Ciena Corp. built on dreams, risks Decision: Shareholders will vote Friday on the sale of the Linthicum telecommunications company, one of the most successful U.S. start-ups.

August 16, 1998|By MARK RIBBING | MARK RIBBING,SUN STAFF

Patrick H. Nettles had just taken a big chance, and it was time to face the consequences.

Nettles, the head of Linthicum-based Ciena Corp., walked into a vast ballroom at the BWI Airport Marriott. About 800 of his employees were waiting for him.

The day before, on Tuesday, June 2, Nettles had agreed to sell Ciena. He wasn't sure how the workers would react.

After all, the sale - which will be voted on Friday by shareholders - marked the end of independence for one of the most successful start-up companies in U.S. history.

Less than three years earlier, Ciena was a 68-employee telecommunications equipment firm that had yet to make its first dime. Since then, it had grown to 1,000 workers with more than $700 million in revenue and became perhaps the most prominent symbol of Maryland's shift to a high-technology economy.

During its rapid ascent, Ciena crushed records and turned heads: Its first-year sales were the highest ever recorded by a start-up, and its initial public offering had the highest first-day valuation ever seen for a company funded by venture capital.

Ciena became the top seller of a device that allowed phone networks to carry up to 40 times more calls and Internet messages. This equipment could lower phone bills, speed up World Wide Web connections, and usher in a new generation of services such as video calling.

Ciena's dazzling rise is a story of how one obscure Maryland company capitalized on the economic and technological changes that are reshaping modern society. It is also a personal tale of dreams and risks that brought people together, pulled them apart, and turned them into multi-millionaires.

It's also an example of how vulnerable and volatile new firms in a rapidly changing industry can be. That was shown on Friday when Ciena's stock plummeted 24 percent after the company released a disappointing earnings estimate.

As Nettles approached the ballroom that day in June, an uncertain chapter in Ciena's story was about to begin. First, he had to talk to the workers.

Ciena began with a lone scientist, a tiny lab, and a race against time.

David R. Huber was hired in January 1989 by Chicago-based General Instrument Corp. to do something no one else had done. Scientists had found a way to make phone lines and cable TV wires carry far more information than had previously been possible. The potential of such a discovery was immense. Phone and cable companies could carry more calls and more shows without going to the huge expense of digging up sidewalks and laying new lines.

But the technology was still unreliable, and nobody had figured out how to commercialize it. Huber's assignment was to see if it could be done.

Huber, a 38-year-old electrical engineer, plunged into the job. By 1991, he was convinced that the technology could indeed be commercialized, and soon.

Then everything came crashing down. General Instrument, which was taken over in a leveraged buyout in 1990, was looking for ways to save cash. Huber's project was axed. His explorations had to bow before the unsympathetic realities of business. It would not be the last time.

Huber was determined to keep his work going. "I was very excited about the technology," he said. "I could see the opportunities and the potential, and I was interested in pursuing the technology because I thought it could make a lot of money."

He struck a deal. General Instrument would let him stay in the suburban Philadelphia lab a while longer. The company would also give him temporary ownership of the patents to the technology.

Huber had 18 months to find someone else to fund his work. At the end of that time, he would lose the patents. Without those patents, he would have no chance to develop a product.

It was a maverick's wager, but Huber - a tall, lean Oregonian who speaks plainly and holds eye contact like a bobcat - was eager to make it.

He was in an all-or-nothing situation. If he won, he would get a shot at making millions. If he lost, the work of the previous three years would turn to dust.

The survival of Huber's project depended on money. His quest for funding didn't start well. He pitched his idea to some of the top companies in the high-tech world, such as Apple Computer Inc. and Hewlett-Packard Co., as well as Paul Allen, who had co-founded Microsoft Corp. with Bill Gates. There were no takers.

"I've still got scars on my knuckles from all the doors I knocked on," Huber would say later.

Those early rejections led Huber to a stark conclusion: Big technology firms, for all their wealth and acumen, aren't good at recognizing and exploiting hot new technology.

He felt the screws tighten. Six precious months had gone by, and Huber was still borrowing from relatives. He did not have the cash to begin making a product.

He had been in a situation like this before. In the mid-1980s while working for Optelecom Inc., a Gaithersburg telecommunications equipment company, he tried to start his own fiber-optic instrument firm. The effort cost him $10,000 and went nowhere.

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