시에나(CIEN) 2026 회계연도 3분기 실적 발표 콘퍼런스 콜: 수주 잔고와 AI 수요가 사상 최대 실적 견인

씨에나(NYSE: CIEN)는 AI 관련 네트워크 투자가 광학 시스템 및 상호연결(interconnect) 제품 수요를 가속화함에 따라 2026 회계연도 3분기 사상 최대 실적을 기록했다고 발표했다. 매출은 16억 7,000만 달러에 달했으며, 조정 영업이익률은 22.5%로 상승했고 조정 주당순이익(EPS)은 2.11달러로 증가했다.

핵심 요약

• 회계연도 3분기 매출은 전년 동기 대비 37% 증가한 16억 7,000만 달러로 사상 최대치를 기록했다. 조정 EPS는 215% 급증한 2.11달러를 기록했다.
• 조정 영업이익률은 전년 동기 대비 두 배 이상인 22.5%로 회사 설립 이래 최고치를 기록했다. 조정 매출총이익률은 관세 환급으로 인한 70베이시스포인트(bp) 혜택을 포함해 46.4%를 나타냈다.
• 수주잔고는 해당 분기 동안 8억 달러 증가하여 85억 달러를 기록했다. 경영진은 씨에나가 2026 회계연도를 마감할 때 수주잔고가 100억 달러를 넘어설 것으로 예상하고 있다.
• 상호연결을 포함한 광 네트워크 전체 매출은 45% 이상 증가했다. RLS 및 웨이브서버(Waveserver) 매출은 각각 55% 이상 늘었으며, 상호연결 매출은 두 배 이상 증가했다.
• 2026 회계연도 4분기 실적 전망(가이던스)으로 경영진은 매출 17억 5,000만 달러(±5,000만 달러), 조정 영업이익률 약 20%(±50베이시스포인트)를 제시했다.
• 씨에나의 2027 회계연도 예비 전망에 따르면 매출은 최소 30% 성장하여 83억~84억 달러에 달할 것으로 예상되며, 추가 부품 공급 확보 여부에 따라 상향 가능성이 있다.

주요 재무 데이터

사업 및 영업 실적

씨에나는 전통적인 광역 네트워크(WAN), AI WAN 인프라, 데이터 센터 내부 및 주변의 연결성 전반에서 수요가 가속화되고 있다고 밝혔다. 현재 회사 사업의 약 50%가 하이퍼스케일러로부터 직접 발생하고 있으며, 경영진은 미국 및 글로벌 시장의 신흥 '네오스케일러(neoscalers)'로부터의 수요도 증가하고 있다고 전했다.

상호연결을 포함한 광 네트워크 전체 매출은 전년 동기 대비 45% 이상 성장했다. RLS 및 웨이브서버 시스템은 각각 55% 이상 성장했으며, 클라우드 제공업체 직출 매출은 80% 이상 증가했다. 데이터 센터 내부 및 주변에서 발생한 매출 비중은 연초 대비 4배로 늘었다.

웨이브로직 6 익스트림(WaveLogic 6 Extreme)의 도입 속도는 이미 웨이브로직 5e의 증가세를 넘어섰다. 경영진은 이 플랫폼이 출시 18개월이 지난 시점에도 시장에서 유일한 1.6테라비트 고성능 모뎀으로 남아 있다고 밝혔다. 800ZR 웨이브로직 5 나노 플러그형 광학 제품의 출하량은 회계연도 3분기에 전분기 대비 두 배 이상 증가했다.

씨에나는 RLS가 분리형 광 전송 시스템(disaggregated optical line-system) 시장의 약 70%를 점유하고 있는 것으로 추정하고 있다. 차세대 RLS 하이퍼레일(Hyper-Rail) 플랫폼은 2026년 말까지 고객사의 초기 표준화 완성을 목표로 차질 없이 진행 중이다. 경영진은 부품 수급 상황에 따라 속도가 달라질 수 있지만, 하이퍼레일 매출이 2027 회계연도에는 수억 달러 규모로 본격 확대될 것으로 예상한다.

씨에나는 개방형 공동 광학 패키징(CPO) 솔루션인 베스타(Vesta)에 대해 주요 핵심 고객사 다수로부터 샘플 주문을 수주했다. 씨에나는 CPX 사업 매출이 2027년에 시작되어 2028년 동안 본격 성장할 것으로 예상하고 있다.

경영진은 WAN 및 데이터 센터 아키텍처 전반으로 광 연결성이 확장됨에 따라 씨에나의 전체 잠재시장(TAM)이 2029년까지 약 250억 달러에서 약 500억 달러로 확대될 수 있다고 보고 있다.

경영진 가이던스

2027 회계연도 전망은 예비 수치다. 경영진은 83억~84억 달러를 기본선(baseline)으로 설명했으며, 씨에나가 추가 공급 능력을 확보할 경우 매출이 더 높아질 수 있다고 덧붙였다.

리스크 및 주시해야 할 사항

부품 공급은 여전히 매출 성장의 가장 큰 제약 요인으로 작용하고 있다. 씨에나는 2029년까지 일부 핵심 부품에 대한 장기 공급 계약을 확보했으며, 추가 공급업체 및 기술에 대한 자격 검증(qualification)을 진행 중이다. 경영진은 업계의 수급이 2028년 이전에는 균형을 되찾기 어려울 것으로 예상하고 있다.

이러한 공급 계약에는 추가적인 현금 지출이 수반된다. 회사는 생산능력 및 공급 확약을 위한 자금 집행으로 인해 회계연도 4분기 영업현금흐름이 감소할 것으로 예상하고 있다.

3분기 매출총이익률에 반영된 70베이시스포인트의 관세 환급 혜택은 일회성 회계 영향이었다. 경영진은 완화 조치를 취하기 전을 기준으로 캐나다의 신규 관세 제도가 분기당 약 1,000만 달러의 영향을 미칠 수 있지만, 현재 체제하에서 관세는 전반적으로 이익률에 중립적이라고 설명했다.

