Ciena Charge Gives Networking Investors a Scare

Ciena (CIEN) slipped 4% Tuesday after warning that a customer might not be able to pay its bills.

Closely held European telecommunications service company iaxis, which recently filed for the equivalent of bankruptcy protection, owes Ciena $28 million. Lithicium, Md.-based Ciena said Tuesday it would take a fourth-quarter charge of 6 cents a post split share to cover costs associated with the uncollectible account.

Though iaxis is just one of Ciena's 37 current customers, the news underscores the risk networking companies take on in staking their futures on start-up network builders as financial pressures escalate. Given the tremendous run-up in Ciena shares this year, any disturbance can be expected to have an outsize impact on the share price.

Ciena shares were off $9.88 at $220.25, just off their high of $230 and well above their 52-week low of $29.

Ciena on the Run

Internet router maker Juniper Networks(JNPR), which also sells equipment to iaxis, said it had been paid for its sales and expects no future impact from the iaxis insolvency. Juniper shares were off $1.44 at $220.19, nearing their 52-week high of $222.62.

London-based iaxis, a two-year-old company that seeks to build a high-capacity pan-European network to connect more than 200 cities in 25 countries, didn't return calls seeking comment.

Ciena said it had included no sales to iaxis in its revenue forecasts, a fact that soothed investors, who otherwise would have worried that the company wouldn't be able to maintain its heady growth.

"We don't have this baked into our revenue numbers going forward," says Chase H&Q analyst Jeffrey Lipton, who has a buy on Ciena and whose firm has no banking ties to Ciena.

"It's never a good thing when this happens, but at this point it looks like it's company-specific," Lipton adds, referring to iaxis. "We think the overall market demand for this gear is strong."

iaxis bought Ciena's optical transport equipment and was not one of Ciena's three unidentified customers for its core optical switching product, the CoreDirector.

One of the largest investors in iaxis is Bain Capital of Boston. Bain led a group of investors that gave iaxis $66 million in March. Bain officials didn't immediately return calls seeking comment.

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