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Optical/IP

Ciena CEO: Watching Infinera

Optical equipment vendor Ciena Corp. (NYSE: CIEN) is taking the emergence of new rival Infinera Corp. (Nasdaq: INFN) "very seriously," CEO Gary Smith told analysts at a recent London briefing.

Smith, pictured here giving his address, didn't say whether Infinera's rapid rise and notoriety had prompted any change in his company's development program, saying only that Ciena would "continue to innovate," and that the company is "spending a lot on R&D" in optical developments.



Infinera has shaken up the optical sector with its photonic integrated circuit-based DTN system, picked up some big name customers, and claims to have built a $100 million-plus business. It is also believed to be planning an IPO. (See Infinera Intros PIC, Infinera Claims 10G Lead, Global Crossing Picks Infinera, XO Selects Infinera, Infinera Wins Flag Deal, and Infinera: $1B IPO Imminent?.)

In addition, Matt Bross, CTO at BT Group plc (NYSE: BT; London: BTA), told Light Reading earlier this year that he's monitoring Infinera's developments closely as he builds out the carrier's next-generation network, the 21CN. That's particularly relevant to Ciena and Huawei Technologies Co. Ltd. , as they are the lead long-haul optical suppliers for the £10 billion ($18.2 billion) 21CN project. (See Infinera Numerates Its Numbers and BT's 21CN Deals: Booty or Bloody? )

Bross's statement even led one analyst, Citigroup 's Michael Genovese, to write in a research note: "We believe Infinera has a unique and highly valuable approach and has the potential to be disruptive in the market in terms of competition and pricing… BT's comments regarding Infinera and the prices it's willing to pay in the 21CN buildout are worrisome for Ciena."

But while Smith might be glancing over his shoulder at the competition, he's also looking toward his own firm's next move in the growing optical market. Ciena has achieved critical and business success, mostly in Europe, with its multiservice CN 4200 product that is based on the vendor's programmable optical platform, FlexSelect. Revenues from the product reached $12 million in Ciena's second quarter, and Smith expects that figure to reach $40 million per quarter by mid-2007. (See Ericsson Gives Ciena a Boost.)

Having recently launched a mini version of the 4200, Ciena is now gearing up to launch more FlexSelect-based products that can capitalize on the platform's ability to push multiple services, whether Ethernet or legacy Sonet/SDH, to any port. And there's significant business to be won with the right technology: Smith says that, based on average analyst estimates, the total market for converged transport systems is set to grow from $3 billion in 2006 to $5 billion in 2008.

So what's next in the pipeline? Smith and his colleagues didn't provide any specifics, but Jefferies & Co. Inc. analyst George Notter reckons the next Ciena product to be "FlexSelected" will be its multiservice edge switch. "We expect that Ciena will rework the DN 7000 product to incorporate additional data/IP functionality as well as other elements of FlexSelect architecture" such as "software definable interfaces," writes Notter in a recent research note.

That's part of a general strategy across the vendor's product portfolio, "to more fully support Ethernet traffic as well as its FlexSelect architecture," notes the analyst, citing the recent update to the CoreDirector product. (See Ciena Enhances CoreDirector .)

That strategy will see further advances in Ciena's $80 million-a-year-plus broadband access division, too, reckons Notter. The vendor has just started shipping its CNX-5Plus, an ATM DSLAM that sits alongside a digital loop carrier (DLC). That product can have a gigabit Ethernet interface added with a simple linecard upgrade. (See Ciena Backs Off BLCs.)

Now Ciena is "working on an upgraded version of the CNX-5. The new system, under development for a year now, is IP-based and designed to handle larger traffic volumes [and] bit rates. We're not sure when this version of the product becomes available," writes Notter.

Ciena hadn't responded to questions about CNX-5 developments as this article was published.

Ciena's share price is trading down 14 cents, about 3 percent, today at $4.46, giving it a market capitalization of $2.63 billion.

— Ray Le Maistre, International News Editor, Light Reading

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longshort 12/5/2012 | 3:38:23 AM
re: Ciena CEO: Watching Infinera Was Vinod Khosla refering to Infinera in this article:

http://www.businessweek.com/sm...


excerpt:
"What are the areas that are ripest for entrepreneurs to get into?
I find the very notion of "hot areas" counterproductive, because hot to me means an over-invested area. In 2001, I made a brand new, very expensive, optical telecom investment when it was the worst area. In some sense, I did that because it was the worst area. And guess what? The company is doing very well. In the first six months of shipping, it did $25 million, and this year, they'll probably do $100 million. That's explosive growth in an area that wasn't very hot."
whyiswhy 12/5/2012 | 3:49:00 AM
re: Ciena CEO: Watching Infinera "If it doesn't go public it will likely be sold."

