findings with our Board of Directors or leadership, and to help identify opportunities for continuous improvement.
Additional information about cybersecurity risks we face is discussed in Item 1A of Part I of this annual report, “Risk Factors,” including under the heading “Data security breaches and cyber-attacks targeting our enterprise technology environment and assets could compromise our intellectual property, technology or other sensitive information and could cause significant damage to our business, reputation and operational capacity,” which should be read in conjunction with the information above. While we continue to monitor, identify, investigate, respond to, and manage cybersecurity threats, risks and incidents, to date we have not experienced cybersecurity risks, including as a result of previous cybersecurity incidents, that have had a material effect. There can be no assurance that we will not experience such risks in the future.
Item 2. Properties
Overview. As of November 2, 2024, all of our properties are leased, and we do not own any real property. We lease facilities globally related to the ongoing operations of our business segments and related functions. Our corporate headquarters are located in one building in Hanover, Maryland.
Our largest facilities are our research and development centers located in Ottawa, Canada and Gurgaon, India. We also lease smaller engineering facilities in the United States, Canada, and Europe. In addition, we lease various smaller offices in regions throughout the world to support our sales and services operations. We believe the facilities we are now using are adequate and suitable for our business requirements.
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Hanover, Maryland Headquarters Lease. We entered into an agreement dated November 3, 2011, with W2007 RDG Realty, L.L.C. relating to a 15-year lease of office space for our corporate headquarters in Hanover, Maryland, consisting of an agreed-upon rentable area of approximately 88,000 square feet.
Ottawa Leases. On October 23, 2014, Ciena Canada, Inc. entered into an 18-year lease agreement for the office building located at 5050 Innovation Drive, Ottawa, Canada, consisting of a rentable area of approximately 170,000 square feet. In addition, on April 15, 2015, Ciena Canada, Inc. entered into a 15-year lease agreement for two new office buildings adjacent to the building at 5050 Innovation Drive, located at 383 and 385 Terry Fox Drive, Ottawa, Canada, consisting of a rentable area of approximately 255,000 square feet.
Gurgaon Leases. On August 13, 2020, Ciena India Pvt. Ltd. extended our rental agreement for five years for an office building located at Plot No. 13, Echelon Institutional Sector 32, Gurgaon, which is adjacent to another building rented by Ciena India Pvt. Ltd., located at Plot No. 14, Echelon Institutional Sector 32, Gurgaon. The Gurgaon offices consist of a rentable area of approximately 282,000 square feet.
For additional information regarding our lease obligations, see Note 17 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report.
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Item 3. Legal Proceedings
The information set forth under the heading “Litigation” in Note 26 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report, is incorporated herein by reference.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities
(a) Our common stock is traded on the New York Stock Exchange under the stock symbol “CIEN.”
As of December 13, 2024, there were approximately 652 holders of record of our common stock and 142,115,595 shares of common stock outstanding. We have never paid cash dividends on our capital stock. We currently intend to retain earnings for use in our business, and we do not anticipate paying any cash dividends in the foreseeable future.
Issuer Purchases of Equity Securities
The following table provides a summary of repurchases of our common stock during the fourth quarter of fiscal 2024:
| Period | Total Number of Shares Purchased (1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in Thousands) | ||||||||||||||||||||||
| July 28, 2024 to August 24, 2024 | — | $ | — | — | $ | 131,985 | ||||||||||||||||||||
| August 25, 2024 to September 28, 2024 | 865,189 | $ | 57.21 | 865,189 | $ | 82,489 | ||||||||||||||||||||
| September 29, 2024 to November 2, 2024 | 1,259,201 | $ | 65.51 | 1,259,201 | $ | — | ||||||||||||||||||||
Total | 2,124,390 | $ | 62.13 | 2,124,390 | ||||||||||||||||||||||
(1) On December 9, 2021, we announced that our Board of Directors had authorized a program to repurchase up to $1.0 billion of our common stock. During the fourth quarter of fiscal 2024, we repurchased $132.0 million of our common stock under such stock repurchase program which completed the authorized repurchases contemplated thereunder. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations– Liquidity and Capital Resources – Stock Repurchase Authorization” in Item 7 of Part II of this annual report and Note 21 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report for information regarding the stock repurchase programs authorized by our Board of Directors.
