Ciena Sets Q3 Order and Revenue Records

Ciena(NYSE:CIEN) reported fiscal third quarter 2025 results on September 4, 2025, with revenue of $1.22 billion and adjusted EPS of $0.67, up 91% year-over-year. The company set a new record for quarterly orders and provided strong forward guidance, targeting approximately 17% revenue growth and a 43% gross margin for fiscal 2026, while accelerating its operating margin goal by one year. The following insights highlight key strategic shifts, operational strengths, and forward-looking expectations from the earnings call.

AI-driven demand boosts Ciena order growth

Order intake reached an all-time high, with two customers each accounting for 10% of revenue, reflecting significant AI infrastructure investments by both a global cloud provider and a tier-one telecom. This surge in demand is supported by Ciena's product mix and portfolio breadth, which position the company to benefit from hyperscaler and service provider network investments as AI workloads drive multi-year spending cycles.

"Further evidence of strong demand was in our Q3 order book, which was again considerably above revenue and in fact set a new quarterly record for us. The step function increase in orders we've seen in recent quarters really underscores how the network is now fundamental to the underpinning, growth and monetization of AI. At a strategic level, for cloud providers to monetize their substantial AI investments in LLMs and GPUs and related data center infrastructure, they need to invest in the network infrastructure that interconnects data centers or they risk stranding their massive investments."
— Gary Smith, President and CEO

This record order momentum, driven by AI-related network build-outs, enhances Ciena's long-term revenue visibility and cements its role as a critical enabler in the expanding digital infrastructure ecosystem.

Ciena shifts R&D to optical and AI-centric platforms

The company is reallocating research and development to focus on coherent optical systems, network interconnects, and AI-driven solutions such as DCOM (data center out-of-band management), while discontinuing new investment in residential broadband access (passive optical networking, or PON). This strategic pivot is underscored by a noncash R&D impairment charge of approximately $90 million in Q4 fiscal 2025 and a $20 million restructuring expense affecting 4%-5% of the workforce.

"To ensure we can take full advantage of those growth opportunities and as part of our regular review of our overall product portfolio, we've recently made decisions to align our strategic investments on our coherent optical systems, interconnects, coherent routing and innovative solutions like our data center out-of-band management solution, which I mentioned earlier. To that end, we will be redirecting additional R and D investment into these technologies and away from our residential broadband access portfolio, given the larger customer priorities for AI-driven and cloud network investments over the next several years. To be clear, we will continue to sell and support our existing broadband access products. However, we will be limiting forward investments only to strategic areas such as DCOM."
— Gary Smith, President and CEO

This decisive reallocation of capital and talent enables Ciena to prioritize higher-margin, faster-growing markets aligned with AI adoption, potentially increasing long-term shareholder value through improved operating leverage.

Margins expand as Ciena accelerates financial targets

Ciena reported sequential revenue growth of 8% and an adjusted gross margin of 41.9%, 90 basis points above guidance, with adjusted operating margin rising 270 basis points year-over-year to 10.7%. Share repurchases reached $245 million year-to-date, and supply chain investments have mitigated most tariff-related headwinds, supporting the company's accelerated timeline to reach 15%-16% operating margins by fiscal 2026 with flat operating expenses despite double-digit revenue growth.

"With this strength and the momentum we're seeing in 2025, we have increased confidence to provide a preliminary view of 2026. As we see it today, we expect to deliver approximately 17% year on year growth in fiscal 2026, similar to what we're currently projecting in fiscal 2025, achieving the high end of our three-year revenue CAGR target one year early. We expect that gross margins will continue to improve in fiscal 2026 with an initial estimate of 43% plus or minus one point. And we expect to continue investment in our product and technology roadmap funded by a combination of portfolio decisions and operational efficiencies, the net result of which will enable fiscal 2026 OpEx to be flat to fiscal 2025 at approximately $1.5 billion. Taken together, we now believe that we will accelerate our longer-term goal of 15% to 16% operating margin by one year from 2027 to 2026, driven by increased operating leverage and improving gross margins."
— Mark Graff, CFO

Improved product mix, pricing discipline, and volume-driven cost reductions in high-speed optical modules strengthen Ciena's ability to achieve higher margins and cash flow, even amid a dynamic industry environment.

Looking Ahead

Ciena guides fiscal fourth quarter revenue between $1.24 billion and $1.32 billion, with adjusted gross margin expected at 42%-43% (non-GAAP) and adjusted operating expenses of $390 million to $400 million. For fiscal 2026, management expects approximately 17% year-over-year revenue growth, gross margin (non-GAAP) of 43% plus or minus one point, and operating margin rising to 15%-16%, with operating expenses held flat at approximately $1.5 billion. The company will continue to prioritize organic investment in its AI-centric portfolio and execute $85 million more in share repurchases to reach a $330 million full-year total, with no new three-year targets provided due to the early achievement of prior goals.

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This article was created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.