Ciena gets $23 million Enron pact Stock closes down in heavy trading

Telecommunications

November 04, 1998|By Mark Ribbing | Mark Ribbing,SUN STAFF

Ciena Corp. of Linthicum said yesterday that it has landed a $23 million contract to sell network equipment to Enron Corp., but Wall Street expressed disappointment, sending shares in the company down 16 percent.

"This is not the deal people were expecting," said Mark Cavallone, an analyst with Standard & Poor's in New York.

Ciena's stock, which had risen 78 percent over the previous three trading days in anticipation of a major announcement, fell $3.5625 to close at $18.25. For the fourth straight session, Ciena was the most heavily traded stock on U.S. markets, with 32.06 million shares exchanged yesterday.

Enron, a Houston energy company that is looking to branch into the telecommunications field, will be using Ciena and Cisco Systems Inc. gear for a fiber-optic route between Los Angeles and Portland, Ore. Ciena has already shipped its equipment and credited the revenue to its fiscal fourth quarter, which ended Oct. 31.

Many observers had thought Ciena was on the verge of landing a larger contract with a Bell regional telephone company, with BellSouth Corp. of Atlanta widely identified as the likeliest customer. There have also been rumors that Ciena might get a larger deal with one of its existing customers, long-distance and Internet giant MCI WorldCom Inc.

The Bells are seen as a particularly important market for Ciena, a company that rose from obscurity to international prominence by offering technology that allows phone lines to accommodate more calls and Internet messages.

Analysts said that while rumors of a BellSouth contract have been rampant, any such deal is likely to be smaller than some investors had hoped.

"Any [additional] contract would have to be pretty substantial to justify the move that the stock has seen over the last three days," said Timothy Savageaux of Volpe Brown Whelan & Co. in San Francisco. "My overall view is that the regional Bell operating companies are going to deploy this technology, but they're going to deploy it fairly slowly."

By contrast, Enron is looking to move quickly. Freed up by deregulation and threatened with stiffer competition, Enron and other power companies are looking to enter new markets. Telecommunications, a field that allows gas and electric firms to make additional money from their existing right-of-way agreements, is a popular choice.

Specifically, Enron wants to sell network capacity wholesale to telephone and Internet companies. As a newcomer in a rapidly changing industry, Enron may have an edge. Internet messages make up an ever-larger share of communications traffic, but those messages still generally travel on networks that are better suited for traditional voice telephone calls.

Communications firms have scrambled to find ways to allow Internet messages to speed along lines that are better designed to handle them. Toward this end, Ciena and San Jose, Calif.-based Cisco announced in April an agreement to link their network equipment.

"This is the network we've been waiting for," said Ciena spokesman Denny Bilter.

Stanley P. Hanks, vice president of research and technology for Enron's communications subsidiary, said that by using Internet-based networks rather than traditional systems, "we can have lower costs, higher performance and more ease of use."

Pub Date: 11/04/98

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