고객 집중도 위험도 계속 주시할 부분이다. 회계연도 3분기에는 2개 고객사가 각각 전체 매출의 10% 이상을 차지했다. 아울러 경영진은 고객 집중도로 인해 맞춤형 모뎀 소비 모델(customized modem consumption model)에서 발생하는 매출이 변동성(lumpy)을 보일 수 있다고 언급했다.

애널리스트 Q&A 하이라이트

• 가격 책정 및 계약 조건: 씨에나는 고객 및 제품에 따라 한 자릿수 후반에서 10대 후반 또는 20%대 초반 수준의 가격 인상을 예상하고 있다. 일부 가격 인상은 수주잔고에 선택적으로 적용될 예정이다. 또한 대금 지급 조건, 납품 이행률(fill rate), 상호 물량 확약 등에 대한 논의도 진행 중이다.
• 수주잔고 건전성: 경영진은 수주잔고 증가가 투기성 주문보다는 주로 납기(lead time) 연장에 기인한 것이라고 설명했다. 회계연도 말 예상 수주잔고의 대부분은 고객이 요청한 납품 기한이 2027 회계연도로 설정되어 있으며, 이는 회사의 2027 회계연도 매출 전망치의 대부분을 충당하는 수준이다.
• AI 인프라 지속성: 경영진은 확인되는 수요의 상당 부분이 기존 데이터 센터 간 연결 및 GPU 교체주기(refresh)에 따른 네트워크 용량 확장에 관련된 것이라고 밝혔다. 이에 따라 씨에나는 향후 2년간 신규 데이터 센터 건설 속도의 변화 가능성에 노출되는 영향이 제한적일 것으로 예상하고 있다.
• 스케일 아크로스 기회: 씨에나는 데이터 센터 간 스케일 아크로스(scale-across) 연결을 아직 초기 단계에 있는 주요 성장 동력으로 설명했다. 현재 구축은 주로 미국에 집중되어 있으며, 초기에는 분산형 AI 학습을 지원하고 있다.
• 하이퍼레일 수익성: 경영진은 하이퍼레일의 매출총이익률이 현재 회사 전체 평균을 상회할 것으로 예상하며, 2027~2029 회계연도 동안 매출 규모가 커짐에 따라 전체 이익 증대(accretive)에 기여할 것으로 기대하고 있다.
• 통신 사업자 수요: 씨에나는 북미, 인도, 일본 및 중동 일부 지역의 관리형 광섬유 네트워크 활성화에 힘입어 통신 사업자들의 지속적인 광 인프라 투자가 이어지고 있다고 보고 있다.

실적 발표 컨퍼런스 콜 전문

전체 실적 발표 컨퍼런스 콜 녹취록

경영진 발표

Operator

Hello, everyone. Thank you for joining us, and welcome to the Ciena Fiscal Q3 2026 Financial Results Call. [Operator Instructions]

I will now hand the conference over to Gregg Lampf, Vice President, Investor Relations. Gregg, please go ahead.

Gregg Lampf

Thank you, Jennifer. Good morning, and welcome to Ciena's 2026 Fiscal Third Quarter Conference Call. On the call today is Gary Smith, President and CEO; and Marc Graff, CFO. Scott McFeely, Executive Advisor is also with us for Q&A.

In addition to this call and the press release, we've posted to the Investors section of our website an accompanying investor presentation that reflects this discussion as well as certain highlighted items from the quarter. Our comments today speak to our recent performance, our views on current market dynamics and drivers of our business as well as a discussion of our financial outlook. Today's discussion includes certain adjusted or non-GAAP measures of Ciena's results of operations. A reconciliation of these non-GAAP measures to our GAAP results is included in today's release.

Before turning the call over to Gary, I'll remind you that during this call, we'll be making certain forward-looking statements. Such statements, including our quarterly and annual guidance, commentary on market dynamics and discussion of opportunities and strategy are based on current expectations, forecasts and assumptions regarding the company and its markets, which include risks and uncertainties that could cause actual results to differ materially from the statements discussed today. Assumptions relating to our outlook, whether mentioned on this call or included in the investor presentation that we posted earlier today are an important part of such forward-looking statements, and we encourage you to consider them. Our forward-looking statements should also be viewed in the context of the risk factors detailed in our most recent 10-K and our forthcoming 10-Q. Ciena assumes no obligation to update the information discussed in this conference call, whether as a result of new information, future events or otherwise.

As always, we'll offer as much Q&A as possible today, though we ask that you limit yourselves to one question and one follow-up.

Now I'll hand the call over to Gary.

Gary Smith

Thanks, Gregg, and good morning, everybody. Today, we reported record financial results across the board that we demonstrated outstanding third quarter performance, including revenues of $1.7 billion, another quarterly record and up 37% year-on-year. Adjusted operating margin of 22.5%, exceeding guidance was more than doubling year-on-year and the highest ever achieved for the company. Our adjusted earnings per share are up 215% year-on-year to a record $2.11.

We delivered results in the context of an extraordinary industry demand environment that continues to accelerate. We continue to see strong momentum in customer demand and order flow, with a Q3 book-to-bill ratio that was significantly greater than 1, which resulted in a substantial quarterly increase in our backlog. And we also expect backlog to grow at an even greater rate in Q4. In fact, just 1 quarter -- sorry, 1 month into this quarter, we are approaching a level of orders booked equal to the entirety of Q3. As a result, we are currently projecting to exit fiscal 2026 with over $10 billion in backlog. Overall, our outstanding Q3 performance reflects Ciena's essential role in the fundamental re-architecting of network infrastructure.

And looking at these industry dynamics, I would remind everybody that we remain in the very early stages of a multiyear, highly durable network investment era. This is springboarding and caused by the large and growing investments in data center infrastructure. AI is starting to build on the previous eras of communications, including those driven first by the Internet and then by the cloud, but it is doing so at a massive scale. As a result, AI is currently driving and will continue to drive significant increases in both bandwidth connectivity demand and network traffic growth.

