Will Ciena Put Cash to Use?

NEW YORK -- Things may not be as bad as they seem these days. For example, many companies are sitting on piles of cash. Of course, some investors are eyeing that cash, and wondering whether it will be used properly, rather than steadily incinerated.

Investors here at the UBS Warburg conference drilled Tom Mock, vice president of portfolio management for Ciena Corp. (Nasdaq: CIEN), on that very topic. How does the company plan to use its $1.7 billion worth of cash and investments?

Mock didn't give any clear responses to these questions, but he told investors that the company has a cushion of 28 quarters worth of cash if it can keep its burn rate down to $70 million per quarter.[Ed. note: 'Hey, we're burning it slowly, okay?'] Some analysts say this is a rather aggressive target. As of August 22, when the company reported its third-quarter results, its burn rate was well over $100 million (see Ciena Follows the Incumbents). And its revenues were only $50 million for the quarter, according to its 10Q filed with the Securities and Exchange Commission (SEC).

“That sounds a little ambitious to me, given their current burn rate,” says Rick Schafer an analyst with CIBC World Markets. “They have a tremendous balance sheet, but if they’re burning through $100 million plus a quarter, it won’t be that great for long. They’re going to have to make some tough decisions to rationalize the business.”

So what should it do with all that cash? Some investors in the audience today suggested that Ciena use a portion to buy back some of its debt.

Currently Ciena's bonds are yielding about 10 percent. With optical networking business in the gutter, the company might make a better return by paying down its debt rather than investing more in research and development. Mock wouldn’t comment specifically on this topic except to say that the company is investigating all of its options right now.

But the company might also be saving its cash for something else -- some investors were speculating today about possible acquisitions. While Mock said in an interview after the presentation that the company is not close to announcing any acquisitions, he did say that it's looking into areas where acquisitions might make sense.

“In this kind of environment consolidation will happen,” he said. “And like any prudent company we are exploring those options.”

He said during his presentation that carriers are looking to cut back on equipment suppliers, which means that they are looking for vendors that can offer a wide range of products. Currently, Ciena offers only optical switching and transport gear. As a result, experts speculate that Ciena might be interested in buying a next-generation ATM company. It already has investments in two startups: Équipe Communications Corp. and WaveSmith Networks Inc.

“ATM and multiservice switching would certainly make sense for them,” says Schafer. “A lot of those next-generation ATM boxes are getting deployed. That’s where the money seems to be right now.”

Mock agreed that ATM switching is interesting, and he did not discount the idea that Ciena might be investigating this avenue. He also made it clear that Ciena would not be looking at taking out direct competitors like Corvis Corp. (Nasdaq: CORV), Sycamore Networks Inc. (Nasdaq: SCMR), or Tellium Inc. (Nasdaq: TELM).

“We’ll let the market take care of that,” he said.

Ciena closed up $0.38 (10.22%) to $4.10. It reports its fourth quarter and 2002 yearly earnings on December 12, 2002.

— Marguerite Reardon, Senior Editor, Light Reading
www.lightreading.com Movers and shakers from more than 100 companies – including Ciena – will be speaking at Lightspeed Europe. Check it out at Lightspeed Europe 02.

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MayaFox 1/20/2020 | 7:17:53 AM
re: Will Ciena Put Cash to Use? Such investments can give a great future to this area.
stuartb 12/4/2012 | 9:21:30 PM
re: Will Ciena Put Cash to Use? Polaris if their product wins any part of the business at AT&T.
Buttercup 12/4/2012 | 9:21:28 PM
re: Will Ciena Put Cash to Use? Certainly a possibility - given CIEN's strength in the STS-1 switching market, and an apparent market for VT1.5 switching equipment, a Polaris acquisition would allow them to get into more regional networking applications, plus RBOC accounts where VT1.5 crossconnecting is still big.
It'd give them a foot in the door for CoreDirector applications.
BobbyMax 12/4/2012 | 9:21:26 PM
re: Will Ciena Put Cash to Use? Ciena has spent a lot of its money in acquiring Cyras and ONI. Both of these companies are not doing that well. especially Cyras. Most of the companies that are sitting on cash usually buy back their own stocks. But this possibility is remote. Ciena can use the remainder of the cash on new product development such as CWDM.
labrat_6 12/4/2012 | 9:21:21 PM
re: Will Ciena Put Cash to Use? Alternately, the money could be applied to more bonuses for the Executive Board!
God knows in these stressful times...a little extra cash can't hurt.
Ask any of the roughly 50% of their employees Ciena has let go in the last 24 months!
Gary Smith, et al should get something a little extra for all that!
$50M in quarterly sales and $1.1 M bonus for the CEO?
layer3 12/4/2012 | 9:21:03 PM
re: Will Ciena Put Cash to Use? and $1.3 billion in debt...


The real question LR should be asking is what businesses Ciena will be exiting to remain afloat.

puddnhead_wilson 12/4/2012 | 9:21:02 PM
re: Will Ciena Put Cash to Use? >Ciena has spent a lot of its money in acquiring Cyras and ONI

Err ... Bobby? Practicing your "post first, ask questions later" motto again?

I can't believe I'm even bothering to read let alone respond to a post by you, but I didn't realize it was your post until after I started replying.

Anyway, the point of the response - Ciena not only didn't spend a "lot" of money acquiring Cyras and ONI, they didn't spedn ANY money. Both were acquired via issuance of new stock. In fact the ONI acquisition was ACCREDITATIVE to Ciena's cash position, as they had a loarge net cash balance themselves.

I can't believe someone gave your post a 5 rating. was it you yourself?
lightmaster 12/4/2012 | 9:21:00 PM
re: Will Ciena Put Cash to Use? Puddnhead wrote..

"Ciena not only didn't spend a "lot" of money acquiring Cyras and ONI, they didn't spedn ANY money."

Depends on your definition of money. By dilluting shares, stock based aquisitions spend the wealth of the shareholders. It's supposed to be an investment that pays the shareholders back. in increased earnings per share.
BackSlash 12/4/2012 | 9:20:57 PM
re: Will Ciena Put Cash to Use? Ok if that is the target burn rate, what is the number of employees at that rate?

I know a few startups that would sell parts of their bodies for 70 mil / quarter.. or does that mean that they have to sell their soul? Oh wait, what did Ciena do?

puddnhead_wilson 12/4/2012 | 9:20:56 PM
re: Will Ciena Put Cash to Use? >Depends on your definition of money. By dilluting shares, stock based aquisitions spend the wealth of the shareholders.

Oh PuhLEASE. OK, fine. HERE is my definition of "money":

mon-+ey ( P ) Pronunciation Key (mn)
n. pl. mon-+eys or mon-+ies
1. A medium that can be exchanged for goods and services and is used as a measure of their values on the market, including among its forms a commodity such as gold, an officially issued coin or note, or a deposit in a checking account or other readily liquifiable account.
2. The official currency, coins, and negotiable paper notes issued by a government.

This is what the article we are commenting on is about. It doesn't say anything stock outstanding or CIENA shareholder wealth. And it ain't what BobbyMax is talking about either, Ciena isn't going to buy back stock by paying with stock (!).

If you have any further questions about the definition of money, take them up with Webster.
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