Ciena Fleshes Out Sprint Deal

Ciena Corp. (Nasdaq: CIEN) announced Tuesday that Sprint Corp. (NYSE: FON) has purchased and deployed its CoreDirector optical switches in more than 20 cities. The equipment vendor also says Sprint has ordered its MetroDirector K2 metro switch for deployment this summer (see Sprint Picks Ciena Switches).

The announcement may have only limited upside for Ciena. Sprint's CoreDirector switches have already been installed and Ciena has already booked the revenues. The deployment process started late in 2000 and extended throughout 2001, according to Bob Azzi, VP of network services engineering at Sprint.

"We're still deploying one or two here and there where we need them," he says.

"We're using [CoreDirector] as a combination crossconnect, add/drop multiplexer, and optical switch." The combination of those functions in the core is important, Azzi says, because within the same year of deployment Sprint has realized almost immediate capital spending savings in its buildouts for new transport routes internationally.

While Sprint's CoreDirector deployments aren't new, what is new are its orders for Ciena's K2, a metro switch that combines digital crossconnect, ATM access switch, Ethernet switch, Sonet add/drop multiplexer, and DWDM terminal functions.

That part of the deal is good news for Ciena, in that it is finally seeing some action from the K2 product. Sprint says it chose Ciena's K2 product after looking at comparable offerings from Alcatel SA (NYSE: ALA; Paris: CGEP:PA), Nortel Networks Corp. (NYSE/Toronto: NT), and Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA). "We had some familiarity already with the K2 and found it met our needs the best," says Azzi.

Azzi says Sprint is using the K2 in five domestic sites that terminate international data traffic. He says it's "not a huge deployment" but doesn’t know exactly how many K2 boxes Sprint will end up ordering.

"The European market has been a really good opportunity for Sprint because of some of the market changes there and some of the bankruptcies that have occurred over there," Azzi says. "We had some growth requirements for our gateway [sites] to our international markets and [the new equipment buys] are augmenting that capacity."

Ciena officials said that the news shows evidence of Ciena extending its customer relationships to multiple products.

"What's different about Ciena is that now we can bring a broad portfolio of products to our accounts," says Denny Bilter, Ciena's senior director of marketing. "That's what we're showing here."

On Wall Street, the deal didn't buoy investors, who are still waiting to see how Ciena's restructuring fares. It's likely that many investors already realized that many of the sales related to the Sprint contract had either been realized as revenue or already built into the forecast. Ciena shares dropped $0.26 (6.33%) to $3.85.

Some Wall Street analysts indicate that the amount of ongoing revenue being delivered from the Sprint project would change the big picture.

"We believe this project is already reflected in Ciena’s forecasts," wrote Merrill Lynch & Co. Inc. analyst Simon Leopold, in a note to clients on Tuesday. "We continue to expect additional restructuring, as the operating expenses remain too high given our expectations for the sales level."

Last week, Ciena predicted lower than expected quarterly revenues and said it would fire 335 employees and close its metro switching headquarters in Fremont, Calif. (see Ciena to Merge, Shrink).

— Phil Harvey, Senior Editor, Light Reading
http://www.lightreading.com

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