It's not yet known what price the access gear company fetched; the deal will be revealed in full on Thursday morning before Ciena hosts its quarterly earnings conference call, according to two sources close to Catena. If completed, the Catena buy would continue a substantial acquisition binge by Ciena (see M&A's New Currency).
As Light Reading reported earlier, Ciena has been sniffing around Catena for a while (see Ciena May Be Eyeing Catena and Catena Earns Top Ten Spot). The process started during discussions of a possible partnership back in the summer, one source says. There are several reasons why Catena looks to be an attractive buy for Ciena. Catena has said in the past that its gear is being bought by the top three RBOCs in the U.S. That means its customer set includes BellSouth Corp. (NYSE: BLS), Verizon Communications Inc. (NYSE: VZ), and SBC Communications Inc. (NYSE: SBC).
Ciena, which started life as an optical networking company focused on CLECs and IXCs, needs a way into those accounts because those carriers are doing most of the spending these days.
Catena also has some revenue upside -- another thing Ciena needs badly. The company has 260 employees, has raised $192 million to date (with its last round coming in January 2002), and hauled in $52 million in revenues in 2003. A source close to the company, who asked not to be named, says that Catena expects to bring in about $100 million in revenues in 2004.
Table 1: Ciena's Acquisitions
|Company Acquired||Date Announced||What Ciena Got|
|AstraCom||December 10, 1997||Engineering talent|
|Alta Telecom (ATI)||January 26, 1998||Engineering, furnishing & installation expertise|
|Terabit||April 22, 1998||Optical components, specifically photodetectors|
|Lightera||March 15, 1999||Optical core switching product|
|Omnia||March 15, 1999||Multiservice access delivery platform|
|Cyras||December 19, 2000||Next-gen Sonet platform|
|ONI||February 18, 2002||Metro transport and edge products|
|WaveSmith||April 9, 2003||ATM-based multiservice edge switch w/ MPLS features|
|Akara||August 21, 2003||Storage over Sonet|
|Catena||??||Broadband loop carrier and DLC upgrade card|
|Source: Ciena Corp. and Light Reading|
The access equipment maker has two main product lines that give Ciena some access ammo. The first is the CNX-5, a linecard upgrade for old Lucent SLC Series 5 digital loop carriers. Each CNX-5 card delivers two lines of plain old telephone service (POTS) and two lines of ADSL services on any copper pair. Carriers use such a card to add DSL services to their standing networks without tearing out any old boxes or losing any of their POTS lines.
Catena also makes a broadband loop carrier called the CN1000. It's a box that combines the functions of a DSLAM, DLC, and media gateway into a single platform. All that convergence lets service providers deploy integrated POTS and DSL services to their customers, via remote terminals and central offices. It also is a key piece of gear for carriers looking to upgrade their networks so they support packetized voice services.
While Catena's linecard upgrade business is a proven money-maker, its broadband loop carrier is still trying to haul in a big customer. And, as one Wall Street analyst notes, "The linecard business is not a permanent growth business."
For its part, Ciena has been looking like a company that is aching to do something different (see Headcount: Play Merger Mania). It's been pruning staff recently and has openly admitted that its interest in core networking partners has cooled (see Équipe & Ciena: We're Fine).
Analysts expect Ciena to lose about 8 cents a share on revenues of about $69 million during its first quarter of 2004, which ended Jan. 31, according to Thomson Financial Securities Data. While Ciena's revenues will only be slightly down for that quarter, its earnings per share are expected to slip 27 percent compared to the year-ago period.
Ciena's stock traded down $0.13 (2.03%) to $6.28 in trading on Wednesday.
— Phil Harvey, News Editor, Light Reading