UBS Sees Ciena & Huawei as Partners

Ciena Corp. (Nasdaq: CIEN) and Huawei Technologies Co. Ltd. could be teaming up in a joint reseller agreement that would allow Huawei to distribute some of its optical networking products in the United States, while giving Ciena a deep Chinese sales channel for its CoreDirector.

Speculation surrounding the potential partnership surfaced today in a research note written by Nikos Theodosopoulos of UBS Investment Research.

“We believe that Huawei is seeking a U.S. partnership,” writes Theodosopoulos. “And we view Ciena as the most likely candidate.”

Yesterday, Light Reading reported that Fei Min, Huawei's executive vice president, had indicated to Asian journalists that the company was looking for a U.S. partnership (see Huawei on the Hunt).

Ciena, which ended its quarter today, says it has no comment on the subject.

“We haven’t made any public comments regarding any Asian manufacturers,” says Denny Bilter, spokesman for the company. “And we’re not ready to comment on any relationships at this time.”

While the benefits to Huawei are obvious, Theodosopoulos says that Ciena could also benefit from the arrangement, both overseas and in the U.S. Specifically, he says Ciena would be able to sell Huawei’s multiprotocol service provisioning platform (MSPP). Ciena's K2 product has not been a success, and Ciena could benefit from the addition of Huawei’s product, he says in the note (see Ciena's K2: What Problems?). Ciena has already shown signs that it is looking for additional metro optical solutions. The company recently invested in a resilient packet ring startup, Luminous Networks Inc. (see Ciena Links Up With Luminous).

An agreement between the two companies would also likely include Huawei reselling Ciena’s gear in China. Huawei, which did $2.7 billion worth of business in 2002, generates most of its revenues from Chinese service providers. Since Huawei doesn’t have an STS-1 optical bandwidth management product, it would likely resell Ciena’s CoreDirector switch. Theodosopoulos says there is little overlap between the companies' switching platforms.

Ciena has already tried to get into the Chinese market. In June 2001, the company signed an agreement with Beijing IDN, a joint venture between China Electronic Corp. (CEC) and IDN Telecom Inc., to resell the CoreDirector. Theodosopoulos says that Ciena had one strong quarter into China after this distribution agreement was established in April 2002. But after this quarter, sales to China fell off and never recovered.

He writes, “We could certainly see the logic behind Ciena partnering with Huawei if it were to get a better channel into the China market for its CoreDirector product.”

— Marguerite Reardon, Senior Editor, Light Reading