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Optical/IP

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

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rbkoontz 12/5/2012 | 12:16:25 AM
re: Ciena Wants WaveSmith for $170M This would make Ciena's second attempt at multi-service switching acquisition. I believe in '99 they acquired Omnia for aprox $400M and the entire product line was killed less than a year later. This combined with the Cyras K2 acquisition (for was it billions $ ???) gives Ciena quite a track record. Maybe Ciena figures they can buy their way into the RBOCs this way - 3 guys from Wavesmith in 12 months seem to have done a bettr job than the 20 at Ciena for the past 4 years

Funny thing is some of the founders of Omnia and Wavesmith were the same - I know Chad Dunn ran product management for both companies - maybe that's why he was let go from Wavesmith recently - to not bring back bad memories to Ciena execs...

What do they say - if you screw me once, shame on you - if you screw me twice, shame on me! : )
puddnhead_wilson 12/5/2012 | 12:16:22 AM
re: Ciena Wants WaveSmith for $170M I hope for Ciena's sake that the SBC deal is a sign of things to come, not the big hurrah. In any case, it's nice to see Ciena pick up an acquisition with a production (and SELLING even!) product for a change.

I am just curious how this came about -- which side initiated the negotiations, and how was the prie set. I had heard that part of the deal with Ciena's investment in Wavesmith's 3rd round was that they would get some kind of an "option' to take them out under certain conditions. I wonder if ther was a ticking clock. I had also heard a rumor ersted in making this move near the start of the year, but Wall Street analysts reacted negatively so they back off. I wonder how they will react this time?
bobbylaxs 12/5/2012 | 12:16:21 AM
re: Ciena Wants WaveSmith for $170M tomi is up to his old stuff again...has not changed since cbltn days...he steps in ..takes over company....fill the key positions with his same old soldiers(lots-o-stock....see backgrounds for all)...keep the business going......get his car salesman to leak the story...tell everyone how he worked hard to get them money.....his soldiers are vested forward...and off to another company....this is just his style....
reoptic 12/5/2012 | 12:16:20 AM
re: Ciena Wants WaveSmith for $170M The number on that valuation has to be wrong. 4x revenue is more than the multiple on Juniper, a company with cash in the bank a long list of customers etc. If Wavesmith were raising private money they would be lucky to get a washout round. This valuation seems to harken back to the crazy old days. We'll see what Ciena's shareholders have to say.
optimight2002 12/5/2012 | 12:16:18 AM
re: Ciena Wants WaveSmith for $170M
Isnt it better then paying $2B for buying that political joker, Alnoor Shivji's company - Cyras?
What a disaster company - however Alnoor is sitting pretty on the money he stole from Ciena shareholders by misrepresenting the contracts they had.
Shame on Ciena for not doing proper duediligence - hope they have done a better job of checking out Wavesmith.
It would have been easy - a simple lie-detector test on Alnoor would have given results.
My worst two years of life were at Cyras working for this idiot.
Litewave 12/5/2012 | 12:16:16 AM
re: Ciena Wants WaveSmith for $170M Ciena Corp. (Nasdaq: CIEN - message board) is expected this week to announce itGÇÖs buying WaveSmith Networks Inc. in a stock deal worth about $170 million, according to two sources close to the companies.

Oh wait! Let me guess, your two sources are... nagoglight & laester?

http://www.lightreading.com/bo...
http://www.lightreading.com/bo...

Route_495 12/5/2012 | 12:16:15 AM
re: Ciena Wants WaveSmith for $170M
this is so sad, maybe wavesmith wasn't so bad after all.
diag_eng 12/5/2012 | 12:16:14 AM
re: Ciena Wants WaveSmith for $170M WS's strategy of id'ing legacy LU equipment deployed by the RBOC's that would be replaced in the next five years proved correct. They did this during the bubble when (mostly) everyone else went off and came up with optical-this and optical-that and optical-gawd-boxes that nobody wanted.

The founders of WS are to be commended for their vision and execution of that that vision which has become a reality. Say what you will about the amount it sold for, but I guarantee the price won't be $0.00/share, which is what most other startups are worth right now.

Disclaimers:
Never worked at WS or any other Nagog company. Don't know any of the founders personally.
Bhagdad_Bob 12/5/2012 | 12:16:13 AM
re: Ciena Wants WaveSmith for $170M Funny thing is some of the founders of Omnia and Wavesmith were the same - I know Chad Dunn ran product management for both companies - maybe that's why he was let go from Wavesmith recently - to not bring back bad memories to Ciena execs...

Yes, I...er...we made the right decision in killing that infidel. What's more there are telecom deals happening EVERYWHERE! We will lay the infidels to waste! Lucent and Alcatel will be slaughtered before our very doors and regret writing a single line of PNNI code. I tell you that with passing hour we draw closer to total victory! Akhbar ATM!

Mohammed (Bob) Saeed Al Sahaf
WSN Minister of Propaganda
puddnhead_wilson 12/5/2012 | 12:16:09 AM
re: Ciena Wants WaveSmith for $170M >The number on that valuation has to be wrong. 4x revenue is more than the multiple on Juniper, a company with cash in the bank a long list of customers etc. If Wavesmith were raising private money they would be lucky to get a washout round. This valuation seems to harken back to the crazy old days. We'll see what Ciena's shareholders have to say.

You may or may not be right about the valuation being appropriate, but I would just point out there is no one-size-fits-all valuation metric. You cannot value a company emerging out of development stage & just landing it's first sale based upon current sales like you (perhaps) can an established co like Juniper!
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