Stock Performance Graph
The following graph shows a comparison of cumulative total returns for an investment in our common stock, the S&P North American Technology-Multimedia Networking Index and the Russell 1000 Index from November 1, 2019 to November 1, 2024. The Russell 1000 Index comprises the stocks representing the 1,000 largest publicly traded American companies as measured by market capitalization. The S&P North American Technology-Multimedia Networking Index includes stocks in the S&P Total Market Index that are classified under the Global Industry Classification Standard communications equipment sub-industry. This graph is not deemed to be “soliciting material” or “filed” with the SEC or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the graph shall not be deemed to be incorporated by reference into any prior or subsequent filing by us under the Securities Act of 1933, as amended, or the Exchange Act.
Comparison of 5-Year Cumulative Total Return Among Ciena Corporation,
the S&P North American Technology-Multimedia Networking Index and the Russell 1000 Index
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The graph tracks the performance of a $100 investment in our common stock and in each of the indices on November 1, 2019 (with the subsequent reinvestment of all dividends at month end). This graph assumes $100 invested in Ciena Corporation, the Russell 1000 and the S&P North American Technology-Multimedia Networking Index, respectively, on November 1, 2019 with all dividends reinvested at month-end. Stockholder returns over the indicated period are based on historical data and should not be considered indicative of future stockholder returns.
(b) Not applicable.
(c) Not applicable.
Item 6. [Reserved]
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto included elsewhere in this annual report.
Overview
We are a network technology company, providing hardware, software, and services to a wide range of network operators and enabling enhanced network capacity, service delivery, and automation. Our solutions support network traffic across a wide range of applications, including cloud, video, data, AI, and voice. Our network solutions are used globally by communications service providers, cable and multiservice operators, cloud providers, submarine network operators, governments, and enterprises across multiple industry verticals. Our portfolio is designed to enable the Adaptive Network™, which is our vision for a network end state that leverages a programmable and scalable network infrastructure, driven by software control and automation capabilities, that is informed by network analytics and intelligence. Our solutions include Networking Platforms, including our Optical Networking portfolio and our Routing and Switching portfolio, which can be applied from the network core to end-user access points, and which allow network operators to scale capacity, increase transmission speeds, allocate traffic efficiently, and adapt dynamically to changing end-user service demands. To complement our Networking Platforms, we offer Platform Software, which includes our Navigator NCS and advanced applications that deliver multi-layer domain control and operations for network operators. Through our Blue Planet Automation Software, we also enable complete service lifecycle management automation with productized OSS, including inventory, orchestration and assurance solutions that help our customers to achieve closed loop automation across multi-vendor and multi-domain environments.
Market Opportunity and Investment in Technology Innovation
The market into which we sell our communications networking solutions is dynamic and characterized by a high rate of change, including rapid growth in bandwidth demand and network traffic, the proliferation of cloud-based services and new approaches, or “consumption models,” for designing and procuring networking solutions. Drivers of increased bandwidth demand include enterprise and consumer cloud network adoption, generative AI, 5G, high-definition video, and network operator focus on resilience and automation. To address these growing service demands and manage network cost, many network operators are looking to adopt next-generation infrastructures that are more programmable and better capable of leveraging data for network insight, analytics and automation.
We believe that our investment capacity and our efforts to push the pace of innovation are important competitive differentiators in our markets. Keeping pace with the market’s demand for technology innovation requires considerable research and development investment capacity and expenditures, and research and development spending represented 19.1% of our operating expenses in fiscal 2024. During fiscal 2024, we invested $767.5 million in research and development activities, an increase of 2.3% compared to fiscal 2023. In particular, in an effort to capture certain market opportunities created by the impact of AI on networks, in fiscal 2024 we continued to innovate, increase the performance of, and enhance the capabilities for our leading WaveLogic coherent modem technology in multiple form factors. Through this innovation we seek to extend our leadership in our core business and leverage this to expand our addressable market into complementary and adjacent network applications, including inside and around the data center.
Our business strategy to capitalize on these market dynamics and investment opportunities also include the initiatives set forth in the “Strategy” section of the description of our business in Item 1 of Part I of this annual report.
