August 27, 2000|By Mark Guidera | Mark Guidera,SUN STAFF
There was a long pause as Patrick Nettles looked at the distant skyline of downtown Baltimore from the huge windows of his office. Then he uttered a bold statement about the company he helped found: "We are leading the charge in this industry, not Lucent."
That might be rhetoric, aimed more at cheering the troops at Ciena Corp., the Linthicum-based maker of optical networking equipment for the telecommunications industry. After all, they've toiled for almost three years in the shadow of industry giants Lucent Technologies Inc., Nortel Networks Corp. and Cisco Corp.
While Wall Street has soured on Lucent, there is no question it remains a 10,000-pound gorilla in the room. But it's also true that Ciena has recaptured the industry's attention.
The reason, analysts say, is because Ciena is re-emerging as a vastly different enterprise than it was two years ago, when the company's fortunes were plummeting and its very survival was questioned.
Today, the company is flying high. It is widely considered a remarkably different animal competing in the optical networking jungle than the wounded bird it was in 1998.
For one thing, Ciena's financial picture is much improved, and investors have flocked back to the stock; it has been among the better performers in the red-hot sector during the past 52 weeks, soaring 490 percent. It closed Friday at $197.94.
Last week the rebound continued, with the company reporting net income of $28.2 million, or 19 cents a share, on revenue of $233 million for its third quarter. That beat analysts' estimates by 2 cents per share, and was a startling reversal from the same quarter last year when Ciena suffered a $5.6 million loss on $128 million in sales.
It was also the company's sixth straight quarter of revenue growth, up 25 percent from the previous quarter. The company, analysts say, seems on its way to crossing the magical $1 billion sales mark soon. Perhaps more importantly for its future, Ciena has broadened and strengthened its portfolio of products to the point where it has a new fiber-optic switch that is turning heads. It's expected to take the industry by storm later this year.
The company has disclosed that at least 10 customers have the $1 million switch in field trials. Signed contracts could come by year's end.
"It's safe to say the company has moved out of the recovery phase, and maybe we could say now they are entering the expansion phase," said Paul Silverstein, a fiber-optics industry analyst at Robertson Stephens.
He described Ciena's turnaround in a May report to investors as "a Phoenix-like rebirth."
Rising out of the ashes, indeed. The company, Silverstein said, has spent much of the past five quarters regrouping from setbacks, especially the embarrassing 11th-hour collapse of a widely publicized merger with Tellabs Corp., an Illinois-based maker of telecommunications equipment.
Shares in Ciena cratered into single digits after the aborted acquisition. And more than a few analysts wrote off the company as lacking the management mettle and technology recipe to survive as an independent company.
Today, observers say, it is unlikely Tellabs could afford to buy Ciena, much less muster Ciena shareholder approval for a deal. The stock is up dramatically during the past 12 months, and the company announced a 2-for-1 split, effective Sept. 18.
Nettles shrugs off the recovery, saying the road back was accomplished simply by hammering home to employees the need to focus on the basics, not the company's travails.
Company mantra
The Ciena mantra these past two years: Manufacture reliable, quality networking equipment, expand the company's customer base, and develop new products to help communications carriers manage exploding capacity demand brought on by the Internet, digital subscriber lines (DSL) and other emerging technologies.
An Alabama native and engineer, Nettles is more than a bit taciturn when asked about the grim days of 1997 and 1998 for Ciena.
They were days marked by his co-founder David Huber's quitting in a dispute and walking off with his millions to start rival Corvis Corp., the unraveling of the Tellabs marriage, AT&T very publicly revealing that it wouldn't buy Ciena's equipment, and Wall Street's harsh shoulder.
The 56-year-old executive waves off questions about those days like the memory of a bad hangover.
Other executives are sanguine, saying the tumbles were part of a learning curve for a young company in a fast-paced, competitive industry.
"We went through a pretty bad spill but just sort of dusted ourselves off and got going again. Our employees kept the faith, too," said Gary Smith, 39, Ciena's chief operating officer.
Now, he said, the company is reaping the rewards from investing in product research and development, and a major expansion of its manufacturing capacity that will allow it to grow without major production disruptions if demand for products should continue to surge.
