Sam, Some Thoughts.
I think the questions regarding Ciena's competitive position:
1) Is Ciena in the sweet spot of the DWDM market? Here, the
answer is, I believe no. While leading edge types may dismiss
8 channel DWDM (old technology), price/competition is fierciest
at this level, and frankly makes most sense for most companies
looking to implement this technology. They understand that
they will be going thru a technology learning curve in this
area and so prudence dictates getting the most price/performance
bang for the buck here. I mean by utilizing 8 channel DWDM,
you can multiplex 7 additional OC-48 sonet terminal onto a
fiber pair that once carried only one. I don't know about
other companies, but when my company strung their fiber cable,
the minimum number of fiber pairs they used was 12 pair. So
by adding one DWDM on one fiber pair, you can increase
carrying capacity of the previous cable by about 60%. Now
we string cable that carries 48 fiber pairs. So anyway, I
agree with your assessment here regarding perhaps limited
demand for higher capacity 16 channel and 40 channel DWDM
presently.
2) At 16 1/2 or so, Ciena is being priced as if not only will
the merger not go through with Tellabs, but that Ciena itself
will never sell another DWDM system to anybody. At 16 1/2, PE
of Ciena is about 14 or so, the PE you would find on a company
in a slow growth mature industrial sector. This is clearly
not true as well. As price of DWDM falls, and becomes more
affordable, demand will grow strongly. So if we can just get
thru this short term slaughter in the stock, the long range
fundamentals for companies supplying DWDM is very bullish...
and that includes Ciena, IMHO.
3) Regarding the state of Ciena's optical technology, while
I personnally could not tell you where they are vis a vis Lucent,
Alcatel, Pirelli, and Nortel, et al. it should however also
be clear that despite being outspent by larger competitors,
Ciena's technology had enough value to attract two blue-chip
suitors, Tellabs and Cisco. These are two of the finest,
smartest companies in the Telecomm, Networking industry.
For both to show enough interest in Ciena's technology to
make offers on the company tells me they've got a significant
edge somewhere.
Ciena is being given away here. While $88 and $92 was way too
high, there is some intrinsic value here to the company and
that value is above $16. If I'm right, it's way higher. Fear,
and the pain of financial loss, has distorted the value of
this company. Shorts, pressing their bets at this level, are
just as overextended as longs were when this stock was in the
70's and 80's.
Regards, Peter.
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