Marconi's Miss Shouldn't Stifle Ciena

Ciena CIEN is still the flag bearer in the telecommunications-equipment business.

The stock drooped along with the rest of the communications gear sector Thursday, as investors absorbed Marconi's MONI Fourth of July explosion.

But analysts don't expect Linthicum, Md.-based Ciena's business to suffer from the same ills that felled Marconi. That's because Ciena's gear faces few competitors and because Europe, which used to account for nearly a third of Ciena's sales, is now a much smaller part of its business: More than 80% of Ciena's sales in the past two quarters came from North America.

Mr. Popularity

Unlike its gearmaking peers, Ciena has so far been able to sidestep two major calamities in the industry: the collapse of many small phone and Internet companies, and the widespread spending slowdown. This latter phenomenon, according to Marconi, is now gripping Europe.

Some on Wall Street say Ciena's apparent resistance to these trends is testimony to the popularity of Ciena's optical networking products. If one customer decides to delay or cancel an order, these observers say, Ciena can take the next customer in line.

"It appears that Ciena's order book is strong enough to prevent a canceled order from adversely affecting their quarter or their production schedules," says McDonald Investments' David Toung, who has a buy on Ciena, his second-highest rating. McDonald has no underwriting ties to Ciena.

"It also shows there's a strong demand for the products and that they have a very good relationship with their customers, who don't mind working with Ciena on this basis," says Toung.

Winnowing

Early signs of the current troubles in Europe sprung up late last year with the collapse of Ciena customers Global TeleSystems (now called Ebone) and iaxis (now part of Dynegy DYN). In retrospect, it appears that those customers' problems may have helped wean Ciena from the Old World dependencies.

Ciena now counts six customers currently buying gear for networks in Europe: Cable & Wireless CWP, Dynegy, Tycom TCM, Flag Telecom FTHL, Interoute and Telecom Developpement.

"We see ourselves as operating in a fundamentally different market," says a Ciena spokesman, referring to Marconi. "They sell legacy systems, whereas we are providers of next generation systems."

Ciena closed down $2.49, or 6.7%, to $34.54 Thursday. Rivals Lucent LU and Nortel NT each dropped 5%, while Cisco CSCO fell 8%.

Ciena shares have outperformed the pack, largely on the perception that optical gear is a must-own in a good economy or bad. As networks convert from electronics to optics, Ciena fans say the company's equipment not only boosts capacity but also allows phone companies to squeeze more services and, of course, sales out of that capacity.

But given the slower spending climate of late, investors have questioned how long Ciena can continue its good fortune.

Just six weeks ago, Ciena reaffirmed its forecast for 100% sales growth this year. If Ciena hits its target, you can bet they'll be singing God Bless America over there in Linthicum.