Fluctuation in Order Volumes and Impact on Fiscal 2024 Revenue
During fiscal 2021 and fiscal 2022, we received an unprecedented volume of orders for our products and services. We believe some portion of these orders reflected customer acceleration of future orders due to long lead times during the constrained supply environment of that period, as well as orders that were delayed due to the dynamics of the COVID-19 pandemic. These order volumes resulted in significant revenue growth in fiscal 2023. Our order volumes began to moderate in the fourth quarter of fiscal 2022, and we experienced order levels below revenue during fiscal 2023 and the first half of fiscal 2024, particularly from our communications service provider customers. We believe this was, in part, due to communications service providers in North America working through relatively high levels of inventory previously acquired, which was made more difficult due to challenges installing and deploying equipment. In addition, in certain international geographies, we believe that caution driven by macroeconomic concerns and market-specific issues contributed to lower-than-expected order volumes from communications service providers during fiscal 2024. As a result of these dynamics, our revenue for fiscal 2024 was lower than our revenue in fiscal 2023. Notwithstanding these recent dynamics and their impact on fiscal 2024 revenue, we
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continue to believe that certain trends and shifts in business and consumer behaviors and the drivers of bandwidth demand described above under “Market Opportunity and Investment in Technology Innovation” represent long-term opportunities for our business.
Fiscal Year-End Backlog
Generally, we make sales pursuant to purchase orders placed by customers under framework agreements that govern the general commercial terms and conditions of the sale of our products and services. These agreements do not obligate customers to purchase any minimum or guaranteed order quantities. In calculating backlog, we only include (i) customer purchase orders for products that have not been shipped and for services that have not yet been performed; and (ii) customer orders relating to products that have been delivered and services that have been performed, but are awaiting customer acceptance under the applicable contract terms. Backlog may be fulfilled several quarters following receipt of a purchase order, or in the case of certain service obligations, may relate to multi-year support periods.
Our backlog was $2.1 billion as of November 2, 2024, as compared to $2.6 billion as of October 28, 2023. Backlog includes product and service orders from commercial and government customers combined. Backlog at November 2, 2024 includes approximately $352.5 million primarily related to orders for products and services that are not expected to be filled or performed within fiscal 2025. Because backlog can be defined in different ways by different companies, our presentation of backlog may not be comparable with figures presented by other companies in our industry. In addition, our customers may cancel, delay or change their orders with limited advance notice, or they may decide not to accept our products and services. The timing of our fulfillment of backlog could cause some volatility in our results of operations.
Stock Repurchase Program
On October 2, 2024, we announced that our Board of Directors authorized a program to repurchase up to $1.0 billion of our common stock, commencing in fiscal 2025 and continuing through the end of fiscal 2027. Authorized purchases contemplated under our prior stock repurchase program, which was authorized in fiscal 2022, were completed in fiscal 2024. The amount and timing of any further repurchases under our stock repurchase program are subject to a variety of factors including liquidity, cash flow, stock price and general business and market conditions. The program may be modified, suspended, or discontinued at any time. See Notes 21 and 27 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report.
Consolidated Results of Operations
A discussion regarding our financial condition and results of operations for fiscal 2024 compared to fiscal 2023 is presented below. A discussion of fiscal 2023 compared to fiscal 2022 can be found under Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended October 28, 2023, filed with the SEC on December 15, 2023, which is available free of charge on the SEC’s website at www.sec.gov and our Investor Relations website at investor.ciena.com.
Operating Segments
Our results of operations are presented based on the following operating segments: (i) Networking Platforms; (ii) Platform Software and Services; (iii) Blue Planet Automation Software and Services; and (iv) Global Services. See Notes 2 and 24 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report for more information on our segment reporting.
Fiscal 2024 Compared to Fiscal 2023
Revenue
Revenue and Currency Fluctuations
As a result of the factors impacting order volumes described under “Overview” above, our revenue declined by 8.5% in fiscal 2024 as compared to fiscal 2023. In addition, during fiscal 2024, approximately 14.3% of our revenue was non-U.S. Dollar denominated, primarily including sales in Euros, Indian Rupees and Canadian Dollars. During fiscal 2024, as compared to fiscal 2023, the U.S. Dollar fluctuated against these and other currencies with minimal impact as compared to fiscal 2023.
