After WaveSmith gets a piece of SBC and now might have a Verizon deal, Ciena looks to pull the trigger

April 8, 2003

2 Min Read
Ciena Wants WaveSmith for $170M

Ciena Corp. (Nasdaq: CIEN) is expected this week to announce it’s buying WaveSmith Networks Inc. in a stock deal worth about $170 million, according to two sources close to the companies.

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

Subscribe and receive the latest news from the industry.
Join 62,000+ members. Yes it's completely free.

You May Also Like