Ciena Looks to Mine With Osmine
Ciena Corp. (Nasdaq: CIEN) has announced an important milestone in its quest to win business with regional Bell operating companies (RBOCs) in the United States.
Today the company said its CoreDirector optical switch has completed all the necessary requirements for the Telcordia Technologies Inc. Osmine services process (see CoreDirector Completes Osmine). The company had been working on certification for the last year (see Ciena Follows the Incumbents). Completion of this process will allow the CoreDirector to be integrated into existing operations environments in the RBOC networks.
Ciena had already announced Osmine certification for two other product lines: its long-haul dense wavelength-division multiplexing (DWDM) CoreStream and Online Metro products, which were formerly the 7000, 9000, and 11000 from ONI Systems. The company has also completed the Telcordia TIRKS portion of the process for the MetroDirector K2, a product it had acquired from startup Cyras Systems. But up until now, it has lacked the coveted Osmine certification for the CoreDirector.
While Ciena has sold long-haul DWDM equipment to BellSouth Corp. (NYSE: BLS) and Verizon Communications Inc. (NYSE: VZ), and long-haul and metro DWDM gear to Qwest Communications International Inc. (NYSE: Q), it hasn’t sold CoreDirectors to any of the RBOCs.
"Without Osmine you can talk to these carriers, but to win business with them you need to check-off Osmine,” says Glenn Jasper, a spokesperson for Ciena.
Ciena currently counts AT&T Corp. (NYSE: T) and Teléfonos de México among its largest customers for CoreDirector.
Even though Ciena has seen some success with international carriers, experts agree that the RBOC market can not be ignored, and equipment providers must fight for a place in those networks. And without Osmine, the company has been poorly positioned to do that.
“This is certainly an important event for them,” says Steven D. Levy, an analyst with Lehman Brothers. “It’s a ‘must-have’ on the RBOC checklist.
“Do the math," he adds. “The RBOCs are the ones with all the money. It’s that simple”
But Levy warns that winning one or two of these contracts will not be enough to bring Ciena to a full recovery. He predicts that most of the upcoming telecom contracts are going to be relatively small, compared to the boom times. Instead of contracts worth $300 million a year, he says he expects them to be worth more like $50 million. This is critical for Ciena, which needs to generate roughly $175 million to $200 million a quarter to reach cash-flow break-even. The company only generated about $70.5 million in its first fiscal quarter of 2003 (see Ciena: 'Flat to Up').
Levy says Ciena will have to win several contracts to make that kind of money every quarter. But winning that business won’t be easy. Even with its Osmine certification, RBOC contracts are certainly not guaranteed. Ciena must still battle competitors like Alcatel SA (NYSE: ALA; Paris: CGEP:PA), Lucent Technologies Inc. (NYSE: LU), and Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA), which all offer products that compete with CoreDirector.
Of course, most equipment vendors are chasing after Osmine certification. Some of the optical networking vendors that have recently announced Osmine compliance or progress: Internet Photonics Inc., LuxN Inc., Tellabs, and Zhone Technologies Inc. (see Internet Photonics Completes TIRKS, LuxN Passes Osmine, Tellabs Trumpets Osmine and Zhone Completes Osmine Process). WaveSmith Networks Inc., which is currently partnering with Ciena, also has announced completion of certain Osmine criteria (see WaveSmith Scores Osmine).
— Marguerite Reardon, Senior Editor, Light Reading