Ciena stock takes off with equipment deal

Contract with Williams to supply optical switches raises investors' hopes

November 04, 1999|By Mark Ribbing | Mark Ribbing,SUN STAFF

Shares of Ciena Corp. jumped almost 17 percent yesterday on news that the company's high-risk investments in new kinds of optical communications equipment may be paying off.

The steep rise came after Williams Communications Group Inc. said in its most recent earnings report that it had signed "major deals" with telecommunications equipment companies, including Linthicum-based Ciena, in the third quarter.

Ciena's stock gained $5.75, closing at $40, a jump of 16.79 percent. It was the eighth-most-active stock on U.S markets with 19.42 million shares changing hands.

Williams confirmed that it is buying $40 million worth of Ciena switches over a period of at least two years.

Williams spokeswoman Lynne Butterworth said the gear, a "smart switch" that coordinates network activity, is "very integral to Williams' communications network."

Butterworth said Williams hopes to deploy the switches by early summer along a national network that will cover 33,000 miles by the end of next year. Ciena declined to comment on the transaction.

Wall Street analysts said investors were excited about the prospect of a Ciena-Williams deal because it involves equipment developed by Lightera Networks Inc., a Cupertino, Calif., company that Ciena bought for $463.5 million in March.

David Toung of Argus Research Corp. in New York said a product purchase by Williams was seen as "validating Ciena's approach" to the changing communications-equipment market.

The purchase of Lightera, along with the nearly simultaneous $474 million acquisition of Marlborough, Mass.-based Omnia Communications Inc., was a chancy attempt to broaden Ciena's product line.

Ciena had come to prominence as a maker of equipment that allows fiber-optic lines to handle more phone calls and Internet messages. The company took a financial beating last year amid concerns that it could not compete in the long term with larger, more diversified network-equipment companies.

The purchases of Lightera and Omnia were intended to address those worries. Lightera makes optical switches that manage communications traffic, and Omnia gear links businesses and homes to networks.

Lightera and Omnia were small new companies with minimal track records, and there were rumors that the Lightera gear was not coming along as quickly as expected. Williams' purchase of the Lightera equipment could go a long way toward boosting the profile of the product.

"Williams is a great reference account. They're very bright," said Paul Silverstein of Robertson Stephens in New York. "You have great validation that the product is on track."

Silverstein said the nascent optical switch and router market "will be very big, very quickly, in the billions of dollars in the next decade."

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