Technology catapulted Ciena Expanding channels was innovation that yielded record results

Telecommunications

June 04, 1998|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

Six years ago, Linthicum-based Ciena Corp. didn't exist. Three years ago, the start-up had yet to make its first sale. Now, the telecommunications pioneer is being acquired for $6.9 billion.

It was an article in an obscure technical journal that gave Ciena's founder, Dave Huber, the idea for a new technology. Almost overnight, it catapulted his company to record-breaking heights.

At first, Huber, then a Texas engineer, believed he could sell his invention -- equipment that expands channels for communications -- to cable television companies offering video-on-demand.

Little did he anticipate the impact another telecommunications advance -- the Internet -- would have on demand for his product.

First-year sales of $194.3 million in 1996 surpassed those of any start-up company in history. When it went public in February 1997, Ciena became the most valued U.S. start-up company ever, measured by its $2.3 billion valuation at the end of its first day of trading.

Yesterday, the company announced an agreement to be acquired by Tellabs Inc., in a $6.9 billion stock-swap deal.

From its beginning in November 1992, "Ciena had the right ingredients to put together a solid technology with a huge market," said Dyan Brasington, president of the High Technology Council of Maryland. "Timing, good technology and the right management."

Huber formed Ciena and began seeking investors to develop a prototype device that would allow 16 times as many calls and other information to be transmitted via fiber optic cables.

"They were pioneers in this area," said John Robb, a principal with Gomez Advisors Inc., a Boston-based Internet research firm. He said Ciena's technology was superior to the traditional ways of carrying phone calls and Internet messages. "Ciena was ahead of the curve. They were saying there's a better way to do it."

On the advice of Patrick Nettles, who became chief executive officer in February 1994, Ciena decided to focus its marketing efforts on long-distance carriers, rather than cable companies. It turned out to be a key move.

Nettles brought a technical background from his former job as chief operating officer at Silicon Valley software company Blyth Holdings.

Data had begun to quickly overwhelm the capacity of public networks such as the Internet, which rely on phone lines for access, said Bill Magill, a senior analyst with NationsBanc Montgomery Securities in San Francisco.

"People dialing in for personal use or business and accessing the Internet at faster speeds was creating an onslaught of data traffic that could not be supported by existing infrastructure of companies like AT&T and Sprint," Magill said.

While other companies had dabbled with the new technology or had it under development in research labs, Ciena was the first to mass produce such a system at costs the major carriers could afford. By contrast, AT&T and others were beginning to sell "time division multiplexing" systems that could multiply the fiber's capacity by four.

"When we started, the optical filtering devices were considered research curiosities," Nettles said in a March interview in Upside Today Internet magazine. "We thought we were going to buy them from a supplier. We had no idea that we'd have to make them ourselves. It was a big risk."

Nettles had been introduced to Huber by Huber's partner Jon Bayless, of the venture capital firm Sevin Rosen Funds, which invested $3 million in February 1994.

"As a technology investor you see one of these once a decade, maybe once a generation," Bayless said in an interview. "We've done a lot of companies that got big. Compaq. Lotus. We were early investors in Silicon Graphics, Electronic Arts, Cyrix Semiconductor. Ciena is the all-time winner. Even bigger than Compaq."

Shortly after signing the deal with Sevin Rosen, the company came to Maryland, locating in temporary offices near Baltimore-Washington International Airport, to develop its prototype. There, the company figured, it could find optical engineers as well as factory workers.

Just before he took the job as senior vice president of marketing and sales, Larry Huang was able to pave the way for Ciena's first big contract.

Through a connection at his church, Huang was able to get five minutes on the phone with George Fuciu, Sprint's president of technology services.

Nettles, in the interview with Upside Today, recalled that Huang told Fuciu, "I don't want to sell you anything. I just want to know if this sounds like a good idea," and described the product.

After a dead silence, Fuciu came back on the phone. He said, "Larry, if you can do what you just described, it would be like me walking out of my office and finding a pot of gold on my secretary's desk," Nettles said in the interview.

Sprint committed to using Ciena's equipment in late 1995. The next June, Ciena installed its MultiWave 1600 in Sprint's network. In September 1996, it signed a contract with Teleway Japan, its first customer in Asia.

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