Ciena and Tellium Go Feudin'

ATLANTA -- Supercomm 2001 -- At the Supercomm 2001 trade show here in Atlanta, Ciena Corp. (Nasdaq: CIEN) announced plans to expand its MultiWave CoreDirector optical switch from 256 ports to 3,072 ports of OC48 (2.5 Gbit/s), a move designed to fend off the competition from newly public rival Tellium Inc. (Nasdaq: TELM) (see Ciena Upgrades Products).

Steve Chaddick, Ciena’s senior vice president and chief strategy officer, says this new announcement should silence Tellium’s claims that the current CoreDirector lacks scalability.

“I think this announcement will blow Tellium away,” he says. “They’ve been saying for a long time that we couldn’t scale. I’ve tried to tell Richard Barcus [Tellium’s president and chief operating officer] not to go down that road, and now we’ve shown them.”

But words were not the only signs of rivalry between the two companies. This morning on the tradeshow floor, a Ciena employee allegedly interrupted Tellium’s marketing presentation using a wireless microphone to tap into Tellium's sound system and ask attendees to leave the Tellium booth and visit Ciena.

“We went down there right away and asked them about this,” says Barcus. “They said that it wasn’t any of their people. But come on -- the guy had a ‘CIENA’ logo slapped on his shirt.”

As for the CoreDirector announcement, Tellium executives say they expected it, but they point out that Ciena is still at least six to nine months away from a commercial deployment.

“We are shipping 512 ports of OC48 today and we’ve been shipping OC192 ports since March,” says Krishna Bala, chief technical officer of Tellium. “This looks like a knee-jerk reaction to what we’ve already been offering.”

Tellium has been shipping its 512 OC48-port Aurora switch for the past several months. According to Bala, Qwest Communications International Corp. (NYSE: Q) and Dynegy Inc. (NYSE: DYN) have already accepted shipments of the product. But they are still testing the gear, and neither carrier has committed to buying it for commercial deployments.

According to Bala, Tellium is also working on a bigger switch. He says that the company has already completed the chipsets that would allow it to build a system to support up to 8,192 ports of OC192 (10 Gbit/s), quadruple the capacity of Ciena’s planned system.

Ciena points out that no matter what Tellium says it has up its sleeve, it still lacks one key attribute: granularity. Ciena’s CoreDirector supports OC48 interfaces, but it can also groom traffic down to the STS1 (51.8 Mbit/s) level. This more finely grained control of traffic allows service providers to peel traffic off the long-haul transport network. Tellium’s Aurora switch does not support STS1 grooming. It only supports grooming down to OC48 (2.5 Gbit/s, requiring additional devices to be added to perform more granular grooming.

“The problem with a big optical crossconnect like Tellium’s is that it only allows carriers to switch bigger circuits,” says Ciena’s Chaddick. “And that doesn’t make for a very flexible solution.”

While Tellium may not offer STS1 grooming in the core, another Ciena rival now does. Sycamore Networks Inc. (Nasdaq: SCMR) announced plans to expand the capacity of its optical crossconnect, the SN 16000 (see Sycamore Intros Grooming Switch). The company says the product, which also grooms to STS1, will eventually scale to 1,024 OC48 ports. It also announced that it is currently shipping a 512-port OC48 or a 128x128 OC192 version of its product.

But Tellium execs contend that attempts to turn current equipment into a more scalable solution may not be as easy as it sounds.

“Carriers can’t afford to have their systems taken down to upgrade the equipment, and it’s very tricky to increase that scalability in service,” says Barcus. Ciena expects to test the scaled-up CoreDirector in Q4 of this year and shipments will likely begin early next year, according to Chaddick. As for Tellium, the announcement has give them something to think about.

“Competition always worries me,” says Barcus. “But it will be interesting to see how Ciena executes on this plan.”

- Marguerite Reardon, Senior Editor, Light Reading

For more information on Supercomm 2001, please visit the Light Reading Supercomm 2001 Site.

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Layer0 12/4/2012 | 8:18:22 PM
re: Ciena and Tellium Go Feudin' "But Ciena points out that no matter what Tellium says it has up its sleeve, it still lacks one key attribute: granularity. CienaGÇÖs CoreDirector supports OC 48 interfaces, but it can also groom traffic down to the STS1 (51.8 Mbit/s) level."

Just for the record I don't work for Ciena but I want to point out that this is the EXACT same reason by Cisco shelved the Monterey box. If in fact Q and DYN are testing the switch then they must enjoy wasting time and effort.
optical 12/4/2012 | 8:18:12 PM
re: Ciena and Tellium Go Feudin' OK, to live with myself, I have to admit I was the one who interupted tellium's product presentation. I don't work for Ciena (they gave me a free shirt at OFC)as i work for Lucent. Not much going on there these days so I thought this was a good way to get back into the telcom action.

By the way, all is fair because I am also the one who slugged the Ciena mascot at last year's show. Who should I target next year?
loosemoose 12/4/2012 | 8:18:00 PM
re: Ciena and Tellium Go Feudin' You're both wrong. It was NFOEC '00.

