Ciena lands major contract

Shares rise $2.50 on news of Alltel pact valued at $25 million

Telecommunications

July 08, 1999|By Mark Ribbing | Mark Ribbing,SUN STAFF

To the delight of a once-hostile Wall Street, Ciena Corp. announced another new contract yesterday, a three-year equipment deal with Alltel Corp., a telephone and Internet company in Little Rock, Ark. The news sent Ciena shares up $2.50, closing at $33.25.

The Linthicum maker of telecommunications equipment is selling Alltel its signature product, a device that allows fiber-optic networks to carry more communications traffic. Ciena will be Alltel's sole supplier of the devices.

Ciena said it has installed about $5 million in equipment along 2,500 miles of Alltel's network. Alltel's fiber lines are expected to exceed 12,000 miles by the end of this year, giving the company a presence in the Southeast, the Great Lakes area and the East Coast.

Gina H. Sockolow, an analyst with Brean Murray & Co. Inc. in New York, said the contract is likely to be worth at least $25 million.

Like other analysts, Sockolow said the Alltel deal is a sign of renewed strength for Ciena, which suffered several nasty shocks last year as competition grew and its multibillion-dollar acquisition by Tellabs Inc. fell through.

Ciena was especially vulnerable to financial setbacks because it relied almost exclusively on two customers, MCI WorldCom Inc. and Sprint Corp. Analysts said the Alltel agreement, together with other recent contracts with BellSouth Corp., Cable & Wireless PLC and Intermedia Communications Inc., have reduced that reliance markedly.

"It's a significant contract in terms of dollars, and it's significant in terms of potential," Sockolow said of the Alltel deal. "It's a multiyear contract, it widens the customer base, and it gives [Ciena] a semblance of earnings stability."

Sockolow, who has a "strong buy" rating on Ciena, said the announcement of the Alltel agreement might have been timed to allay investor concerns about possible dilutions in the value of Ciena stock resulting from recent acquisitions.

On June 25, 16.3 million Ciena shares were made available to the public as a result of the company's acquisition of start-up Lightera Networks Inc. In addition, 1.5 million Ciena shares were placed in escrow and will become available in April.

Sockolow said Ciena could make another big contract announcement in August, when 16 million of the company's shares are expected to hit the market as the result of Ciena's purchase of another start-up, Omnia Communications Inc.

Denny Bilter, a Ciena spokesman, said the timing of yesterday's announcement was controlled by Alltel and had nothing to do with considerations of Ciena's stock value.

"When we get these contracts, we announce them as soon as we get the go-ahead from the customer," Bilter said.

The contract marks another step forward for Ciena, he said, adding, "We continue to broaden our customer base, which has been our goal this year."

Pub Date: 7/08/99

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