More bad news for CIENA? Looks like we are headed to single digits.
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Top Stories: World-Weary Ciena Finds
WorldCom Bears Bad News, Too
By Kevin Petrie
Staff Reporter
9/9/98 6:50 PM ET
A customer that last year accounted for nearly half of Ciena's
(CIEN:Nasdaq) revenue while relying heavily on its products now uses
commercial offerings from three Ciena rivals, casting a bit more doubt on
the viability of Ciena's proposed merger with Tellabs (TLAB:Nasdaq).
An official at mammoth phone carrier WorldCom (WCOM:Nasdaq) said in
an interview today that WorldCom has bought fiber-optic products from
three companies that compete with Ciena, a fact that is not widely known.
It is unclear whether that move will deprive Ciena of only marginal
revenue or represent a serious threat to its position with WorldCom. So far,
WorldCom has been a pillar in Ciena's lately crumbling foundation: In the
year ended last October, it provided Ciena with $184.5 million of its
$373.8 million in total revenue.
"We have always been vendor-independent," says a WorldCom
spokeswoman. She declined to name the other suppliers.
Ciena says there is no change in its arrangement with WorldCom. "We've
known" others sell dense wavelength division multiplexing equipment to
WorldCom, a Ciena spokesman says. "There's no news there." An official at
Tellabs, which is slated to merge with Ciena, declined to comment.
Investors bashed Ciena's stock today on reports that rival Pirelli landed a
contract with Digital Teleport, previously a Ciena showcase customer.
Ciena's troubles are causing arbitragers and investors to bet once again
that the merger won't go through under current terms.
Tellabs shares lifted 1 9/16 to 44 15/16 today, while Ciena slipped 8
13/16, or 30%, to 19 3/4. The yawning spread between the two stocks
suggests Wall Street is skeptical the Ciena-Tellabs deal will be completed,
even at revised terms that cut Ciena shareholders' take by 20%. The
revised terms call for one share of Ciena to be swapped for 0.8 Tellabs'
share.
The Tellabs-Ciena deal already has been dealt heavy blows. On Aug. 14,
AT&T (T:NYSE) told Ciena it wouldn't purchase its next generation of
products (Ciena's first generation already had failed AT&T's tests). Tellabs
and Ciena responded by canceling shareholder votes and revising the
deal. AT&T's decision was just the latest example of Ciena slowly giving
up its lead in this burgeoning field.
Dense wavelength division multiplexing, or DWDM, is a technology phone
carriers employ to send multiple light waves through optical fiber networks,
increasing the bandwidth, or capacity, of their systems.
In February, Ciena warned of a threat to revenue growth prospects when
WorldCom paused in its purchases of Ciena products. WorldCom at that
time did not mention using another company's products. "Ciena has been
and remains our DWDM supplier of choice," John Sidgmore, WorldCom's
vice chairman, said at the time in a statement by Ciena. In fact, it was the
only supplier.
Since then WorldCom has selected DWDM products from other vendors,
more rapidly than some investors expected. For example, Northern
Telecom (NT:NYSE) confirmed today that WorldCom has deployed DWDM
components in Nortel systems it bought in 1996. There is no word on
whether WorldCom will purchase more DWDM units from Ciena.
The WorldCom spokeswoman said Ciena is one of several valued suppliers
of DWDM products. WorldCom prefers to rely on multiple suppliers when
meeting different network needs.
But WorldCom's choices of DWDM suppliers show Ciena might be losing its
leading position with WorldCom.
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