Ciena to Buy Catena

Ciena Corp. (Nasdaq: CIEN) has agreed to buy Catena Networks Inc., giving it a much needed entrée into the access equipment space, Light Reading has learned.

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

rbkoontz 12/5/2012 | 2:25:31 AM
re: Ciena to Buy Catena Other than Lightera, which had significant synergy with their core long-haul market and customers, Ciena has shown no ability to add value to any of the 9 previous acquisitions. Their last access acquisition of Omnia (not Omni as reported) was a complete disaster. Interestingly, the founders of Omnia also founded Wavesmith. Ciena has done nothing with Wavesmith since the acquisition. The wavesmith product already had good traction at the RBOCs for replacing the CBX when it was acquired and revenue ramp has been nil.

Odd that Ciena believes that the Catena SLC5 line card business will be their great entre to the RBOCs which has alluded them. Catena full-fledged BLC, announced 3 yrs ago, has zero market traction.
jbhollen 12/5/2012 | 2:25:28 AM
re: Ciena to Buy Catena Most Wanted,

If nay-sayers should ever look for a Patron Saint - YOU THE MAN. It would seem that after you were wrong so many times you would lighten up. Given your negative take on this acquisition I am sure that they will do just fine.

truelight 12/5/2012 | 2:25:24 AM
re: Ciena to Buy Catena Access is back in vogue since the core is drying up. All that bandwidth and nowhere to go. I hope that Ciena can do a good job this time.

roguewave 12/5/2012 | 2:25:05 AM
re: Ciena to Buy Catena Your facts are incorrect.

None of the major players at Wavesmith came from Omnia. And none of the Omnia founders ever set foot in the building.

It was all Cascade and New Oak.

ATMRules 12/5/2012 | 2:24:58 AM
re: Ciena to Buy Catena Oh yeah, the founders of WaveSmith came from Omnia..yeah right, you know so much, obviously you're Most-Wanted for being a retart!!!

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