Ciena's Personalities Multiply
Desperately seeking sales,
Ciena
(CIEN) - Get Report
goes knocking on even more new markets.
Not long ago, the upstart networking gearmaker was announcing big new customers every quarter, but lately it seems that practice has been replaced by scores of smaller-rival acquisitions. And with telco buying trends still unfavorable to Ciena's core optical products, that pattern will likely continue.
The Linthicum, Md., tech shop
met lowered first quarter financial targets Thursday and predicted 20% sequential top-line growth for the current period, which was in line with the Street's expectations.
But investors couldn't ignore the clutter from Ciena's latest shopping spree or the whopping 21% stock dilution they'll be facing.
Ciena shares fell 12 cents, or 2%, to $6.16 in early trading Thursday. And while some telecom equipment stocks like
Nortel
(NT)
and
Juniper
(JNPR) - Get Report
have enjoyed a rebirth this year, Ciena has sputtered along as investors mull its buy-or-die strategy.
"They don't seem to have a coherent plan, only a hodgepodge of products without a clear direction," says Telecom Pragmatics' analyst Sam Greenholtz. "I think that's a lesson
Lucent
(LU)
and Nortel learned the hard way," he says. "You can't do it all."
Ciena
changed its course soon after demand for big long distance optical network gear ebbed. Nearly two years ago, CEO Gary 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.
"We were an optical infrastructure company. We still have market leadership in that space. But the carriers' problem has moved from the core to the edge of the network," says Smith. "So we embarked," says Smith, on a strategy to "facilitate broadband services."
Ciena latest takeover targets are examples of this broader approach to the networking market. Ciena will buy closely held Catena Networks, a maker of broadband access systems, for $487 million, and Internet Photonics, which makes optical Ethernet transport and switching solutions for cable companies and businesses, for $150 million.
The all-stock transactions will require Ciena to issue 101 million shares, increasing the company's total share count by 21%.
One investor called the latest move a Hail Mary, but saw little alternative as the company's core optical business continues to weaken.
"People have been critical of our moves," says Smith, "but we have to do what is the right thing for our business."