Ciena Wants WaveSmith for $170M
The announcement is expected as early as tomorrow. The deal wouldn’t come as too much of a surprise -- WaveSmith recently announced a significant deal with SBC Communications Inc. (NYSE: SBC), and Ciena is already an investor in WaveSmith (see WaveSmith Wins at SBC and Wavesmith: Giant Killer?).
In fact, most people would be surprised if the deal didn’t happen. Ciena is hungry for new business: Its most recent startup acquisitions such as Cyras aren’t working out as well as planned (see Ciena's K2: What Problems?); and its long-haul optical revenues are in the toilet. WaveSmith makes a small, ATM-based aggregation switch that can manage bandwidth for DSL services -- which is still a growing market.
Sources say that WaveSmith's SBC contract may be worth $20 million, which is not very large, by historical standards. But the real significance of the deal is that the small startup has managed to land a large RBOC customer -- and that could develop into a more significant relationship. Analysts say that in doing so, WaveSmith beat out many larger incumbent equipment suppliers, including Lucent Technologies Inc. (NYSE: LU).
In addition, sources say that WaveSmith may be close to winning another contract with Verizon Communications Inc. (NYSE: VZ). This contract is said to be roughly the same size as the SBC contract -- $20 million.
If WaveSmith has landed contracts worth $40 million, Ciena would be paying a little more than four times forward revenues if the price is $170 million. That’s still a considerable sum for a tiny company, but much lower than the billions of dollars paid for companies with no revenues at the height of the bubble.
A Ciena spokesman, when reached for comment, said it is company policy "not to comment on rumors." WaveSmith had not returned our call by press time.
— R. Scott Raynovich, US Editor, Light Reading