Operating Segment Revenue
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See Notes 2 and 24 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report for more information on our segment reporting. The table below sets forth the changes in our operating segment revenue for the periods indicated (in thousands, except percentage data):
| Fiscal Year | |||||||||||||||||||||||||||||||||||
| 2024 | %* | 2023 | %* | Increase (decrease) | %** | ||||||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||||||||
| Networking Platforms | |||||||||||||||||||||||||||||||||||
| Optical Networking | $ | 2,642,563 | 65.8 | $ | 2,987,245 | 68.1 | $ | (344,682) | (11.5) | ||||||||||||||||||||||||||
| Routing and Switching | 399,492 | 10.0 | 506,247 | 11.5 | (106,755) | (21.1) | |||||||||||||||||||||||||||||
| Total Networking Platforms | 3,042,055 | 75.8 | 3,493,492 | 79.6 | (451,437) | (12.9) | |||||||||||||||||||||||||||||
| Platform Software and Services | 358,062 | 8.9 | 303,873 | 6.9 | 54,189 | 17.8 | |||||||||||||||||||||||||||||
Blue Planet Automation Software and Services | 77,619 | 2.0 | 69,170 | 1.6 | 8,449 | 12.2 | |||||||||||||||||||||||||||||
| Global Services | |||||||||||||||||||||||||||||||||||
| Maintenance Support and Training | 303,086 | 7.5 | 288,334 | 6.6 | 14,752 | 5.1 | |||||||||||||||||||||||||||||
| Installation and Deployment | 184,358 | 4.6 | 180,951 | 4.1 | 3,407 | 1.9 | |||||||||||||||||||||||||||||
| Consulting and Network Design | 49,775 | 1.2 | 50,729 | 1.2 | (954) | (1.9) | |||||||||||||||||||||||||||||
| Total Global Services | 537,219 | 13.3 | 520,014 | 11.9 | 17,205 | 3.3 | |||||||||||||||||||||||||||||
| Consolidated revenue | $ | 4,014,955 | 100.0 | $ | 4,386,549 | 100.0 | $ | (371,594) | (8.5) | ||||||||||||||||||||||||||
_________________________________
| * | Denotes % of total revenue | ||||
| ** | Denotes % change from 2023 to 2024 | ||||
•Networking Platforms segment revenue decreased by $451.4 million, reflecting product line sales decreases of $344.7 million of our Optical Networking products and $106.7 million of our Routing and Switching products.
◦Optical Networking sales decreased, primarily reflecting sales decreases of $470.3 million of our 6500
Packet-Optical Platform primarily to communications service providers, enterprise customers, cable and multiservice operators, and cloud providers, and $17.2 million of our 5400 family of Packet-Optical Platforms primarily to communications service providers. These sales decreases were partially offset by sales increases of $63.1 million primarily of our coherent pluggable transceivers, primarily to cloud providers, $45.2 million of our 6500 RLS products primarily to communications service providers, cable and multiservice operators and cloud providers, and $35.8 million of our Waveserver® products primarily to communications service providers, partially offset by sales decreases to enterprise customers and cloud providers.
◦Routing and Switching sales decreased, primarily reflecting sales decreases of $103.8 million of our 3000 and 5000 families of service delivery and aggregation switches primarily to communications service providers, cable and multiservice operators, and enterprise customers, $8.9 million of our 8700 Packetwave Platform, primarily to communications service providers and enterprise customers, $5.4 million of our virtualization software, primarily to communications service providers partially offset by increased sales to enterprise customers, and $4.3 million of our passive optical network (PON) products, primarily to communications service providers. These sales decreases were partially offset by sales increases of $8.7 million of our platform independent software, primarily to communications service providers and cloud providers, $4.8 million of our WaveRouter products, primarily to communications service providers, and $3.6 million of our 8100 Coherent IP networking platforms, primarily to enterprise customers and cloud providers.
•Platform Software and Services segment revenue increased by $54.2 million, reflecting sales increases of $32.3 million in sales of software platforms and $21.9 million in sales of our software maintenance services, both primarily for our Navigator NCS software platform.
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•Blue Planet Automation Software and Services segment revenue increased by $8.4 million, primarily reflecting a sales increase of $11.4 million in professional software services primarily for our BPI and ROA platforms partially offset by a sales decrease of $2.9 million in software platforms.
•Global Services segment revenue increased by $17.2 million, primarily reflecting sales increases of $14.8 million of our maintenance support and training and $3.4 million of our installation and deployment services.