In that context, high-speed, low-latency optical connectivity has become a critical enabler to not only operationalizing the AI-driven investments in the network and the data center, but also monetizing those investments over time. And because of the increasing demands for higher capacity, faster speed, greater density, improved reliability, reduced space and lower power and cost, optics have become the indispensable element for next-generation AI architectures. And this is manifesting across all 3 of our primary markets. First, you call it the traditional network or the wide area network, the WAN, encompasses the network backbone, network edge and network operations. It includes optical connectivity for long haul, subsea, metro regional applications that people are familiar with. And it has also been impacted by AI in a number of ways. From challenges of fiber availability in the backbone to quality of service demands at the edge to the requirements of automation to address the increasing complexity of network operations.

Second is a market that we are referring to as AI WAN. It includes both data center interconnect or DCI for the WAN backbone and scale across currently used for distributed training across data centers and subsequently to be used for inferencing. Here, the fundamental challenges are related to power caused by the increasing GPU compute capacity and energy load required to train large language models at scale and the high volume, low power demands of deploying modems at much greater scale. The third is, of course, the data center themselves, which includes the fabric connectivity domains of scale up and scale out as well as data center operations. And as AI continues to drive up the data rates and bandwidth requirements inside the data center, new optical technologies and applications are required to provide the needed improvements in capacity and density for short-reach low-power connections.

Given the acceleration and projected increase in the compounding waves of spend on network infrastructure across these markets, we continue to believe that the total addressable market for our business will effectively double over the next 3 years, growing from approximately $25 billion today to approximately $50 billion by 2029. Moreover, given our growing competitive advantages, we expect our share of that TAM to continue to increase over that time frame. More specifically, Ciena's long-established technology leadership in optical networking positions us to capture a growing share of wallet as optical connectivity expands its role throughout the WAN and inside the data center. Across generations of Coherent technology, Ciena's first-to-market benchmarks have set the bar for the industry and continue to do so. Ciena was the first to commercialize coherent optics decades ago, and we continue to lead the industry in optical innovation, backed by very focused R&D deep expertise and proven deployment at scale.

Moving forward, performance gains will increasingly depend on precisely these capabilities. Because of our leadership position and value proposition, we've developed a high degree of competitive differentiation across our portfolio, with the clearest proof being the customer adoption that we're seeing across our portfolio in each of the primary market segments. So starting with both the traditional WAN market, as I outlined, and the AI WAN. Today's market dynamics are driving higher adoption rates for our WaveLogic 6 Extreme platform, which after 18 months is still the only 1.6 terabit, high-performance modem on the market today. Notably, its ramp has already exceeded that of our prior generation WaveLogic 5e.

Separately, customer adoption and scaling of our intelligent line systems remains exceptionally strong. RLS is basically the industry standard in disaggregated optical line systems where Ciena's first mover advantage has driven a leading installed base where roughly we have 70% market share. In addition to serving cloud providers and service providers in the network backbone and cloud providers for DCI in the AI WAN, RLS is the industry's first system deployed for scale-across applications. And the next generation of RLS Hyper-Rail is our second generation of RLS and represents our sixth generation of photonic line systems leadership. Co-created with the hyperscalers, it dramatically increases the density of existing optical amplifier infrastructure and as such, is purpose-built to address the needs to distribute AI training workloads in data centers across greater distances. With customer orders ramping, we remain on track for initial customer standardization for RLS Hyper-Rail by the end of 2026, and scaling to material revenue as we move throughout 2027.

Turning to our interconnects portfolio. We're applying our optical leadership to a growing portfolio of connectivity solutions that address surging bandwidth demands inside and around the data center and the performance limitations, of course, of today's short-reach technologies. Starting with our WaveLogic 5 Nano pluggable optics, we are seeing strong market adoption as we continue to ramp into production volume. In fact, in Q3, we shipped more than twice the volume of 800 ZR plugs than in the previous quarter. In addition, during the quarter, we made strong progress with the components portion of our interconnect portfolio. We are seeing strong market receptivity to Nitro, a linear redriver for active copper cable solutions. And I'm pleased to report that we received sample orders from several anchor customers in the ecosystem for Vesta, our open co-packaged optical or CPX solution. This represents another important step towards the commercialization of our open ecosystem approach towards short-reach data center optics. And we believe this is gaining meaningful industry momentum. Most importantly, with potential customers. As in any new growth sector, our CPX business will continue to strengthen over time with revenue expected to begin in 2027 and ramping into 2028.

And finally, it's worth noting that last quarter, we announced a significant win with a major hyperscaler that integrates our WaveLogic 6e coherent technology into their own platform. This solution goes well beyond the modem and combines our DSP, drivers, TIAs and Coherent expertise into a complete module that will be deployed broadly across the customer's global optical network via their own optical platform. I think this win demonstrates our ability to deliver for our customers across multiple consumption models with our best-in-class portfolio, and this represents a significant takeaway from a component competitor.

At the highest level, the current and future waves of AI-driven demands on bandwidth and network traffic will require industry-leading high-speed optical connectivity. We remain focused on managing the business with this long-term view, supported by durable demand, a broad set of co-creation opportunities and customer design wins robust orders and a backlog that extends well into fiscal 2028. Looking forward, the strength of our market position and the breadth of our portfolio provides us with growing confidence and visibility into a multiyear runway of growth, operating leverage and increasing profitability. As a result and to add to this level of confidence, we recently secured a significant increase in customer commitments that extend through 2029.

At the same time, as Marc will discuss in a few moments, we've also secured incremental supply capacity for critical component optical components to service that multiyear demand. So in summary, Ciena's unmatched combination of leading optical technologies, incumbency, portfolio breadth and deep expertise across systems, components, software and services gives us a powerful and sustainable competitive advantage. And really as the only pure-play optical systems and interconnect vendor operating at scale, we are uniquely positioned to convert AI-driven demand into durable top line growth with increasing operating leverage and earnings power over multiple years, delivering differentiated value for our customers and our shareholders.

