Ciena Falls Short Again

Ciena once billed itself as a pure play on the tech-happy optical future of the networking business. But the company changed its course soon after demand for big long-distance optical network gear ebbed. Nearly two years ago, Smith vowed that Ciena would invest its way through the downturn, giving Wall Street fair warning that the company would have to acquire technologies that phone companies were hungry for. The expansion has pushed the company beyond optical infrastructure into broadband services.

In keeping with the expanding networking strategy, the company agreed in February to buy two closely held shops: Catena Networks, a maker of broadband access systems, and Internet Photonics, which makes optical Ethernet transport and switching solutions for cable companies and businesses. Ciena agreed to issue some 100 million shares in the deal, worrying some investors about possible dilution.

But expanding offerings haven't meant growing sales for the company. And as a result, Ciena has come late to the cost-cutting game that rivals like Nortel (NT) and Lucent (LU) were suffering through in past years.

Last month, Ciena set plans to close the former ONI facility in San Jose, Calif., laying off 425 workers. That move came just two years after Ciena paid $900 million to acquire ONI, viewing the deal as a way to break into the so-called metro optical market. ONI made telecom gear designed to merge synchronous optical network, or SONET, traffic onto next-generation optical networks known as wave division multiplexing, or WDM.

Ciena shares have plunged 40% since the company warned in February of a sharp first-period sales shortfall. At the time, Ciena forecast that second-quarter sales would show a recovery, but the company's projections fell more than 5% shy of the contemporary Wall Street estimate.

About the only bright spot for Ciena in the last quarter came from a deal to supply optical equipment for the long-distance portions of MCI's network.

Early Thursday, Ciena slipped 15 cents to $3.73.

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