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Technology Stocks : Ciena (CIEN)

CIEN 212.93

+5.6%

Dec 8 4:00 PM EST

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To: Glenn D. Rudolph who wrote (5400)	11/10/1998 2:37:00 PM
From: Maverick	Read Replies (1) of 12623

from the AEA conference: Ciena's presentation by CEO Patrick Nettles yesterday was a study in retrenchment. We all know the story of Ciena's run from 90 to 9 after the Tellabs' deal fell through; now investors are trying to gauge the strength in the underlying business and the prospects for another suitor knocking on Ciena's door. While Nettles had nothing new to offer about Ciena's takeover prospects, he did talk about the business, and much of the talk focussed on how Ciena was coping with tough times. Margins are falling due to demand weakness that has left Ciena's plant and equipment capacity underutilized. In response to this development, Nettles said that the company has slowed the pace of hiring and has ended some outsourcing arrangements in an effort to put underutilized staff back to work. He also noted some standard measures such as general cost cutting and efforts to win lower prices from Ciena's suppliers. Unfortunately, Ciena is seeing those same price pressures on the demand side, as its customers now have more options and are demanding lower prices from Ciena. The company also continues to suffer due to its narrow client base -- 70% of its sales are to Sprint and Worldcom, a figure which Nettles hopes to get down to 50% in 1999. One final cautionary note -- Nettles said that it is likely that Ciena will become involved in vendor financing, as some of its smaller customers are having difficulty obtaining new financing in the credit markets (not a problem for Sprint, which just issued $5 bln in debt today). Readers might remember that Ascend took a beating back on October 21 in response to an earnings report in which it was noted that the company had become a banker for its clients. This news from Ciena was not exactly a surprise, but it is never good news when a tech company gets dragged into the banking business. By Briefing.com

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