Ciena lands Japan deal shares rebound $4.5625

Contract is called 'vote of confidence that they've sorely needed'


September 23, 1998|By Mark Ribbing | Mark Ribbing,SUN STAFF

Ciena Corp. said yesterday that it has won a contract to sell telecommunications equipment to Japan Telecom Co. The exact size of the deal was not disclosed, but a spokesman for the Linthicum company said it is worth less than $10 million.

Ciena's stock gained $4.5625 a share yesterday to close at $15.5625, a 41.5 percent rise.

Even with yesterday's boost, the company's stock is still in a trough: As recently as July 20, it was trading at $88.625 a share.

After reaching that high point, Ciena lost potential contracts with AT&T Corp. and Digital Teleport Inc., released disappointing earnings numbers and saw its merger with Tellabs Inc. -- initially valued at about $7 billion -- renegotiated and then abandoned altogether.

"It's a vote of confidence that they've sorely needed," John Nitzke of Forrester Research Inc. said of the Japan Telecom deal.

Ciena makes equipment that turns one communications channel into several, allowing a phone network to handle more calls.

Japan Telecom was already buying Ciena gear that could turn one communications channel into 16. The contract announced yesterday is for Ciena to sell more powerful equipment that could turn one channel into 40.

Ciena has also won contracts to provide 16-channel gear to other Japanese phone companies. The most recent such deal, with DDI Corp., was announced Sept. 16. The new contract marks the first time the company has sold 40-channel gear in Japan. "We've had great success [in Japan], which is unusual for an American company," said Patrick H. Nettles, Ciena's president and chief executive.

Some observers said the robust rise in Ciena's stock price yesterday was due to more than just the Japan Telecom deal. Even before the Sept. 14 collapse of the Ciena-Tellabs merger, ++ there were rumors that another company might swoop in and buy Ciena. That speculation was swirling again yesterday.

"We've heard rumors from clients that someone's looking to buy them," said a New York equity analyst who asked not to be identified.

That someone is widely thought to be Cisco Systems Inc., the acquisitive San Jose maker of Internet routers and switches. On April 20, Ciena and Cisco agreed to link their network equipment, a move that many saw as a prelude to a formal union between the two companies.

"By now, somebody could pick that company up for a bargain price," Forrester's Nitzke said of Ciena.

"Cisco has aggressively been buying companies that complement their own equipment."

Nettles declined to comment on the rumors, as did a Cisco spokeswoman.

William D. Rabin of J. P. Morgan Securities in San Francisco said another factor driving Ciena stock up yesterday was speculation that the company may be on the verge of winning a contract with BellSouth Corp., the Atlanta-based regional phone company.

"It's pretty clear Ciena and BellSouth are working together," Rabin said.

"Whether there's a contract and when it's signed is anyone's guess."

Pub Date: 9/23/98

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