Technology - Telecoms Equipment: Face-off: Comparing Nokia and Ciena

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Technology - Telecoms Equipment: Face-off: Comparing Nokia and Ciena

FoundationMahead, we scope for improving operating leverage into 2027 and catalysts from

potential new hyperscaler deals.

Ciena – the question is less about growth than margins: The investor debate

around Ciena is much less around growth – a known driver at this point – and more

about what margin leverage the company could deliver. Our investor conversations

suggest buyside EPS expectations for Ciena are near ~$18-20 for CY28, above our

estimates of ~$15, largely on better top and bottom line than our estimates. To the

degree investors believe that Nokia can produce 4 DSPs (digital signal processors) in

2 years (versus a track record for Nokia / Infinera of 1 in 4 years), Ciena can likely

continue to hold / gain share with hyperscalers and achieve buyside expectations.

However, between Nokia and Cisco competing more in the multi-rail market in

coming years, we do think that estimate revisions are possible, but that it will be

hard to exceed $20 targets, largely on margins. Bulls have noted an incremental

long haul network driving demand for Ciena, something we have not validated, but

to the extent it is the case, we would expect Ciena results to be gated more by

supply than demand in coming years.

Where we could be wrong: For the whole industry, the investment in scale-across

and the density needed is driven in part by training versus inference mix. While

scale-across demand with training use cases is expected to be 10-14x the traffic of

today, the demand with just inference use cases would be lower, dampening some

of the outer year demand (something we are not seeing today). We think the

biggest risk concerns the ability to meet such strong industry demand. In this regard,