Investors are pushing
stock higher after the company signed an old customer for a hot new product.
Ciena said today that
will deploy Ciena's new MultiWave 4000 units, able to send 40 separate channels of light signals through a strand of optical fiber, on its long-distance network. The kicker: When Sprint wants 96 channels, likely in the late summer or early fall, Ciena will deliver the upgrade.
Ciena's commitment to more than double its product capacity is a retort to recent marketing claims by
, which in late January trumpeted plans to roll out an 80-channel unit by year-end.
, the potentially the biggest turkey in the bandwidth shoot, has agreed to test Lucent's devices, but both Lucent and Ciena are still jostling for AT&T's dense wavelength division multiplexing (DWDM) business.
The new Sprint agreement should generate more than $100 million in revenue for Ciena in the next 12 months, according to a company spokesman. The cash will help offset the sales gap created by a short-term slowdown in orders from
, which was disclosed with the profit report on Feb. 19. Ciena already provides Sprint with 16-channel units, but the company declined to disclose how much revenue it makes from those.
Ciena shares were up 2 1/4 to 47 1/8 in early-afternoon trading. With a market capitalization of $4.5 billion, Ciena now trades at 36 times trailing earnings. Lucent didn't take a hit; its share were trading up 2 15/16 at 117 15/16. At that price, Lucent's market cap is almost $74 billion, and the company trades at 42 times 1997 earnings, excluding one-time charges. (If the charges are included, Lucent trades at a whopping 168 times trailing earnings.)
are fighting to strike gold with the nascent DWDM technology. DWDM systems send multiple wavelengths of light signals through a fiber-optic strand, greatly enhancing the bandwidth and easing traffic bottlenecks in networks. Initially, they have taken root largely in longer-haul networks.
Both Lucent and Ciena have shipped a 16-channel product. But many investors believe Ciena has gained an early lead, because, unlike Lucent, Ciena doesn't sell older technology and can focus on breaking new ground with DWDM. Ciena made its most recent leap by narrowing the space a given wavelength occupies on the fiber.
"We've got the technology issues solved," says Steve Chaddick, senior vice president at Ciena.
Analysts might be more skeptical of Lucent's technology.
The company's announcement of its new product "caught people by surprise," says David Cooke, an analyst at
A Lucent official says her company is leading the way in DWDM, and its 80-channel units should be commercially available in the fourth quarter. She declined to comment on Ciena's announcement.
But the market just might be big enough for both.
"DWDM is just an absolute central ingredient, just like routing and switching," says analyst William Rabin at
, who opened coverage of Ciena stock with a buy rating last week. "They are leading Lucent in this area," although Lucent might eventually close the gap.
Rabin says phone carriers touted plans to invest in DWDM when speaking at a JP Morgan communications equipment conference in Dana Point, Calif. on Thursday. His firm has performed underwriting for Lucent, but not Ciena.
Now some experts say Ciena might strike an alliance with leading data networker
"Our understanding is that Ciena has been in discussions with Cisco for some time now," says analyst William Magill with
NationsBanc Montgomery Securities
. "We have no real insight into the nature or formality of these talks," although it might be a natural evolution for Cisco to couple DWDM technology with its data products for wide-area networks.
"We've been talking with quite a number of vendors," says a Ciena spokesman. He declined to comment further. A Cisco official declined comment, although he said the company is studying various future technologies that include DWDM.