With that, I'll hand the call over to Marc for an update on our financials and our outlook.

Marc Graff

Thank you, Gary, and good morning, everyone. As Gary just discussed, our focus is on delivering strong financial performance while ensuring security of supply and manufacturing capacity necessary to support the significant multiyear demand in front of us. Within that context, we continue to make excellent progress against our 3 financial priorities.

First, let me discuss our progress on gross margin. We achieved 46.4% adjusted gross margin this quarter, which was positively impacted by the treatment of tariff refunds by about 70 basis points. Even without the tariff impact, gross margin achieved the top end of guidance, reflecting disciplined cost execution, favorable mix and pricing discipline. Our midterm goal is to structurally position the company to achieve mid-40s gross margins. With our results over the past several quarters, we are confident that we have reset our margin baseline to this mid-40s goal. But as we've said over the past year, the mid-40s goal was a waypoint, not the final destination. We have the cost structure and leadership portfolio to expand gross margins further over the next few years.

Second, as we balance the investments to support the growth of our business, working capital remains a focus. While our cash conversion has taken a step back quarter-on-quarter, the overall trend is positive relative to the year ago results. We've invested working capital to support slightly higher inventory levels and to increase revenue through the quarter. Even with these investments, we've generated $116 million in free cash flow. Third is capital allocation. We continue to take meaningful steps to improve the operational and financial efficiency of the business. Our June convertible debt issuance achieved 2 specific goals. First, it lowered our cost of capital with a 5-year 0 coupon instrument at an economic conversion premium of 114% from which we retired our 5.5% interest term loan.

Second, it provided the capital to help secure supply over the next 3 years. We maintain strategic flexibility as a result and have $2.8 billion in cash and equivalents at the end of Q3. Our capital investments this year have increased capacity sufficient to support RLS, plug and Waveserver revenue growth, all over 60% year-to-date. Additionally, we continue to return capital to our shareholders in Q3. We repurchased 356,000 shares for an aggregate price of $172 million, reflecting the acceleration associated with the convert deal. Lastly, we expect to be on the high end of our capital expenditure range of $250 million to $275 million.

Now let's move to the quarterly results in more detail. As Gary noted in his opening remarks, revenue achieved $1.67 billion at the top end of our guidance, an increase of 37% year-on-year and another quarterly record. Our total combined optical networks revenue, including interconnects, grew over 45% year-on-year, supported by over 55% growth for both our RLS and Waveserver systems. Our interconnects more than doubled year-on-year, while our direct cloud provider revenue grew over 80%. Our in and around the data center percent of revenue has quadrupled year-to-date, well ahead of our committed 3x growth from the beginning of the year. We had 2 customers that each contributed more than 10% of revenue. And lastly, we exited Q3 with an $800 million increase in backlog to $8.5 billion.

Orders continue to accelerate, as Gary noted, 1 month into the quarter, we have booked nearly as much demand as all of Q3 and expect to end the year with more than $10 billion in backlog. As I noted earlier, adjusted gross margin was 46.4% exceeding the top end of our guidance by 90 basis points and up 450 basis points year-on-year. Q3 adjusted operating expense was $400 million, coming in at the low end of our guide and driving a record adjusted operating margin of 22.5%, 250 basis points over our guide and more than doubling the year ago results. Adjusted EPS reached $2.11 more than triple the year-ago figure and achieving a new record level for the company.

Now let's move to guidance for the last quarter of the year. In Q4 '26, we expect to deliver revenue of $1.75 billion, plus or minus $50 million, raising the full year midpoint to $6.42 billion, up $120 million from last quarter. With this revenue guide, we expect to increase our market share in the combined optical systems and plug market by about 4 points to approximately 30%. We expect adjusted gross margins of 45%, plus or minus 50 basis points, bringing the year to a similar range, a raise of 50 basis points from last quarter. Adjusted operating expense will be roughly $415 million, plus or minus $10 million, with our annual OpEx at 1.6, slightly down from the June guide. All told, we expect to drive an adjusted operating margin of approximately 20%, plus or minus 50 basis points, bringing the full year to between 20% and 21% and exceeding the 20% annual figure for the first time in the company's history.

Now let me address the topic of supply more closely. Gary described an unprecedented durable demand environment with backlog now into 2028. To ensure our ability to service this demand, we've taken decisive steps to strengthen our supply security and to increase our output. In recent weeks, we finalized long-term agreements that secure supply of certain key components through 2029, including incremental capacity for those key components that will enable us to support growing customer demand. This extends the investments we've made for this year to drive 35% revenue growth. We continue to invest upstream to drive security of supply to meet and eventually bring into balance the demand backlog. As a result, we expect to see a reduction in cash from cash from operations in Q4 as investments are disbursed to support these agreements.

At the same time, we continue to make progress in the value exchange discussions with our customers. In addition to price discussions, these conversations are increasingly focused on the alignment of various demand terms and conditions with the capacity required to support them. With this ongoing momentum and improved visibility into future demand, we believe it's prudent to provide early direction for fiscal 2027. As we see it today, we expect to deliver another record year with revenue growing a minimum of 30% year-on-year yielding at least $8.3 billion to $8.4 billion in revenue, with supply-driven upsides. Our investments in capacity and supply allow us to accelerate absolute revenue growth from '25 to '26 and now into '27.

At these levels, we expect to again increase our market share in optical systems and plugs in fiscal 2027. We expect gross margins to be at least between 45% and 46%. And we expect to achieve fiscal 2027 adjusted operating margin between 25% and 27%, posting yet another record in profitability and serving as yet another proof point for the earnings potential of Ciena's model. Again, this is our preliminary view of 2027 and we'll provide an update when we report our Q4 results in December. In the interim, we look forward to continuing the dialogue in a few weeks' time in Ottawa at our Investor Forum, the content from which will be posted on our investor website afterwards.

