Ciena Corp. to acquire 2 makers of equipment

$636.7 million in stock to bring Catena Networks and Internet Photonics

February 20, 2004|By Dan Thanh Dang | Dan Thanh Dang,SUN STAFF

Ciena Corp., the fourth-biggest U.S. maker of fiber-optic networking systems, said yesterday that it will purchase two privately held equipment makers for $636.7 million in stock.

The Linthicum-based company also reported a net loss of $76.7 million, or 16 cents per share, which matched analysts' forecasts for its first fiscal quarter, which ended Dec. 31. That compared with a loss of $107.1 million, or 25 cents per share, for the corresponding quarter in 2003.

Ciena has agreed to acquire Catena Networks Inc., a broadband access company with offices in Canada and North Carolina, for 77.5 million shares of stock, worth $486.7 million.

Ciena will also buy Internet Photonics Inc., a company with offices in New Jersey and Massachusetts that supplies carrier-grade optical Ethernet transport and switching products, for 24.4 million shares of stock, valued at $150 million.

Both transactions are expected to close in the third fiscal quarter of this year.

Analysts praised Ciena yesterday for both acquisitions and its attempts to cut costs amid a slump in equipment spending by telephone carriers. Telecommunications companies built fiber-optic networks in the late 1990s, anticipating a surge in demand that never materialized.

Shares of Ciena fell 11 cents yesterday to close at $6.17 on the Nasdaq stock market, a 47 percent improvement over its 52-week low of $4.19. At its peak, Ciena stock traded at $151 a share, in October 2000.

"The bottom line is, I think the stock has bottomed out," said Reginald D. King, an analyst with Hambrecht & Co. in San Francisco who upgraded the stock to "buy" Tuesday. "Ciena is emerging. It's taking advantage of the downturn we've had in the market to diversify into a telecom equipment maker. There will be some choppiness as they continue to grow, but they've managed to maintain a strong relationship with their customer base."

In an earnings report yesterday, Ciena said first-quarter revenue was $66.4 million, a drop of 6 percent compared with the same period a year earlier. The company also said that much of its revenue came from 100 customers, including 14 new clients.

President and Chief Executive Officer Gary B. Smith said the company expects to increase revenue by 20 percent in the second fiscal quarter.

"In the simplest of terms, these acquisitions enhance the scope of the solutions we can offer our customers and further extend Ciena's network reach and presence," Smith said in a statement. "More strategically, these acquisitions are part of Ciena's vision to offer our customers a comprehensive set of solutions that enable them to realize a true, all-service network."

According to market research by the Yankee Group, the number of U.S. broadband subscribers will nearly double in the next four years, growing to $61.5 million in 2008. Broadband equipment revenues in the access area will present a market opportunity of $7.5 billion, according to the Yankee Group.

Analysts said the acquisition of Catena and Internet Photonics, which are subject to approvals by government agencies, could place Ciena in a position to benefit in the long term. But analysts also cautioned that the company is in the midst of rebuilding itself.

"On the face of it, it's a good buy," said Steve Kamman, an analyst with CIBC World Markets, who has a sector perform rating on Ciena. "These acquisitions just highlight the extent to which we really don't know what Ciena will look like in the future. They're really going through a transformation.

"This was a company without a market," Kamman said. "That was their problem. But I think optics, which was Ciena's core business, will come back. It's not dead forever. As an investor, it's just a matter of how patient you are to go through the good times, as well as the bad times, with this company."

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.