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ONI and Ciena Land Asian Deals

Light Reading
News Analysis
Light Reading
5/30/2001

ONI Systems Inc. (Nasdaq: ONIS) and Ciena Corp. (Nasdaq: CIEN) announced multimillion dollar deals with, respectively, Korea Telecom and Flag Telecom (Nasdaq: FTHL; LSE: FTL), both targeting Asian network buildouts.

The ONI deal calls for Korea Telecom to deploy ONI’s Online11000 optical transport platform across its regional and metropolitan area networks to connect several cities. ONI’s products will be distributed under a reseller agreement with Huneed Technologies. ONI has already completed specifications testing, and Korea Telecom is set to begin deployments in Q3 2001.

In late afternoon trading, ONI shares were down 2.20 (6.48%) to 31.76.

Ciena announced a contract with U.K.-based Flag for deployment of long-haul and ultra-long-haul gear in the provider’s North Asia Loop. Ciena's stock also fell, sinking 4.85 (8.51%) to 52.16 (see Flag to Deploy Ciena Systems).

Larger factors such as the economy at large and a general weakness in the stock market (the Nasdaq Composite fell 91 points, or 4 percent) weighed more heavily on shareholders' minds than customer contracts. Most optical networking stocks fell sharply on the day. Morgan Stanley Dean Witter & Co. analyst David Jackson valued the Ciena contract with Flag at $50 million to $75 million, "the bulk of which is slated for Ciena's long-haul system." Jackson said that $10 million to $15 million of the contract is for Ciena's optical switch, the CoreDirector. ONI would not give out details regarding the amount of the deal and the length of the contract with Korea Telecom, but analysts seemed positive about the prospects.

“Without the specifics it's hard to say,” says Rick Schafer, an analyst with CIBC World Markets, of ONI's new customer. “But anytime a company lands a contract with a big incumbent it’s favorable news.”

Korea Telecom is South Korea’s largest telephone company with 21 million phone lines in service. It is majority owned and controlled by the government and provides local, long-distance, and international telecommunications services. Over the past year and a half the provider has been aggressively building out its metropolitan area network.

While business for equipment providers has steadily grown in Japan and Europe, the majority of the Asian market has remained untapped. “There is a lot of potential in Asia,” says Schafer. “We’ve seen some pockets already develop in Japan and China, but we’ve only touched the tip of the iceberg.”

Ciena announced a deal with Korea Telecom back in September (see Ciena Gains an Asian Edge). That deal is Ciena’s largest deployment of metro transport gear in Asia. Ciena says it continues to have a strong relationship with Korea Telecom and does not view the ONI deal as a threat.

“I don’t know any carrier that only has one supplier of gear,” says a spokesperson for Ciena. “If we go into an account as the only named vendor, we have to assume that at any point a second or third vendor will be named."

- Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com

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