To close out, Q3 was a testament to the strength of Ciena's technology leadership, customer engagements and supply resiliency in the face of unprecedented multiyear demand. The execution of our business model has driven an acceleration of our earnings in Q3 in 2026, and we now believe into '27 and beyond.

With that, operator, we'll now take questions from our sell-side analysts.

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions]

Your first question comes from the line of George Notter with Wolfe Research. Please go ahead.

질의응답

George Notter

Congrats on the terrific results here. I guess I wanted to start just by, you mentioned value exchange on the call. Certainly, I think you mentioned prices as well as alignment of demand terms and conditions. Could you just talk a little bit more about what's going on there? Any sense for what price increases might look like? Any sense for what terms and conditions might be looking like in terms of the context of value chain exchange?

Marc Graff

George, it's Marc. Thanks for the question. I'll take it kind of in 2 parts. On the pricing piece, we've had conversations with customers across different product lines. And we've gotten to a space where we would expect, depending on the customer and the product line anywhere between, call it, high single digits types of price increases to something in the range of high teens, low 20s type of price increases. And what's remarkable, and I think you'll appreciate this, George, is some of that will selectively hit backlog, right? So I think we've made really good progress there.

The second pillar in terms of conditions is really a 2-way discussion. The first is we're on the hook to make sure that we deliver what we say we're going to deliver, but we expect the reciprocity of that from the customer side as well. And so we've covered those aspects. We've talked a little bit about payment terms. We've talked a little bit about fill rates and things like that. So we're trying to make it a pretty holistic conversation in terms of that value exchange. and not just have a conversation about price. Because just like we're looking for supply security. Our customers are looking for supply security from us as well. And it's something that we feel pretty confident that with the supply agreements that we can fulfill.

George Notter

Got it. Super. And then I know that there were some price increases. I think earlier in the year last year, just around tariffs. Is that something that's flowing into the model now? I know that in the past, you guys weren't -- you were not repricing backlog certainly, but is that something that's helping the gross margin now? Any sense there?

Marc Graff

Yes. It's -- this is Marc again, George. It's relatively neutral. We're not putting margin on top of tariffs, right? If we get $10 of tariffs, we kind of pass on that $10 of tariffs. What we saw in Q1 was kind of -- or I'm sorry, in Q3 was kind of a onetime accounting adjustment for those tariff refunds that we don't expect to continue moving forward. And that gave us about 70 points -- 70 basis points of uplift. But moving forward, I would say the tariff impact, again, under today's current regime, is relatively neutral. We're monitoring pretty closely some of the impacts that are coming out of the new Canadian tariff regime. That could have an impact of, call it, $10-ish million a quarter. But again, we're still trying to work through the mitigation actions that we've got associated with that.

Operator

Your next question comes from the line of Tal Liani with Bank of America. Please go ahead.

Tal Liani

Gary, if I told you 3 years ago that you're going to grow 30% with 26% margin, you would have asked to drink the same thing I'm drinking. So the question I have is about backlog. So your backlog is doubling this year, and it grows even faster than revenues. Your revenues are growing fast, and it grows even faster than revenues. I'm trying to understand the early ordering portion of the backlog, the maybe customers are buying ahead just because of supply constraints. I'm not -- it's not a concern. I just want to understand kind of get understanding of how backlog could behave in 2027. That's the reason for my question.

Gary Smith

Okay. I think it's almost entirely just driven by a function of lead times. The demand is absolutely there. And just to sort of illustrate that. Marc gave an early indication of what we think our guidance is for the euro just a really directional indication for next year, it would be greater than that if supply was greater. I mean that sort of, I think, summarizes it.

We've got -- we think at least a $10 billion backlog as we leave this year. And in the midpoint of what Marc was talking about, you're looking at revenues of 8.3, 8.4 as sort of baseline for us for next year, it would be greater than that if we had more supply. And so the demand is absolutely there. You look at our installation services, they're up 35% for the year. And as soon as we can ship it, it's installed and carrying traffic.

Marc Graff

Yes. Tal, maybe I'll just add maybe a little bit more context here. If you look back all the way back to 2024, our orders, call that demand doubled from '24 to '25. From '25 to '26, we're expecting another 50% increase. And as you rightly noted, backlog is doubling across all 3 of those years from '24 to '25 was a double from '25 to '26 is a double. And so what we're really constrained with is the industry needs to add a significant amount of capacity to keep up with that demand. And so we think it's going to be a multiyear journey before we see that supply and demand get back into balance and multiyear. So we don't see that happening before '28 at all. And so I think you'll see a very similar constrained dynamic going into '27 and likely into '28.

Tal Liani

Got it. And any -- if I can just ask a follow-up. Any color on customer composition, meaning hyperscalers, I understand. What about smaller hyperscalers, meaning new clouds and new hyperscalers like Oracle? So without names of customers, but can you discuss your ability to kind of grow the customer list over time? And where is the demand?

Gary Smith

Yes. About 50% of our business is now hyperscalers directly. But increasingly, I think to your point, we're seeing the sort of neoscalers, umbrella of neoscalers, which covers multitude of different business models, et cetera. We are very focused on that space. They are leaning very much into networking now and they are securing networks on MOFN deals. They're beginning to put their own fiber in when they can get it. and we are taking more than our fair share of that market as it grows. So we are very focused on addressing that market, both in the U.S. and globally. We're seeing that in certain parts of the world where these neoscalers are investing in the networking. So I think as we go through '27 and '28, that will become an increasingly important part of our business.

Operator

Your next question comes from the line of Meta Marshall with Morgan Stanley.

Meta Marshall

Great. A couple of questions. Maybe just following up on George's question. Just in terms of some of these new arrangements that you guys are having with -- or discussions that you're having with customers, is some of those -- are some of those pricing adjustments dependent on time line of delivery like in terms of if you can deliver 6 months earlier, you can capture high single digits versus a mid-single-digit price adjustment? Just trying to get a sense of whether there's any kind of escalators in there? And then second question, just as you guys look to assure more supply, have you qualified additional suppliers at this point? Or is this largely reaching long-term agreements with existing suppliers?