Revenue by Geographic Region
Our operating segments engage in business and operations across three geographic regions: Americas, EMEA, and APAC. The geographic distribution of our revenue can fluctuate significantly from period to period, and the timing of revenue recognition for large network projects, particularly outside of the United States, can result in large variations in geographic revenue results in any particular period. The decrease in our Americas region revenue for fiscal 2024 was primarily driven by decreased sales in Canada and the United States. The decrease in our APAC region revenue for fiscal 2024 was primarily driven by decreased sales in Australia, India, Singapore and South Korea. The increase in our EMEA region revenue for fiscal 2024 was partially offset by sales decreases in Great Britain and the Netherlands. The following table reflects our geographic distribution of revenue, which is principally based on the relevant location for the delivery of our products and performance of services. The table below sets forth the changes in geographic distribution of revenue for the periods indicated (in thousands, except percentage data):
| Fiscal Year | |||||||||||||||||||||||||||||||||||
| 2024 | %* | 2023 | %* | Increase (decrease) | %** | ||||||||||||||||||||||||||||||
| Americas | $ | 2,951,915 | 73.5 | $ | 3,110,347 | 70.9 | $ | (158,432) | (5.1) | ||||||||||||||||||||||||||
| EMEA | 648,870 | 16.2 | 643,142 | 14.7 | 5,728 | 0.9 | |||||||||||||||||||||||||||||
| APAC | 414,170 | 10.3 | 633,060 | 14.4 | (218,890) | (34.6) | |||||||||||||||||||||||||||||
| Total | $ | 4,014,955 | 100.0 | $ | 4,386,549 | 100.0 | $ | (371,594) | (8.5) | ||||||||||||||||||||||||||
_________________________________
| * | Denotes % of total revenue | ||||
| ** | Denotes % change from 2023 to 2024 | ||||
•Americas revenue decreased by $158.4 million, reflecting a sales decrease of $207.3 million within our Networking Platforms segment. This sales decrease was offset by sales increases of $40.4 million within our Platform Software and Services segment, $5.4 million within our Global Services segment, and $3.1 million within our Blue Planet Automation Software and Services segment. Our Networking Platforms segment revenue decrease reflects product line sales decreases of $126.9 million of Optical Networking products and $80.4 million of Routing and Switching products. Our Optical Networking revenue primarily reflects a sales decrease of $248.7 million of our 6500 Packet-Optical Platform, primarily to communications service providers, enterprise customers, cable and multiservice operators, and cloud providers. This sales decrease was partially offset by sales increases of $57.1 million primarily of our coherent pluggable transceivers primarily to cloud providers, $55.4 million of our 6500 RLS products primarily to cloud providers and cable and multiservice operators, and $19.5 million of our Waveserver® modular interconnect system, primarily to communications service providers partially offset by decreased sales to cloud providers. Routing and Switching product line sales primarily reflect a sales decrease of $83.9 million of our 3000 and 5000 families of service delivery and aggregation switches to communications service providers, cable and multiservice operators, and enterprise customers.
•EMEA revenue increased by $5.7 million, primarily reflecting sales increases of $12.2 million within our Global Services segment and $5.5 million within our Platform Software and Services segment. These sales increases were partially offset by a sales decrease of $10.9 million within our Networking Platforms segment.
•APAC revenue decreased by $218.9 million, primarily reflecting a sales decrease of $233.2 million within our Networking Platforms segment. This sales decrease was partially offset by sales increases of $8.3 million within our Platform Software and Services segment and $6.4 million within our Blue Planet Automation Software and Services segment. Our Networking Platforms segment revenue decrease primarily reflects a product line sales decrease of $237.0 million of Optical Networking products, including a sales decrease of $198.3 million of our 6500 Packet-Optical Platform, primarily to communications service providers and enterprise customers.
In fiscal 2024 and fiscal 2023, our top ten customers contributed 57.9% and 53.7% of our revenue, respectively. Consequently, our financial results are closely correlated with the spending of a relatively small number of customers and can
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be significantly affected by market, industry or competitive dynamics affecting the businesses of those customers. Our reliance on a relatively small number of customers increases our exposure to changes in their spending levels, network priorities and purchasing strategies. The loss of a significant customer could have a material adverse effect on our business and results of operations, and our results of operations can fluctuate quarterly depending on sales volumes and purchasing priorities with these large customers. Sales to one of our cloud provider customers were $532.3 million, or 13.3% of total revenue, in fiscal 2024 and $561.4 million or 12.8% of total revenue, in fiscal 2023. Sales to AT&T were $475.3 million, or 11.8% of total revenue, in fiscal 2024, and $464.7 million, or 10.6% of total revenue, in fiscal 2023. No other customer accounted for greater than 10% of our revenue in fiscal 2024 or fiscal 2023.
