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Ciena, Out of Baby Clothes, Still Toddling Strong

IPO darling

Ciena

(CIEN) - Get Ciena Corporation Report

may not be the hot young buck it once was, but it is maturing nicely, according to signs from an upbeat presentation by company execs at the

Montgomery

conference in San Francisco on Monday.

Its earnings growth has slowed for the time being, a bushel of additional stock has hit the market, and the competitive stakes are rising. But Ciena remains largely untarnished to the growth investor's eye, as it continues to push bandwidth-boosting products to hungry phone companies. The stock settled slightly lower after the presentation Monday, ending down 5/16 at 47 3/4.

One money manager who attended Ciena's speech says that the Street has undervalued its new products, which are designed to tackle local-area networks in addition to the longer-haul carriers. Jane Snorek, director of research with

Oberweis Asset Management

, which holds the stock, says she was surprised at how quickly Ciena rolled out the new product.

Recent statements from Ciena, as well as bandwidth provider

Corning

(GLW) - Get Corning Inc Report

, point to a softening in short-term demand for fiber equipment. Ciena expects growth to ease until the new year. After the company reported profits of $34.9 million last quarter, a 245% leap from one year earlier, CEO Patrick Nettles stated that sequential gains would "moderate." A

First Call

survey now predicts flat earnings of 33 cents per share in the quarter ending Nov. 2.

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Also, on Sept. 11 Corning, perhaps the dominant builder in the related area of fiber-optic equipment and components, warned that growth would ebb from 30% to more than 20% for the rest of the year.

While they have distinct origins, Corning and Ciena will increasingly pierce one another's markets. Corning has shed its old line of eponymous cookware to focus on new technology -- the glass strands that local telephone carriers deploy in new fiber-optic infrastructure. Ciena, a fledgling outfit, builds "MultiWave" instruments that greatly boost the capacity of existing facilities.

Ciena landed its first business with long-distance companies --

Sprint

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,

WorldCom

(WCOM)

and

AT&T

(T) - Get AT&T Inc. Report

. Its new products, called MultiWave Firefly and MultiWave Metro, are designed for local phone carriers.

Experts predict the overall market will expand rapidly enough to accommodate Ciena, Corning,

Lucent

(LU)

and a host of other well-heeled players. At the same time, another business-boosting transition is underway -- increasingly, telcos will opt to send light through glass rather than electronic pulses through copper wire.

"That switch from electronics to fiber is, I believe, the real growth story," says analyst Tejinder Singh at

Unterberg Harris

. Singh says that electronic components generate 80% of revenue for the top seven or eight telco equipment suppliers. In 10 years, he estimates, fiber-based gear will swell to 70%. His firm has performed no underwriting for Ciena.

After a secondary offering on July 7 and the release of privately held shares on Aug. 7, Ciena counts as a true Wall Street darling. Since its IPO at 23 on Feb. 7, shares have traced a jagged upward track. A final batch of 23 million shares will be free to trade on Sept. 30; currently the public float comprises 66% of shares outstanding. Ciena trades at 56 times trailing earnings.

Ciena still tickles the fancy of tech-wild investors and journalists. The Oct. 6 issue of

Forbes

expends a lot of ink gushing about the minutiae of Ciena's "photonics" equipment. But all hype aside, investor enthusiasm seems warranted.

Staff reporters Cory Johnson and Suzanne Kapner contributed to this story.