Blog Post

Ciena, See-Na… whatever

There was a time when Ciena was a stock market darling, a DWDM diva that could no wrong. Now it has go for a makeover that would do Doctor 90210 proud. Gary Smith, president and CEO of Ciena, told Telephony that it is undertaking a new image makeover to portray Ciena in a new light followed a spate of four acquisitions over the course of 18 months. “It’s a fairly simple message,” Smith told Telephony. “The platforms we bought positioned us for growth as a provider of solutions. We’re trying not to be all things to all people. The world doesn’t need another broad-based, soup-to-nuts vendor.”
Well whatever Smith says, things have not been going well, despite all the buys. Lets start with Catena, one of the major buys the company made. Susan Kalla, the FBR analyst who tracks Ciena in a recent note pointed out that there may not be much opportunity for Catena.

Catena sells line cards that let service providers upgrade older digital loop carriers (called SLC-5s) for DSL by replacing two voice cards with one voice card that supports two voice lines and DSL.  Kalla sees “Catena’s CNX-5 may merely be a stop-gap alternative in a shrinking market. For example, Verizon said it had already upgraded 31K remote terminals for DSL, either with loop carrier replacements or DSLAM overlays and expects to “step down” spending on DSL in the second half of 2004.” With all the spending going to FTT-X projects, things are getting tougher in the DSL business. Even SBC, the biggest booster of DSL is slowing down, and refocusing. (Kalla/FBR)

Merrill Lynch in a recent note pointed out that it was less bullish (translation: downbeat) on Catena because it has a niche role in voice to ADSL upgrades.  ” Near-term outlook for domestic DSL and DLC vendors like AFC, Catena (Ciena), Alcatel, Adtran and Lucent is negative,” Merrill summed up.

“This move doesn’t surprise me,” said Matt Davis, director of broadband access research at Yankee Group. “There is no question that business is starting to slide, and Ciena has been working for a while to get more into end-to-end service delivery. Down the road, they’ll still have to execute.”

Lets take the other big acquisition, Wavesmith that makes multiservice platforms that convert TDM voice, frame relay, and ATM traffic into IP/MPLS and the Bells can use it for enterprise customers. Verizon said its purchases are likely to be “very small” in 2004-2005 since it is not aggressively pursuing the enterprise data market.

Verizon is using Ciena’s WaveSmith DN 7100 and DN 7200 multiservice switches in its enterprise networks. We estimate that VZ will spend about $10 million in 2005 on WaveSmith. The switch handles ATM and frame relay traffic at the network edge. We believe that SBC’s spending for CIEN’s WaveSmith and Catena equipment could be about $20 million in 2005 and that gross margins could be negative. (Kalla/FBR)

AT&T however is getting aggressive in this market, but even that may not be enough. Probe Research a few weeks pointed out that Sycamore Networks has retained Morgan Stanley to find either a strategic partner or find a buyer for the company. “Sycamore has struggled for years since the bubble burst in 2000,” said Allan Tumolilllo, COO of Probe Financial Associates. “Optical switching markets are a very tough business for companies like Sycamore with very limited product lines.” He contends that sooner or later, Ciena will have to look for “alternatives.”