While drivers of bandwidth growth and network evolution remain strong, many of our service provider customers are under pressure to constrain their capital expenditure budgets, and their businesses cannot grow their network spending at the rate of bandwidth growth. As a result, as we innovate and introduce new and more robust solutions that increase capacity or add features, there is a market expectation for solutions that are more cost-effective than existing or competing solutions and that new products consistently deliver lower price per bit performance. The combination of this regular technology-driven price compression, price competition in our markets, and ongoing customer efforts to manage network costs can impact our growth rates and requires that we increase our volume of product shipments to maintain and grow revenue.
Cost of Goods Sold and Gross Profit
Product cost of goods sold consists primarily of amounts paid to third-party contract manufacturers, component costs, employee-related costs and overhead, shipping and logistics costs associated with manufacturing-related operations, warranty and other contractual obligations, royalties, license fees, amortization of intangible assets, cost of excess and obsolete inventory and, when applicable, estimated losses on committed customer contracts.
Services cost of goods sold consists primarily of direct and third-party costs associated with our provision of services including installation, deployment, maintenance support, consulting and training activities, and, when applicable, estimated losses on committed customer contracts. The majority of these costs relate to personnel, including employee and third-party contractor-related costs.
Our gross profit as a percentage of revenue, or “gross margin,” can fluctuate due to a number of factors, particularly when viewed on a quarterly basis. Our gross margin can fluctuate and be adversely impacted depending on our revenue concentration within a particular segment, product line, geography, or customer, as well as our success in selling software in a particular period. Our gross margin remains highly dependent on our continued ability to drive annual product cost reductions relative to the price erosion that we regularly encounter in our markets. Moreover, we are often required to compete with aggressive pricing and commercial terms, and, to secure business with new and existing customers, we may agree to pricing or other unfavorable commercial terms that adversely affect our gross margin. Success in gaining market share and winning new business can result in additional pressure on gross margin from these pricing dynamics and the early stages of these network deployments. Early stages of new network builds also often include an increased concentration of lower margin “common” equipment, photonics sales and installation services, with the intent to improve margin as we sell channel cards and maintenance services to customers as they add capacity and need to monitor their networks. Gross margin can be impacted by technology-based price compression and the introduction or substitution of new platforms with improved price for performance as compared to existing solutions that carry higher margins. Gross margin can also be impacted by changes in expense for excess and obsolete inventory and warranty obligations.
Service gross margin can be affected by the mix of customers and services, particularly the mix between deployment and maintenance services, geographic mix and the timing and extent of any investments in internal resources to support this business.
The tables below set forth the changes in revenue, cost of goods sold and gross profit for the periods indicated (in thousands, except percentage data):
| Fiscal Year | |||||||||||||||||||||||||||||||||||
| 2024 | %* | 2023 | %* | Increase (decrease) | %** | ||||||||||||||||||||||||||||||
| Total revenue | $ | 4,014,955 | 100.0 | $ | 4,386,549 | 100.0 | $ | (371,594) | (8.5) | ||||||||||||||||||||||||||
| Total cost of goods sold | 2,295,365 | 57.2 | 2,507,698 | 57.2 | (212,333) | (8.5) | |||||||||||||||||||||||||||||
| Gross profit | $ | 1,719,590 | 42.8 | $ | 1,878,851 | 42.8 | $ | (159,261) | (8.5) | ||||||||||||||||||||||||||
_________________________________
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| * | Denotes % of total revenue | ||||
| ** | Denotes % change from 2023 to 2024 | ||||
| Fiscal Year | |||||||||||||||||||||||||||||||||||
| 2024 | %* | 2023 | %* | Increase (decrease) | %** | ||||||||||||||||||||||||||||||
| Product revenue | $ | 3,159,021 | 100.0 | $ | 3,581,039 | 100.0 | $ | (422,018) | (11.8) | ||||||||||||||||||||||||||
| Product cost of goods sold | 1,861,317 | 58.9 | 2,088,440 | 58.3 | (227,123) | (10.9) | |||||||||||||||||||||||||||||
| Product gross profit | $ | 1,297,704 | 41.1 | $ | 1,492,599 | 41.7 | $ | (194,895) | (13.1) | ||||||||||||||||||||||||||
_________________________________
| * | Denotes % of product revenue | ||||
| ** | Denotes % change from 2023 to 2024 | ||||
| Fiscal Year | |||||||||||||||||||||||||||||||||||
| 2024 | %* | 2023 | %* | Increase (decrease) | %** | ||||||||||||||||||||||||||||||
| Services revenue | $ | 855,934 | 100.0 | $ | 805,510 | 100.0 | $ | 50,424 | 6.3 | ||||||||||||||||||||||||||
| Services cost of goods sold | 434,048 | 50.7 | 419,258 | 52.0 | 14,790 | 3.5 | |||||||||||||||||||||||||||||
| Services gross profit | $ | 421,886 | 49.3 | $ | 386,252 | 48.0 | $ | 35,634 | 9.2 | ||||||||||||||||||||||||||
_________________________________
| * | Denotes % of service revenue | ||||
| ** | Denotes % change from 2023 to 2024 | ||||
•Gross profit decreased by $159.3 million. Gross margin for fiscal 2024 compared to fiscal 2023 remained consistent, primarily reflecting slightly decreased product margin offset by increased services margin.
