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Will Cisco fill the breach for Ciena?
By Ben Heskett
Staff Writer, CNET News.com
September 23, 1998, 8:45 a.m. PT
Will Cisco Systems fill the breach for Ciena?
QUOTE SNAPSHOT
September 23, 1998, 9:45 a.m. PT
Cisco Systems Inc. CSCO
64.8438 +1.9688 +3.13%
Lucent Technologies Inc. LU
75.9375 +1.8125 +2.45%
Ciena Corp. CIEN
15.3125 -0.2500 -1.61%
Tellabs Inc. TLAB
47.1875 +0.3125 +0.67%
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The rumor mill is working overtime in the aftermath of Ciena's failed merger with Tellabs and the company's subsequent stock drop, a trend that halted yesterday upon rumors of new suitors and a customer win for the firm.
Ciena is in play due to the fact that its products are near ground zero of the emerging trend toward converged networks within the voice and data communications industry. The company has developed technology that allows carriers to increase the capacity of their fiber networks without adding to their current underground infrastructure, a technique called dense wavelength division multiplexing, or DWDM.
That makes Ciena an attractive target for any data networking firm looking to expand its breadth to compete with the likes of Lucent Technologies in the voice-based equipment world.
But analysts wonder just how long Ciena will have a technological edge in the market. Lucent has reportedly cut prices on similar equipment that it offers in order to gain market share. Also, analysts are beginning to see DWDM as a commidity technology.
Enter Cisco.
"I think Cisco has to own somebody like this," noted Craig Johnson, an analyst with the Pita Group, an independent technology industry watcher. "They may strengthen their relationship in the short-term and wait until things cool down," he surmised, noting the uncertainty surrounding Ciena at the moment.
The relationship between Cisco and Ciena dates back to this past spring, often an initial step before the data networking giant opens up its check book to acquire a firm. Rumors started soon after, but were quickly silenced once Tellabs entered the picture in June.
Cisco executives denied the rumors. "As a public company, we can't speculate on things like that," said Graeme Fraser, vice president and general manager for Cisco's optical internetworking business unit.
A Ciena spokesman, speaking to Reuters, also denied a deal is imminent. Industry sources, however, said Cisco has turned its attention once again to the now struggling Ciena, a company whose stock hovered in the low 90s as recently as July.
Cisco and Ciena have already added a high-speed interface to the routing giant's 12000 device. The two have also upgraded a segment of the Sprint network to higher-speed OC-48 rates, according to Fraser. That deal is one among several in the works over the next three months that combines Cisco equipment with optical DWDM technology from several players, he said.
"This partnership really has been one that's been formed due to each other's dominant market share," Fraser said. "It's not an exclusive relationship here."
Analysts have said Cisco should have gone after Ciena before Tellabs. Going forward, optical technology such as DWDM will add capabilities that allows Internet Protocol, or IP, and asynchronous transfer mode (ATM) traffic to coexist on the same network. That development, in turn, will allow carriers and service providers to build networks using fewer devices that contain much more intelligence.
Cisco has made it clear that it wants a piece of the integrated voice and data networking market, pitting it against giants such as Lucent and Northern Telecom--two companies that already boast similar technology to Ciena.
Related news stories
Ciena soars on takeover rumors September 22, 1998
Merger delay hurts Ciena, Tellabs September 2, 1998
Tellabs, Ciena deal may change August 25, 1998
Tellabs board to weigh Ciena deal August 25, 1998
Ciena recovers from plunge August 24, 1998
Tellabs to acquire Ciena June 3, 1998
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