Ciena fears more clouds just ahead Recent setbacks likely to hurt sales, and profit may weaken

Filing undercuts ATI deal

Filing with SEC

Company thinks it may have been target of 'questionable activities'

Telecommunications

September 16, 1998|By Mark Ribbing | Mark Ribbing,SUN STAFF

In just over a month, Ciena Corp. has suffered disappointing earnings estimates, lost contracts and the collapse of its planned acquisition by Tellabs Inc. Now, the Linthicum telecommunications equipment company is warning that more difficult times may be ahead.

In a filing with the Securities and Exchange Commission, Ciena said its recent setbacks may hurt future sales. In addition, the company said, the expense of marketing its products to regional Bell companies and other potential customers could cause the company's earnings in the near future to "moderate or even decline, even if revenues were to increase, which is not likely in the near term."

"[Ciena] presently expects fiscal fourth-quarter 1998 revenues and operating results will be materially below those reported for the third fiscal quarter 1998," the report continued.

Not that the third quarter was that successful, either: Dragged down in part by an unidentified customer's delay on a $25 million order, Ciena's earnings were so disappointing to Wall Street that it sent Ciena's stock down 24 percent on Aug. 14, the day the third-quarter estimate was released.

In its filing, Ciena reports that the company delaying the $25 million order was Digital Teleport Inc. St. Louis-based DTI announced Sept. 9 that it had chosen Pirelli SpA over Ciena as its top provider of equipment that allows phone lines to handle more calls.

Ciena said the $25 million DTI order "now appears to be further delayed, reduced or possibly withheld completely as the result of certain commitments made by DTI with Pirelli."

The filing also raises questions about Ciena's purchase of ATI Telecom International Ltd. The all-stock purchase, announced Jan. 26 and initially valued at $52.5 million, "was undertaken in large part to position [Ciena] to be able to service the installation requirements associated with any AT&T deployment," the filing said.

On Aug. 21, AT&T Corp. announced that it would be purchasing no Ciena equipment, a huge blow that forced the postponement of the Ciena-Tellabs acquisition vote that was to be held that same day.

AT&T's bombshell sent Ciena's stock down 45 percent in a single day and contributed to the demise of the Ciena-Tellabs deal.

In its filing, Ciena called the AT&T announcement "oddly timed." There has been some speculation that AT&T might have made its disclosure in such a way as to harm Ciena. Ciena's arch-rival, Lucent Technologies Inc., formerly was part of AT&T, and the combination of Ciena and Tellabs would have posed a challenge to Lucent.

AT&T spokesman David Johnson said, "We basically consider the relationship between ourselves and our vendors to be confidential, so we have no comment."

Ciena's filing also says the company has been "accumulating evidence that a competitor may have engaged in targeted and legally questionable activities in order to undermine [Ciena's] market position as well as the proposed merger with Tellabs."

"[Ciena] has not yet reached any conclusions regarding this evidence, and is continuing to investigate," the filing continued.

The filing also lamented that Ciena "has been subjected to an avalanche of negative media coverage in recent weeks," and says that "certain of the media coverage was substantially influenced by orchestrated activities of one or more short sellers, and of a competitor of [Ciena]."

Ciena spokesman Denny Bilter declined yesterday to comment about the allegations made in the filing.

Analysts viewed Ciena's charges with skepticism.

Michael S. Davies of Punk, Ziegel & Co. in New York said AT&T "wanted to make sure that information [about its rejection of Ciena] was available publicly" in time for Ciena and Tellabs shareholders to consider it before voting.

"I don't think they meant it detrimentally," Davies said of the AT&T announcement.

Ciena stock closed at $13 in trading yesterday, down 18.75 cents. The company's shares were traded above $80 in July.

Pub Date: 9/16/98

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