Eyeing Telecom Trends, Ciena Makes Buys

Ciena moved to acquire two companies this morning for a combined $636.7 million in stock to bolster its high-speed broadband access and optical Ethernet infrastructure businesses.

The Linthicum, Md., networking concern agreed to acquire Catena Networks for $486.7 million and Internet Photonics for $150 million. Both are privately held and are expected to join Ciena in the third quarter.

Ciena, which announced the deals along with first-quarter results, is active in several networking areas. Its products include multiplexing systems that increase the capacity of long-distance fiber-optic networks and platforms for long-distance optical transport and switching.

Today’s deals show that the company is interested in expanding its reach. Catena’s products deliver voice, data and video services over copper or fiber. Internet Photonics’ platforms allow network operators to sell high-bandwidth data services to complement legacy services.

If its Catena bid succeeds, Ciena will make inroads in a market that is set to explode. According to The Yankee Group, the number of U.S. broadband subscribers will balloon from 33.5 million in 2004 to 61.5 million in 2008. Globally, this figure is expected to grow from 142 million in 2004 to 327 million in 2008.

The research firm expects broadband equipment revenues in the access area to exceed $7.5 billion.

Ciena President and CEO Gary Smith said on a conference call that Ciena, which competes fiercely in the networking market with Cisco Juniper Networks and Alcatel , expects to benefit from Catena’s revenue and large customer base.

Morrisville, N.C.-based Catena has deployed more than 5,500 integrated broadband access solutions with carriers. Buying Catena will also help Ciena benefit from service providers shifting spending to the access portions of their networks,
building out digital subscriber line and fiber-based access, Smith said.

Catena will become Ciena’s Broadband Access group. It will be based in Ottawa and led by Catena President and CEO Jim Hjartarson.

With Shrewsbury, N.J.’s Internet Photonics, Ciena hopes to benefit from the company’s carrier-grade optical Ethernet transport and switching products, as well as the company’s customers, which include top
cable operators.

The purchase bolsters Ciena’s ability to provide optical Ethernet as the underlying infrastructure for bundled services, as well as video-on-demand, voice-over-IP and high-definition TV in the cable market.

Infonetics estimates the Ethernet services market in which Internet Photonics participates will grow from $2.9 billion in 2003 to $7.5 billion by 2007.

Should the deal succeed, Internet Photonics will become part of Ciena’s Metro and Enterprise Solutions group and will continue to operate from its headquarters and Marlborough, Mass., locations.

In related news, Ciena posted first-quarter revenue of $66.4 million. The company reported net loss for the quarter was $76.7 million, or 16 cents per share. Smith made bullish prognostications, saying second-quarter revenue could be up as much as 20 percent of the first quarter. He also vowed to reduce expenses.

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