The movement to an all Internet Protocol network is helping to pump some life into the optical transport business, which is one of a few reasons Ciena posted better-than-expected financial results Thursday, according to its CEO, Gary Smith.

“We’re seeing good growth in Europe,” he said. “They didn’t have some of the large buildouts of capacity that we had in North America, so they are beginning to have capacity issues because they’ve deployed a lot of access, a lot of DSL and a lot of wireless backhaul with 3G that is putting pressure on their core infrastructure.”

Ciena posted a loss of $28.3 million or five cents a share for its fiscal second quarter, which ended April 30, an improvement over a year ago when it lost nine cents a share or $73.5 million. Revenues were $103.8 million, up 9.6% over the first quarter and 39% over the same period a year ago.

“Our financial performance is improving consistently both in terms of revenues and gross margins,” Smith said, “but we still have a ways to go to get normalized business.”

Still, Ciena made Wall Street happy by project a 5% growth rate going forward, above the expected 2%.

That’s based on Ciena’s positioning, largely through acquisition, to take advantage of the growth markets, Smith maintained. “We are probably entering into a period of a more sustained but modest growth,” he said. Much of the more interesting activity is taking place outside the U.S., Smith admitted, with Asian and European customers.

“From a technology standpoint, I think folks are moving from Sonet/TDM to the packet, IP world,” he said. “Different companies are at various stages. You have more ambitious plans like BT with its 21st Century network, plus Cable & Wireless, and the big PTTs moving that way, more aggressively.”

In the U.S., by contrast, many of the biggest players are focused on ramping up DSL sales – a move that Smith thinks is smart.

“I think that the carriers are being smart around trying to capture that market, rather than wait for this panacea of IPTV,” he said. “They are being very aggressive to capture customers and market share, with what they’ve got.”

Having said that, however, Smith admitted he is concerned that Asian and European service providers are moving more aggressively in areas such as broadband access and Ethernet services. While not offering a specific solution, he said he would like to see less wieldy regulation.

“Is the U.S. leading innovation anymore?” he asked. “I think we are moving toward a more globalization of the telecom market both in terms of carriers and vendors. If we fast-forward two to three years, from a vendor perspective, you’ve got to be very sure of your space in the world and what your value proposition is, because it is no longer enough to be successful in North America. Our positioning is around innovative technology deployed for economic gain. We are seeing more and more of that in Europe and Asia. We are investing our sales and marketing activity more outside of North America, as a result.

In addition to establishing an R&D center in India, Ciena is engaged in “selective globalization of the company,” Smith said. “We’ve always had as much as 50% of our revenues outside North America.”