•Gross profit on products decreased by $194.9 million. Product gross margin slightly decreased by 60 basis points, primarily due to a higher concentration of lower margin product mix and higher inventory excess and obsolescence costs partially offset by product cost reductions and improved manufacturing efficiencies.
•Gross profit on services increased by $35.6 million. Service gross margin increased by 130 basis points, primarily due to improved margins on Blue Planet software services due to improved efficiencies on delivery, partially offset by lower margins on maintenance support and training.
Operating Expense
Currency Fluctuations
During fiscal 2024, approximately 48.7% of our operating expense was non-U.S. Dollar denominated, including Canadian Dollars, Indian Rupees, and Euros. During fiscal 2024 as compared to fiscal 2023, the U.S. Dollar primarily strengthened against these and other currencies with minimal impact as compared to fiscal 2023.
Operating expense increased in fiscal 2024 from the level reported for fiscal 2023, primarily due to increases in employee headcount. We have also experienced, and are continuing to experience, increases in the cost of labor and other costs of doing business due to inflation, and continued inflationary pressures could have an adverse impact on our profitability. We expect operating expense to continue to increase from the level reported in fiscal 2024 primarily due to planned investment in research and development to advance our strategy and higher employee compensation costs.
Operating expense consists of the component elements described below.
•Research and development expense primarily consists of salaries and related employee expense (including share-based compensation expense), prototype costs relating to design, development, product testing, depreciation expense, and third-party consulting costs.
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•Selling and marketing expense primarily consists of salaries, commissions and related employee expense (including share-based compensation expense) and sales and marketing support expense, including travel, demonstration units, trade show expense, and third-party consulting costs.
•General and administrative expense primarily consists of salaries and related employee expense (including share-based compensation expense) and costs for third-party consulting and other services.
•Significant asset impairments and restructuring costs primarily reflect actions we have taken to improve the alignment of our workforce, facilities and operating costs with perceived market opportunities, business strategies, changes in market and business conditions, the redesign of certain business processes and significant impairments of assets.
•Amortization of intangible assets primarily reflects the amortization of both purchased technology and the value of customer relationships derived from our acquisitions.
•Acquisition and integration costs primarily consist of expenses for financial, legal and accounting advisors and severance and other employee-related costs, associated with our acquisition activity. For more information on our acquisitions, see Note 3 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report.
The table below sets forth the changes in operating expense for the periods indicated (in thousands, except percentage data):
| Fiscal Year | |||||||||||||||||||||||||||||||||||
| 2024 | %* | 2023 | %* | Increase (decrease) | %** | ||||||||||||||||||||||||||||||
| Research and development | $ | 767,497 | 19.1 | $ | 750,559 | 17.1 | $ | 16,938 | 2.3 | ||||||||||||||||||||||||||
| Selling and marketing | 510,668 | 12.7 | 490,804 | 11.2 | 19,864 | 4.0 | |||||||||||||||||||||||||||||
| General and administrative | 220,647 | 5.5 | 215,284 | 4.9 | 5,363 | 2.5 | |||||||||||||||||||||||||||||
| Significant asset impairments and restructuring costs | 24,592 | 0.6 | 23,834 | 0.5 | 758 | 3.2 | |||||||||||||||||||||||||||||
| Amortization of intangible assets | 29,569 | 0.7 | 37,351 | 0.9 | (7,782) | (20.8) | |||||||||||||||||||||||||||||
| Acquisition and integration costs | — | — | 3,474 | 0.1 | (3,474) | (100.0) | |||||||||||||||||||||||||||||
| Total operating expenses | $ | 1,552,973 | 38.6 | $ | 1,521,306 | 34.7 | $ | 31,667 | 2.1 | ||||||||||||||||||||||||||
_________________________________
| * | Denotes % of total revenue | ||||
| ** | Denotes % change from 2023 to 2024 | ||||
•Research and development expense increased by $16.9 million, net of hedging. This increase primarily reflects increases in employee-related compensation costs, partially due to higher headcount and increases in salary and share-based compensation costs. In addition, facility, information technology costs and other technology related costs increased, partially offset by decreased professional services and a lower provision associated with our annual cash incentive compensation plan.
