Ciena Buying Two Gear Shops

Ciena (CIEN) reached a pair of deals aimed at expanding its reach in the reviving telecom-equipment business.

The Linthicum, Md., maker of optical communications gear agreed to buy two closely held companies with ties to the big telcos that appear poised to start spending more on their networks. The news comes as Ciena posted a disappointing first-quarter loss, reflecting the company's failure to come up with a hot product for the service provider market.

Ciena will buy Catena Networks, a maker of broadband access systems, for $487 million, and Internet Photonics, a builder of carrier-grade optical Ethernet transport and switching solutions, for $150 million. Both deals are stock swaps. On Thursday morning, Ciena shares slipped 23 cents to $6.05 in premarket trading.

"At a time when carriers are keenly focused on next-generation broadband service delivery, the acquisition of Internet Photonics expands Ciena's solution portfolio targeting multiservice operators and traditional carriers with the addition of a flexible platform for carrier-grade Gigabit Ethernet solutions," said CEO Gary Smith. "By joining forces with Catena Networks, an acknowledged broadband access leader with meaningful revenue and a significant and complementary customer base, we accelerate Ciena's path to profitability. We also gain access to a market that is expected to benefit as service providers shift spending to target the access portions of their networks, building out DSL and fiber-based access."

Ciena also posted a first-quarter loss of $77 million, or 16 cents a share, on revenue of $66 million. The company had warned two weeks ago of the steeper-than-expected loss, which it attributed to an order delay. The stock slumped 16% on news of that setback.

"Exclusive of any potential impact from the acquisitions announced today, we continue to expect that revenue in our second fiscal quarter will be up by as much as 20% from our fiscal first quarter revenue, though as always, these expectations include some risk," said Smith. "In addition, we remain committed to our previously stated goal of reducing our ongoing operating expenses, exclusive of the effects of the acquisitions announced today."

Ciena has been closely watched in networking circles because of its technologically advanced product offerings and its strategy of trying to spend through the industry's long demand downturn. The company remains well bankrolled, but the failure of its industry-leading CoreDirector optical switch to win favor with big customers may have forced its hand on the acquisition front.

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