March 3, 2004
Ciena Corp. (Nasdaq: CIEN) has finally closed a deal that helped spur its interest in buying WaveSmith Networks last year.
Verizon Communications Inc. (NYSE: VZ) is using the DN 7100 and DN 7200 multiservice switches in its network expansion, Ciena announced today. The systems will handle Asynchronous Transfer Mode (ATM) and Frame Relay traffic at the network edge; and they're also slated for aggregating broadband traffic from Verizon's fiber-to-the-premises (FTTP) plan, says Chuck Sullivan, senior product marketing manager of Ciena's Data Networking Group (see Verizon Selects Ciena Switch).
"We are enhancing their carrier revenues, but we're also part of the future revenue growth at Verizon," Sullivan says. He adds that Ciena has already begun drawing revenues from the deal.
Sullivan wouldn't comment on the size of the Verizon deal, but sources last year pegged it at $20 million (see Ciena Wants WaveSmith for $170M).
Ciena stock responded by jumping this morning to $5.99 -- roughly a 3 percent hike -- but quickly gave up those gains. The stock closed unchanged today at $5.82.
WaveSmith was already a frontrunner for this deal when Ciena made its $178 million acquisition offer. WaveSmith at the time had six customers, including SBC Communications Inc. (NYSE: SBC). (See Wavesmith: Giant Killer? and Ciena Nabs WaveSmith.)
Ciena hasn't had the greatest luck with acquisitions lately, but WaveSmith has the potential to change that. "Out of all the acquisitions, that one's probably doing the best," says Susan Kalla, analyst with Friedman Billings Ramsey & Co. Inc.
But the Verizon deal probably won't assuage concerns that Ciena is spending over its head on acquisitions, particularly after last month's one-two punch of Catena Networks Inc. and Internet Photonics Inc. Analysts say Ciena is trying to pad its revenues with the purchases, but Ciena officials say they're investing in a company "transformation" beyond optical transport (see Ciena Buys More Than Catena and Ciena Buying Binge Alarms Analysts).
Kalla thinks the acquisition binge could pay off, even if certain purchases don't pan out. "You're in a down market where the small businesses are just on death's door, so a medium-sized business can use its stock currency to pick up some small players who are really cheap," she says.
WaveSmith's success reflects the importance of the multiservice edge. Carriers appear to be favoring a model that collects multiple types of traffic at the edge and transports them across a single IP/MPLS core. Major equipment vendors have tailored their product lines to this model, and some are beefing up their emphasis on edge boxes. Juniper Networks Inc.'s (Nasdaq: JNPR) recent M320 announcement targets the edge; and Nortel Networks Corp. (NYSE/Toronto: NT) is said to be preparing an edge router called Neptune (see Juniper Hatches the M320 and Nortel's Soft Sell).
A lingering question is how Lucent Technologies Inc. (NYSE: LU) will respond in the multiservice market. Lucent built the network that Ciena is now expanding, and its lack of a multiservice edge product helped WaveSmith get in the door, Ciena's Sullivan says.
"The headline we would write is that the Lucent customers are not going to be willing to wait," he wryly notes.
Lucent is expected to announced a next-generation multiservice edge switch, the CBX3500, soon. Light Reading is assiduously collecting the details this very moment for a report tomorrow (stay tuned). Lucent did not immediately return a call for comment.
Other players in the multiservice edge mix include Alcatel SA (NYSE: ALA; Paris: CGEP:PA), Cisco Systems Inc. (Nasdaq: CSCO), Laurel Networks Inc., and Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA). (See Laurel Steps Up on the Edge and Tellabs Sharpens Its Edge.)
— Craig Matsumoto, Senior Editor, Light Reading
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