Marc Graff

Yes. Thanks, Meta. It's Marc. So on your first question in terms of escalators, we really haven't built those in, like the price increases that we've talked about aren't necessarily performance-based per se. They will cut in as more and more backlog from those orders becomes a bigger part of our revenue. So I wouldn't say that it's performance related. Once we agree to those price increases, it's really around when we deliver it, they'll pay for it.

In terms of qualifying new suppliers, yes, that is part of our supply resiliency strategy that we're driving. We've got our typical providers that are in the table that you know very well, but we are looking at expanding both the type -- the numbers of suppliers that we have as well as we're constantly looking at new technologies to satisfy the same type of functionality. So we're taking both a quantity as well as a technology perspective to our supply chain.

Operator

Your next question comes from the line of Joseph Cardoso with JPMorgan.

Joseph Cardoso

I'll share my congrats as well on the results and guidance here. Maybe another backlog question and more on the composition of it. As we think about the portfolio offerings that you guys have and maybe the several irons in the fire that you guys are trying to address, where are you seeing the strong demand inflection as we were entering the back half of the fiscal year? And as a second part to that, it's great to hear that you're seeing visibility now into '28, but any color you can provide on the weighting of orders coming in for '27 versus '28, essentially, just trying to get a better understanding of how much of '27 is already covered versus what is building for '28 now? And then I have a follow-up.

Gary Smith

So the first part of that question, Joe, thank you, is really we're seeing broad demand across the portfolio and you'd say characterized as being line systems, both in terms of the existing RLS and Hyper-rail. We've got a number of new wins for hyper rail that we're beginning to -- will begin to ramp up during '27. So there are a lot of infrastructure going in for that, I mean, and think scale across, not entirely, but predominantly are the deployments for that, that's driving it.

And then on the modem side, we shared some of the statistics that you're seeing for WaveLogic 6. We doubled output, it's already at this point, exceeding 5e in terms of its adoption. And I think that, again, just talks to the need for high-speed distance for these kinds of applications. So we're seeing it on the modem side. And of course, we're seeing it on the infrastructure of line systems. We're also seeing that both in terms of MOFN deals globally as well to support this expansion, particularly markets like India and the Middle East. And certain parts of Asia where the hyperscalers are leaning into provisioning of extension of their networks. Submarine as well, massive build-outs going on across the global submarine market, where we have #1 market share in the world. So we're seeing that across it, Joe.

And in terms of the profile of the backlog, we've got -- as you said, we'll probably have about $10 billion plus backlog as we go into 2027. We cannot satisfy basically all of the requirements that they would take to deliver all of that in '27.

Scott McFeely

Joseph, the vast majority of that $10 billion comes with the customer request date, that's actually in '27, meaning that they would take it if we could give it to them. So you -- 2 questions. The backlog covers most of the '27 guide.

Operator

Your next question comes from the line of Ruben Roy with Stifel.

Ruben Roy

Yes. Gary, for the first question, I wanted to maybe drill into the performance optics discussion and sort of the consumption model that compared to the systems model. Can you -- is that a bespoke arrangement with 1 customer? Are you productizing this consumption model as you go forward? And I guess, as you think about that longer term, and how that sits in the interconnect family, if you could talk a little bit about the margin structure as that consumption model starts to build.

Scott McFeely

Ruben, it's Scott. So first of all, I kind of ask the question in 2 different angles about how I heard it from you. First of all, the performance modem portfolio, the WaveLogic Extreme family, if you like, WaveLogic 5 and then WaveLogic 6. It's obviously very broadly deployed solution within our systems business. So we have a lot of deployments out there on extreme volumes. The specific opportunity you're referring to, though, of taking that and offering it up in a different consumption model is bespoke relationships with individual customers. We have 2 examples of that today. One that was a recent announcement last quarter.

It's certainly something that we don't shy away from. We made the technology available. However, our customers want to consume it. But in those examples, those are very, very unique in terms of how those customers want to deploy them, so they're kind of custom development for them. And the relationship we have with those customers reflects that.

Ruben Roy

Okay. And then as a quick follow-up for Marc, sorry if I missed this, Marc, but with the 25% to 27% operating margin guidance for '27 or first look at '27, that implies, I think, roughly flat to maybe up a little bit, operating expenses. If you could just walk us through sort of the mechanics around operating expense as you look out into fiscal '27, that would be helpful.

Marc Graff

Yes. No problem, Joe. We haven't really closed in yet. We're kind of in the middle of our annual planning process. But the puts and takes that you should kind of be thinking about is this year, we'll spend roughly, call it, $1.6 billion. Keep in mind that $1.6 billion includes a bunch of onetime variable compensation that a year ago, we were telling you it was going to be about $1.5 billion. We're at $1.6 billion, mostly because of that variable comp. We're going to reinvest that onetime. So that's -- when you say it's about flat, all the folks sitting around the table here are looking at $100 million more of investment that they get regardless of the performance of the company. So we are reinvesting those onetime things.

And I think you'll also see there'll be a little bit more investment in some of the activities, particularly around line systems as we continue to grow that business and invest in our interconnect portfolio.

Operator

Your next question comes from the line of Ryan Koontz with Needham & Co.

Ryan Koontz

Great. In light of some of the politics around data center construction and the like, which I know weighs on investor minds a lot and it's a lot of the broader sector around. How do you feel about the pace of catch-up of your WAN projects relative to data center construction? Do you feel like you've got visibility independent of pacing of data centers in that light? Maybe you can comment on that, Gary.

Gary Smith

Yes. No, listen, it's a great topical question. I would say that as we talk to the hyperscalers and we talk about durability of demand and their long-term view and the rest of it in getting long-term agreements with them and commitments. So part of that, one of the comments that was made to me was basically that if they stopped building data centers tomorrow, Gary, you probably wouldn't notice for 2 years. Meaning, they've already got these data centers out there, and they need connectivity and they're not going to strand the assets. And secondly, they've got data centers that they must increase the network capacity to.