•Selling and marketing expense increased by $19.9 million. This increase primarily reflects increases in employee-related compensation costs due to higher variable compensation and share-based compensation, and increases in travel and entertainment costs.
•General and administrative expense expense increased by $5.4 million. This increase primarily reflects increases in employee-related compensation costs, primarily due to increases in salary and share-based compensation costs. In addition, facility and information technology costs increased, partially offset by a lower provision associated with our annual cash incentive compensation plan.
•Significant asset impairments and restructuring costs slightly increased, primarily reflecting an increase in workforce reduction costs of $8.5 million, partially offset by a decline of $7.7 million in costs associated with actions to redesign certain business processes associated with our supply chain and distribution structure reorganization and costs related to restructured real estate facilities. For more information on our restructuring costs, see Note 4 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report.
•Amortization of intangible assets decreased by $7.8 million primarily reflecting certain intangible assets having reached the end of their economic lives.
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•Acquisition and integration costs in fiscal 2023 reflect financial, legal, and accounting advisors and employee-related costs related to our acquisitions of Benu Networks (“Benu”) and Tibit Communications, Inc. (“Tibit”) during the first quarter of fiscal 2023.
Other Items
The table below sets forth the changes in other items for the periods indicated (in thousands, except percentage data):
| Fiscal Year | |||||||||||||||||||||||||||||||||||
| 2024 | %* | 2023 | %* | Increase (decrease) | %** | ||||||||||||||||||||||||||||||
| Interest and other income, net | $ | 50,261 | 1.3 | $ | 62,008 | 1.4 | $ | (11,747) | (18.9) | ||||||||||||||||||||||||||
| Interest expense | $ | (97,028) | (2.4) | $ | (88,026) | (2.0) | $ | 9,002 | 10.2 | ||||||||||||||||||||||||||
| Loss on extinguishment and modification of debt | $ | — | — | $ | (7,874) | (0.2) | $ | (7,874) | (100.0) | ||||||||||||||||||||||||||
| Provision for income taxes | $ | 35,894 | 0.9 | $ | 68,826 | 1.6 | $ | (32,932) | (47.8) | ||||||||||||||||||||||||||
_________________________________
| * | Denotes % of total revenue | ||||
| ** | Denotes % change from 2023 to 2024 | ||||
•Interest and other income, net decreased by $11.7 million, primarily resulting from the remeasurement of our previously held investment in Tibit to fair value, in fiscal 2023, which resulted in a gain on our equity investment of $26.5 million and the impact of foreign exchange rates on assets and liabilities denominated in a currency other than the relevant functional currency, net of hedging activity. These decreases were partially offset by higher interest income on our investments. For more information on our acquisition of Tibit, see Note 3 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report.
•Interest expense increased, primarily due to higher interest rates on our floating rate debt, net of hedging activity, and additional outstanding indebtedness, including the 2030 Term Loan incurred in the first quarter of fiscal 2023. For more information on our short-term and long-term debt, see Note 18 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report.
•Loss on extinguishment and modification of debt primarily reflects $1.9 million of extinguishment of debt costs and $6.0 million in debt modification costs, both related to our term loan refinancing which occurred in the fourth quarter of fiscal 2023. For more information, see Note 18 to our Consolidated Financial Statements included in Item 8 of Part II of this annual report.
•Provision for income taxes decreased by $32.9 million, primarily due to the decrease in pre-tax income in fiscal 2024. Similarly, the effective tax rate for fiscal 2024 was higher than the effective tax rate for fiscal 2023, primarily due to the decrease in pre-tax income.
Segment Profit (Loss)
The table below sets forth the changes in our segment profit (loss) for the respective periods (in thousands, except percentage data):
| Fiscal Year | |||||||||||||||||||||||
| 2024 | 2023 | Increase (decrease) | %* | ||||||||||||||||||||
| Segment profit (loss): | |||||||||||||||||||||||
| Networking Platforms | $ | 536,510 | $ | 778,641 | $ | (242,131) | (31.1) | ||||||||||||||||
| Platform Software and Services | $ | 231,900 | $ | 186,945 | $ | ||||||||||||||||||