Here's the article:

jenna-bush 12/4/2012 | 8:18:00 PM
re: Ciena and Tellium Go Feudin' You're a phony! The Ciena mascot was slugged at OFC, not Supercomm.
manoflalambda 12/4/2012 | 8:17:58 PM
re: Ciena and Tellium Go Feudin' I can not tell a lie,
I chopped down the Cienna mascot.

SPARKLE 12/4/2012 | 8:17:56 PM
re: Ciena and Tellium Go Feudin' You guys sound like a bunch of punker kids, nothing better to do than upset someone elses show, waste your breath attacking a corporate mascot, I mean Christ what planet are you on? Usually I give a shit about the antics much of this industry engages in but woe-is-me the "collapsing" dot-com economy has got resumes and RFQ's pouring into our little EMS endeavor.

More power to bored super-techs, your input and thoughts obviously influence our day-to-day actions.
ng_mui 12/4/2012 | 8:17:55 PM
re: Ciena and Tellium Go Feudin' No, I'm spartacus!!
Two 12/4/2012 | 8:17:33 PM
re: Ciena and Tellium Go Feudin'
Yet another example of underhanded dealing:
DYN holds warrants worth in excess of $100 million. (not directly, but through a company, Extant, that it bought in September, 00)
Q also holds about $20-30 million worth of warrants.
TELM execs got granted options worth almost $200 million *under fair market value.*

Profits, (and stockholders) suffer from this.

I respect Dr. Bala. I like his book. It's too bad he got saddled with crooked business people.

I quote from the S1 form on freeedgar:
"The warrant held by affiliates of Dynegy Connect allows them to purchase
5,226,000 shares of our common stock at $3.05 per share. When we granted the
warrant, the majority of shares subject to the warrant were scheduled to
become exercisable as Dynegy Connect met specified milestones during the term
of our contract. We recorded non-cash charges of approximately $1.7 million,
approximately $2.4 million and approximately $4.3 million related to the
warrant for the years ended December 31, 1999 and December 31, 2000 and for
the three months ended March 31, 2001, respectively. A non-cash charge of
approximately $1.1 million was recorded to sales and marketing expense to
reflect the fair market value of the shares vested subject to the warrant at
the grant date. As of November 2, 2000, we amended the warrant agreement to
immediately vest all of the remaining shares subject to the warrant. The
revised agreement provides that the warrant becomes exercisable based on the schedule of milestones previously contained in the warrant. If the milestones
are not reached by March 31, 2005, the remaining unexercised shares subject to
the warrant shall then become exercisable. In connection with the execution of
this amendment, we will incur a non-cash charge of approximately $90.6
million. This charge will be recorded as a reduction of revenue as we realize
revenue from this contract. Charges of approximately $584,000, approximately
$2.4 million and approximately $4.3 million have been recorded as an offset to
revenue for the years ended December 31, 1999 and December 31, 2000 and for
the three months ended March 31, 2001, respectively, to reflect the fair value
of the shares subject to the warrant earned by Dynegy Global Communications
based upon purchases through that date."

"On September 18, 2000, as part of our agreement with Qwest, the Registrant
issued two warrants to purchase a total of 2,000,000 shares of its common stock
to U.S. Telesource, Inc., a wholly-owned subsidiary of Qwest, with an exercise
price of $30.00 per share. On September 18, 2000, the Registrant also issued an
aggregate of 333,333 shares of common stock to 7 officers and affiliates of
Qwest for an aggregate purchase price of $9,999,990."

In addition, we have recorded deferred compensation expense and have begun
to amortize non-cash charges to earnings as a result of options and other
equity awards granted to employees and non-employee directors at prices deemed
to be below fair market value on the dates of grant. Our future operating
results will reflect the continued amortization of those charges over the
vesting period of these options and awards. At March 31, 2001, we had recorded
deferred compensation expense of approximately $191.3 million, which will be
amortized to compensation expense between 2001 and 2005."

duedilig 12/4/2012 | 8:17:26 PM
re: Ciena and Tellium Go Feudin' Hey Two,

Some of what you said indicates a pretty naive assessment of how stock pricing works.

All companies issue shares to employees at what they believe (and get impartial external opinions) fair market value is. Then comes a major event, like an IPO, and the IRS causes everyone to revisit options, when they were granted and what their value should have been. This is standard operating procedure and most,if not all,companies go through this exercise.

On the other note, "customer investing" has received extensive press coverage. For companies like Quest and Williams, it seems to be standard operating procedure for a fledging startup to get into their labs. Again, there have been articles written on this subject, most notably the Williams CTO. I think that this problem will only be fixed on the customer (i.e. service provider side) through some strong SEC/gov't intervention.
Two 12/4/2012 | 8:17:02 PM
re: Ciena and Tellium Go Feudin' duedilig,

You're probably right, but Harry Carr has a built up quite a reputation for this sort of misbehavior (here's an article from the NY Times):

I'm just saying that Tellium is pulling a lot of strings to keep people from noticing that the Aurora is pretty much the same as a CSCO 15900. (OK, two times the capacity, but this story makes that somewhat moot)

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