And so largely, what we've got in backlog here and what we've got visibility to going forward is really the data centers that are already there. And particularly, you've got a lot of international expansion as well. And it's really the refresh of the GPUs in these data centers that are already there that require massive amounts of additional connectivity. And bear in mind, we have a unique insight into this because we've got #1 market share in data center connectivity before all of this AI expansion began. So we have got the connection to most of the data centers around the world. A lot of what we're seeing is the expansion and increasing of that capacity and connectivity to enable the refreshing of the GPUs, et cetera. And you've also got all of the inference and agentic stuff in front of us.

So Ryan, certainly, for the next couple of years, we think we're largely immune from what may or may happen with the pacing of new data centers.

Ryan Koontz

That's great. And maybe as a follow-up, any commentary on the product mix here as you've seen like in the most recent quarter or maybe recent bookings in terms of shift of line systems versus pluggables and transponders, any commentary there?

Marc Graff

Yes, maybe I'll jump in and others can add color, Ryan. So as I think through what we've seen, particularly over the last 12 months, I think we've seen our plugs and our line systems, particularly RLS, really grow at much higher than corporate average growth rates, right? I think I mentioned plugs and RLS together as part of our optical piece growing 45%. So you kind of see how that's becoming a bigger piece of the pie. One of the things that from a margin perspective that we're seeing is, as our DCOM solution really starts to increase over the last year. That's really driven pretty accretive dynamic for us moving forward. We expect that to continue. And then obviously, as we add Hyper-Rail, that's going to be another accretive motion for us.

And so I think what you're seeing is the optical piece of our portfolio really driving a bunch of the growth for the company. And then obviously, we've got the DCOM piece, which is shown in route and switch, really in the early part of its ramp as well.

Scott McFeely

I think, Ryan, I mean, a dynamic that's been going on since 2024. We're just seeing more and more demand for line systems, meaning more fibers are getting it. And those are getting lit with coherent optics of all flavors, whether it be plugs or performance optics consumed in Waveserver. And all those, to Marc's point, are up well north of the 35% or 37% that we're reporting as a corporate average. And that's going to continue, we think, going into the foreseeable future. The DCOM piece is a great adder, but it's a bit lumpy because of the concentration of the customers. So from quarter-to-quarter DCOM will come and go. But it's a net new add for us.

Operator

Your next question comes from the line of Tim Long with Barclays.

Timothy Long

Appreciate it. Two for me as well. Maybe first, if we could dig a little deeper into Hyper-Rail, I mentioned it a few times here on the value-add side and ramp. Just kind of update us on -- it sounds like a few customers, but where are we in the demand profile? And how quickly could we see the ramp of this product? And kind of just to remind us on the economics versus like more the RLS prior generation. And then the follow-up would be on just the pure telco business, maybe ex [indiscernible], if you could just talk a little bit about the durability of that business in the past, that's been a little bit more cyclical. So just curious of the outlook on just the pure telco piece.

Marc Graff

Yes. I'll start on Hyper-Rail, Tim, and then others can jump in. We're on track for getting that product to standardization by the end of this calendar year, and you'll see the ramp starting in and that ramp in '27 will be to several hundred million dollars, right? So we're looking at that as a pretty meaningful ramp for us. Yes. The back story on that is it probably could be faster if we get more components, right? So obviously, we're working day and night on that.

From an economics perspective, relative to RLS, I think the team has done a fantastic job of improving the margins over the last 4 to 8 quarters on RLS to get us to a pretty decent margin profile. Hyper-Rail will be a step function on top of that. And with the size of the ramp and the opportunity that we think is coming through with hyper rail, and the economics of that, it's going to be accretive to the company as a whole once we get into '27, '28, '29. So we're really looking forward to getting Hyper-Rail out there. And I think our customers are placing quite a few orders that's represented in that $10 billion of backlog that we expect at the end of the year.

Gary Smith

And on service provider growth, it's actually quite difficult to separate it from a lot of the MOFN activity that's going on. And we know the MOFN activity is high. But I'd say there's 2 things going on with the service provider piece. One, it is growing anyway because I think there's been underinvestment in optical infrastructure in the last 5 years. And you've got the service providers returning to drive out infrastructure for optical infrastructure. and you've also got this MOFN piece. And you've seen that phenomenon now, certainly in North America.

If you go back about 18 months, it was very much an international phenomenon. But now with training and the rest of it, we're seeing that very much so in North America. And that is driving a lot of the -- particularly the wholesale market in the U.S. and the wholesale carriers that specialize in that, we're seeing very strong growth in that space. and we expect that to continue. Markets like India, particularly for MOFN, we're seeing explosive growth in provisioning of MOFN networks for multiple Hyper-Railers in places like India, Japan, I would also highlight and then certain parts of the Middle East. So we expect to see good, steady service provider growth continue over the next few years, irrespective of the MOFN phenomenon.

Operator

Your next question comes from the line of Simon Leopold with Raymond James.

Jeffrey Koche

Jeff Koche in for Simon. I really wanted to ask on -- first question on the software business. It doesn't really appear like the web-scale RLS deployments are a driver here. Is that like kind of the right interpretation? Is that because they have their own solutions? And to that end, like how do you win the RLS deals if it's not like a management platform take play? I have a follow-up.

Scott McFeely

Scott here. Yes. I mean, your hypothesis that there's less off-box software components in a web-scale deal in general, not just an AI deal, is valid. That's a fair statement. However, having said that, to your second question, don't take that comment to mean that the only thing these guys are buying is merchant hardware from us because the value that they get is much broader than that. and whether it's submarine networks, their existing backbone, their DCI networks are their scale across networks, the statement is true across the piece they're getting -- yes, the hardware platform, but some very sophisticated on-box software capabilities that is embedded into their back office system that has an awful lot of intelligence in it. protection mechanism, et cetera, to allow them to deliver to their SLAs.

