November 6, 2003
Word on Wall Street is that optical vendors Ciena Corp. (Nasdaq: CIEN) and Sycamore Networks Inc. (Nasdaq: SCMR) have won two significant carrier contracts.
Nikos Theodosopoulos, an analyst with UBS Investment Research said in a research note yesterday that Sycamore has beaten out Ciena and Nortel Networks Corp. (NYSE/Toronto: NT) for a contract with Sprint Corp. (NYSE: FON). The carrier will be using the SN 16000 optical switch to build its meshed optical network. The deal is expected to generate $30 million over the next two years.
Simon Leopold, an analyst from Merrill Lynch & Co. Inc., says in his research note that Ciena has won the long-haul optical deal with MCI (Nasdaq: MCIT).
Ciena supposedly beat out incumbent MCI suppliers, Siemens AG (NYSE: SI; Frankfurt: SIE) and Fujitsu Ltd. (OTC: FJTSY), for the business (see Ciena (CIEN)). Work on this network is expected to begin in 2004. Leopold notes the opportunity could be worth between $100 million and $200 million over the next few years.
For both Ciena and Sycamore, which have struggled to generate new product revenue in recent quarters, these wins would be big. In August, Ciena reported revenues of $68.5 million and losses of $88.9 million for its third fiscal quarter (see Ciena Loses More, Spends More). Sycamore only generated $10.9 million in its fourth fiscal quarter reported in August (see Sycamore Slouches After Earnings).
While a lot of attention lately has been paid to big projects like the Fed's Global Information Grid Bandwidth Expansion (GIG-BE) and the RBOCs' Fiber to the Premises (FTTP) RFP, there are a slew of other notable carrier build-outs that will likely make big impacts on companies like Ciena and Sycamore (see GIG-BE Winners Named and RBOCs See Three Ways to FTTP ).
AT&T Corp. (NYSE: T), BellSouth Corp. (NYSE: BLS), MCI, Sprint, and Verizon Communications Inc. (NYSE: VZ) have all circulated request for proposals (RFPs) to select long-haul optical, optical switching, and/or metro gear. These carriers are expected to make their final product selections by the end of the year. These contract wins won’t have much immediate impact on fourth-quarter revenues, but they could potentially be significant in 2004.
BellSouth is about to begin testing Ciena’s metro WDM product. Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA), a Ciena competitor, may also be invited to test. But Leopold says that Lucent Technologies Inc. (NYSE: LU) has been eliminated from the running.
Ciena is also expected to win business with its new multiservice switch acquired from WaveSmith. AT&T and Verizon are considering the product for deployment. Each of these deals could be worth between $100 million and $200 million. While he expects a decision to be made before the end of the year, Leopold cautions that the competition is intense.
Verizon still needs to make final selections for two of its key RFPs: next-generation voice network and optical long-haul market. Each of these multiyear deals is estimated to be worth over $100 million. Lucent, Nortel, Siemens, and Sonus Networks Inc. (Nasdaq: SONS) have been named as candidates for the softswitch RFP. Lucent and Nortel already provide Verizon with traditional voice gear.
Several analysts have named potential short-list candidates for the long-haul RFP, including Ciena, Innovance Networks, Lucent, and Siemens (see Analyst: Verizon Optical Shopping). Once again Lucent is the incumbent long-haul optical vendor.
Lucent announced just last week that it has won a three-year contract with Verizon to supply the carrier with next-gen Sonet gear (see Lucent in on Verizon Metro Action). UBS's Theodosopoulos says the company’s Lambda Unite multiservice optical switch will also be a part of the installation. Lucent is sharing part of the deal with Fujitsu, which also announced it has won this business (see FNC Lands Big Verizon Gig). Nortel, the incumbent vendor in this category, is expected to get some piece of the action, too.
— Marguerite Reardon, Senior Editor, Light Reading
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