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Ciena May Be Eyeing Catena

Light Reading
News Analysis
Light Reading
7/28/2003

Ciena Corp. (Nasdaq: CIEN) has expressed interest in buying access equipment startup Catena Networks Inc., say sources close the company. It's not clear if the two companies have formally talked yet, but Light Reading has learned that Catena's upcoming equipment trial with SBC Communications Inc. (NYSE: SBC) might help decide its fate as a standalone company.

The two vendors are reported to have met in SBC's access network, where Ciena is a supplier of ATM/MPLS edge switches (as a result of its acquisition of WaveSmith) and Catena has just entered trials with its line card upgrade to the Lucent SLC-5 Series digital loop carriers (DLCs).

Ciena's switch sits in remote terminals alongside the DLCs. The Ciena platform aggregates DSL channels and packs them onto ATM virtual circuits so they can be digested by the central office gear that's deeper in the network.

Catena's line card turns SBC's POTS-only digital loop carrier into DLCs that can handle voice and data out of every port. The Catena cards and the Ciena switch must get along famously for SBC to be able to provide DSL service for a relatively low network equipment cost.

Does this whole, met-at-SBC, fell-in-love, got-acquired business sound familiar? It should. It's more or less what happened to WaveSmith Networks, the company Ciena invested in and then bought once it proved it had the mettle to win a contract from SBC. Interestingly, the Ciena switch that's working with Catena's technology is the same one it acquired from WaveSmith (see WaveSmith Gets $30M, Signs With Ciena, WaveSmith Wins at SBC, and Ciena Nabs WaveSmith).

Rumors have been flying that Ciena may go the same route with Équipe Communications Corp., a core ATM switch vendor that it has funded and helped considerably over the past couple of years (see Équipe Announces Third Round Funding, Partners with Ciena). "If Équipe were to land a purchase order from an RBOC tomorrow, Ciena would acquire within a few seconds," says once source close to Équipe.

So how likely is it that Ciena -- which began as a long-haul DWDM and transport vendor -- would want to buy a DLC vendor? Well, sources connected to the seamy underworld of investment banking say that once, several years ago, Ciena entered lengthy talks to merge with Advanced Fibre Communications Inc. (AFC) (Nasdaq: AFCI), but nothing ever came of the chatter.

Also, consider the recent investments and acquisitions that Ciena has made. Ciena has made it clear that it wants to be an end-to-end supplier, and upgrading access networks is one of the few telecom equipment areas generating any heat these days.

Table 1: Past Ciena Acquisitions

Target Price Close Date Product
Lightera Networks $483M March 99 Core switch
Omnia Communications $483M July 99 Optical transport
Cyras Systems $1.3B March 01 Sonet MSPP
ONI Systems $398M June 02 Metro DWDM
WaveSmith Networks $190.4M June 03 Edge switch
Source: Mergerstat


Additionally, Ciena has made it a point to ensure that the same software management system controls its WaveSmith switches and the Équipe boxes it distributes, a nod towards becoming an end-to-end equipment vendor, rather than a point product vendor (see Ciena Integrates Multiservice Mgmt).

Catena has been somewhat reticent about its success with RBOCs (see Catena Cozies Up to RBOCs and RBOC Whispers for Catena). But the company recently went so far as to say it has received orders from the three largest RBOCs, which would make Verizon Communications Inc. (NYSE: VZ), BellSouth Corp. (NYSE: BLS), and SBC its customers.

It also might be helpful, should talks commence, that one of Catena's investors, Bessemer Venture Partners, also backed Ciena and Omnia, which Ciena acquired.

Ciena and Catena declined to comment for this story.

SBC did not return calls.

— Phil Harvey, Senior Editor, Light Reading

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dodo
dodo
12/4/2012 | 11:42:40 PM
re: Ciena May Be Eyeing Catena
http://biz.yahoo.com/djus/0307...
zhadum
zhadum
12/4/2012 | 11:42:40 PM
re: Ciena May Be Eyeing Catena
i have no clue about catena and its products, but at a strategic level this looks like a good way for ciena to spend its warchest - acquire companies with relationships with rboc's so that when the market comes back (read = rbocs start spending), they are embedded.

smart thinking, given they can get some really good deals in this market!
skeptic
skeptic
12/4/2012 | 11:42:40 PM
re: Ciena May Be Eyeing Catena
I wonder if zhone will just end up scooping
the cash out of tellium and shutting it down.

I dont see either company as being very
strong. I dont see what putting them together
accomplishes except reporting a bigger
combined loss every quarter.
OSPGuy
OSPGuy
12/4/2012 | 11:42:39 PM
re: Ciena May Be Eyeing Catena
And I heard that Ciena may be looking to buy out Catena. Anyone head similar rumors?

dodo
dodo
12/4/2012 | 11:42:39 PM
re: Ciena May Be Eyeing Catena
Skeptic

Right on. Unless I am missing something from the Tellium product portfolio, I don't see the need for an optical switch for the access networks, considering what Zhone has kept from the acquisition of Nortel access business unit.
Sibylle
Sibylle
12/4/2012 | 11:42:39 PM
re: Ciena May Be Eyeing Catena


Looks like TELM's shareholders are getting the SHAFT - bigtime on this one. Zhone gets to pickup TELM's $150 mil and business for almost nothing.
They also get to go public.

Another smooth move for Mory.

Bet you TELM's management get to make out like bandits.

Lightreading - here's a GREAT GREAT investigative report for you guys. If you have the right stuff

wilecoyote
wilecoyote
12/4/2012 | 11:42:38 PM
re: Ciena May Be Eyeing Catena
How does this make sense, someone asked earlier?

Remember when Ascend bought Stratus? They sold the computer business and pocketed a bunch of cash, and kept the SS7 technology...Similar move here.

So watch them sell off the TELM switch, pocket a bunch of cash (my guess is around $50m), stay focused on their growing MALC business and grow the stock price without having to sell the company. Now you have a $100M company with a decent balance sheet trading at one times revenues, in what is emerging as the sexiest space in telecom. Sexy when you add up the triple play, PON, cable, DLC/BLC opportunities and lump them into the access/first mile/last mile category. Looks like a very attractive investment opportunity by comparison to the CSCOs and JNPRs and FDRYs of the world, all of whom are trading at multiples of 5X or more/revenues.

I think this was a brilliant move.

Mory Ejabat: love him or hate him, the guy's a deal making machine and a very shrewd businessman.
billy_fold
billy_fold
12/4/2012 | 11:42:37 PM
re: Ciena May Be Eyeing Catena
Who would buy the TELM switch?

-billy
skeptic
skeptic
12/4/2012 | 11:42:36 PM
re: Ciena May Be Eyeing Catena
Who would buy the TELM switch?

-------
Probably Lucent, Taqua Systems or HP :)

Mory will have them all in a bidding
war soon.

bleek-times
bleek-times
12/4/2012 | 11:42:11 PM
re: Ciena May Be Eyeing Catena
Ciena treats acquisitions similar to de-clawing a cat at home -- two things happen

1. there will be battle scars
2. the cat will become use-less
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