They're getting planning tools and deployment tools, they're getting link engineering tools. They're getting a global across the world service capability to turn these things on, preposition them, preconfigure them and turn them on a set of skills that we've developed with them and their relationships for more than a decade now. So just because we're not selling as much off-box software components to service providers don't conclude, therefore, it's just like a commodity hardware sale. It's apart from that.

Jeffrey Koche

Great answer. So maybe just with that in mind, can you maybe give a little bit of color on how the gross margins are for that business and maybe how they're changing just maybe even just relative to the average.

Marc Graff

You're talking about the software, the off-box software?

Jeffrey Koche

For the line system. For the line of systems.

Marc Graff

Yes. So as I said previously with Tim, we've seen really good improvements in the RLS gross margins over the last 2, 3 years. And I expect that to continue, and those are approaching what I would call the corporate average. As we move into the next-generation Hyper-Rail, the economics get significantly better, right? And so those will be above the current corporate average. And I would expect with the size of opportunity that we have with Hyper-Rail over the next couple of years, that will be accretive.

Jeffrey Koche

Terrific. Terrific. And then if I could just do another follow-up on the interconnect business and really just inside the data center. We know that Google you hear like Google is looking to deploy 2.4 terabit Coherent-Lite solution for CPUs. Maybe talk about -- are you in those deals? Are you being evaluated? What's your take there? And what's your take on optical circuit switching? Is that a product that Ciena would explore?

Scott McFeely

Yes. So a couple of things. There's a couple of questions there. The Coherent moving inside the data center, we said for a long time now that we think that's a trend that is inevitable, and it's going to happen, and we're committed to that. We absolutely believe in the Coherent-Lite market. We think the right intercept for that for the general market is at 3.2 terabits. And we think we'll be in a great position to be a leader in that in that market.

In terms of OCS. We love OCS because it is part of the continuation of more optics inside the data center. And it will drive actually adoption of coherent inside that data center faster than without OCS in our belief system. So that's all good news. That's a separate answer whether or not we're going to jump into the OCS market ourselves, and we're not going to comment on plans, make any product announcements or that on the call today.

Gregg Lampf

We're going to move on to one last question.

Operator

Your last question comes from the line of Tim Savageaux with Northland Capital Markets.

Timothy Savageaux

Congrats on the results and especially the guide, and that's kind of the focus of my question, which is along several lines, the case for accelerating revenue growth in fiscal '27 looks particularly strong. Whether we're talking about anecdotal commentary, backlog, hyper rail scale across, which will be my focus on my follow-up. And I know you sort of termed this as an initial guide, but I'd be interested in your commentary on the prospects for delivering accelerating revenue growth in fiscal '27. I know you mentioned supply as a constraint. And maybe what things might look like if that constraint were relaxed a bit.

Marc Graff

Yes. Tim, it's Marc. I think you kind of answered your own question. As we look at it -- and you're right, we are early, right? And typically, we wouldn't do this. But as we look at the demand -- or the dynamics that we're seeing in the market, we thought it was prudent to give our owners and the investment community, at least some initial thoughts on what we think the floor will be going into 2027.

But as you rightly pointed out, all of our focus right now is on how do we get more supply to get to get more of that demand. And as Gary said and Scott said as well, if we could get more demand, we would unwind that $10 billion of backlog faster right? And that 8.3 to 8.4 that we talked about is the floor would be higher. And so from an absolute dollar terms, we think we are accelerating the growth from '24 to '25 to '26 and into '27, excuse me, but it's really going to be dependent on that supply. And a year ago, when we did this for the first time, we said we thought '26 would grow 17% and here we are at 35%. Now I'm not suggesting that my 30% in the year is going to be 60%, right, because we're in obviously a different supply environment. But we want to make sure that we give you guys a floor and make sure that we can achieve at least that number that we give you while we continue to work on supply.

Timothy Savageaux

Great. And as a quick follow-up on scale across, I mean, to what extent is that maybe even the primary driver of growth in '27? And I'd be interested in your reaction so some pretty extraordinary comments from suppliers and competitors about dynamics and scale across, I think Cisco talking about 14x the port count versus traditional DCI and some pretty spectacular comments from Lumentum as well. Maybe we can sharpen the focus on the scale across opportunity, how you see that TAM having maybe increased in recent quarters?

Gary Smith

Yes, Tim, I think it's a major driver of demand. And we were the first out there with the first scale across piece that came out of the data center. So we've got good visibility to it. I concur with most of the industry comments that's gone on to it. I think, it's excuse the pun, it is at a massive scale, and it's just beginning. That's the point I would make is we're just beginning to roll out the first connectivity between these data centers. It is almost entirely North American, U.S. based, and we're just beginning to link the first few data centers for a couple of hyperscalers to it. And that's all in front of us. So yes, it's a massive driver to it.

But I also -- we're also seeing just a general increase in connectivity around the data centers as well. The agentic stuff is beginning to flow, particularly on the submarine cables. And the inference traffic, we also think is a big step function. It's mainly in front of us. So everywhere you look, basically, Tim, you're looking at compounding waves of applications and traffic growth that we'll just build on top of each other because even the scale across which is really predominantly now on training, started off with synchronous training. You're going to get asynchronous training as well. You're also going to get large amounts of inference cascading into that as well. So massive amounts of connectivity between these data centers in front of us. And we're only just at the early innings of that. And we are incredibly well positioned to it, having the leading platform for Hyper-Rail, RLS was an industry standard. We have about 70% of that market share, and we expect that to continue with Hyper-Rail and this next generation and the leading modem technology we can basically move bits faster and longer than anybody else in the world. And that's a super valued critical element that will enable this.

Gregg Lampf

Thanks, Tim, for the question. Thanks, Gary. We look forward to seeing everyone over the next several weeks at a very busy schedule. Thanks for your time this morning.

Operator

This concludes today's call. Thank you for attending. You may now disconnect.