Just curious as to what you think Infinera can be sold for, rationally speaking of course.

-Why
ninjaturtle 12/5/2012 | 3:49:01 AM
re: Ciena CEO: Watching Infinera Thus: IPO or die. But IMHO, IPO for Inf is not going to happen.

Why,

What do base this opinion on? Elaborate please.

optiplayer 12/5/2012 | 3:49:02 AM
re: Ciena CEO: Watching Infinera Why.

I understand what an LP is and it is nearly impossible to become one in a fund at any of the aforementioned VCs because their results have been stellar so they get enough $$ from existing, long time investors. Have they taken write-offs... of course. Every VC does. But they also have huge winners. Infinera will not be a write-off. If it doesn't go public it will likely be sold. The IPO option looks tougher now given that public telecom companies have pulled back hard in the last month or so which makes comparable less compelling.

"That means costs have to be a lot less than sales" In my world this is a good thing. Apparently not in yours.

Your IPO or die comment is baloney.
whyiswhy 12/5/2012 | 3:49:02 AM
re: Ciena CEO: Watching Infinera "Yes, KP, Accel, Benchmark are all horrible funds with terrible track records of losing investors money which is why its so easy to become an LP there."

Uhumm, first, I think you mean hard to become a partner (not an LP) in a VC firm.

Limited partners (LP) are investors that partners in VC firms raise money from and have to pay back (with interest) at some point.

Third, I am sure their last round was their last round, that was my point. That round was about a year ago and was for $52M. At their rumored burn rate, that cash is about gone.

Meaning the cash on hand is sales revenue. Sales revenue from material purchased with VC money. That means costs have to be a lot less than sales, otherwise the cash will run out quickly.

And that is not the position 99.99% of companies going public are in. Most companies going public are in the position of having reached cash flow breakeven or better.

Thus: IPO or die. But IMHO, IPO for Inf is not going to happen.

And this will not be the first time KP, Accel, Benchmark, etc took a writeoff on an investment. I do not cry for VCs.

Which is why I was referring to certain individuals, not to Infineras investors.

-Why
optiplayer 12/5/2012 | 3:49:15 AM
re: Ciena CEO: Watching Infinera "Because it means you can't get a loan or arrange for bridge financing."

They just raised a round of funding which is expected to be the last.

"...but I am not sure the same can be said for their investors."

Yes, KP, Accel, Benchmark are all horrible funds with terrible track records of losing investors money which is why its so easy to become an LP there.
deauxfaux 12/5/2012 | 3:49:16 AM
re: Ciena CEO: Watching Infinera Personally, I hope they make it too, even though I have my doubts.

I think that "Why" is trying to say that he doesn't think that there is any way that they can be profitable today. I also don't think that he believes that they are anywhere close to cash break even, and that they've exhausted any and all reasonable sources of private capital. Furthermore, given the likely post-money value on the last round, and expectations of a profitable exit for the VCs, the depressed valuations of the equipment segment. It seems to be extremely unlikely that Infinera could get taken out by a public company: IPO or perish.

The capital markets are a heckuva lot tougher than they used to be. No matter how top-tier VCs try to twist arms these days, the underwriters are still smarting over the pain of huge settlements from the last go-around. The top tier banks do not have the guts to try to take a second rate offering out. If Morgan Stanley or Goldman takes them out, it means a lot. If they have a second rate bank engaged, that is a huge signal that this is a distressed deal.

Good luck Infinera. I am looking forward to reading your S-1
ninjaturtle 12/5/2012 | 3:49:16 AM
re: Ciena CEO: Watching Infinera Uhhhh?
corvo 12/5/2012 | 3:49:16 AM
re: Ciena CEO: Watching Infinera infinera is yesterdays technology wrapped in futuristic technobabble.
advice to cien: keep watching - but do not touch.
whyiswhy 12/5/2012 | 3:49:17 AM
re: Ciena CEO: Watching Infinera Ninja:

Going public is NOT generally something you can do if you have to. It is very rare in such cases. Because it means you can't get a loan or arrange for bridge financing. And it also means another company does not want to buy you, which is another way to go.

All of which means high risk .

I know a lot of people over there, and most of the founders. I have a lot of respect for their technical capabilities. They have done well by themselves in business, but I am not sure the same can be said for their investors.

-Why

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