Ciena Takes a Verbal Swipe
at Lucent's Tactics
By Kevin Petrie
Staff Reporter
4/7/99 8:06 PM ET
Plain English can be a little harsh when you're
describing a competitor.
At least when it comes to Ciena's (CIEN:Nasdaq)
grudge against Lucent (LU:NYSE).
In a filing with the Securities and Exchange
Commission Monday, Ciena, using the "plain
English" now urged by regulators, openly raises the
possibility that Lucent may have been less than
truthful in its claims to deliver equipment on time.
This feud goes back to last summer when the
Linthicum, Md.-based supplier of optical-fiber
systems was left at the altar by prospective merger
partner Tellabs (TLAB:Nasdaq). Tellabs backed out
after AT&T (T:NYSE) canceled a potentially
lucrative contract with Ciena and gave it to Lucent.
Since then, Ciena has raised questions about
Lucent's competitive tactics. In an SEC filing in
September, Ciena wrote that it was investigating
potentially damaging and "legally questionable"
activities by competitors. Nothing came of that
investigation.
The most recent issue hinges on a Lucent product
announcement released in January 1998. In
Monday's 8K filing, Ciena took the unusual step of
questioning the truthfulness of Lucent marketing,
this type in sharper language than it's used to
criticize its rival in the past.
"When competitors make early announcements of
competing products, our customers may delay their
purchasing decisions, particularly if they believe the
truth of the claimed performance of the announced
product, and the time within which it will be
available," the document reads.
"For example, in January, 1998, Lucent announced
a proposed high-capacity [dense wavelength
division multiplexing] system which it claimed would
handle 400 [gigabits per second] of capacity per
fiber, and which it further claimed would be
commercially available worldwide in the fourth
quarter of 1998."
The document leaves the rest unsaid: that Lucent
made its products commercially available on April
1, three months behind its prediction in the press
release. A Lucent official says it was ahead of
schedule in delivering product to AT&T and other
unnamed customers; already 13 carriers have
received shipments.
A Ciena official says Monday's documents simply
restate the content of prior filings. But observers
say Ciena's word choice breaks with protocol.
"I can't say that I've ever seen anyone take this
blatant a swipe at a competitor in this way before,"
says one securities attorney, who asked not to be
named.
"It signals that there may be some friction," says
Mort Cohen, chairman of Clarion Partners, which
isn't an investor in Ciena or Lucent. "It's a red flag."
But you have to score a few extra points for candor.
"That's a great example of plain English," says
analyst Kevin Slocum with SoundView, adding
that Ciena's version of the episode was accurate.
Slocum rates the stock a hold; his firm has no
banking relationship with Ciena.
Ciena started a technological race in 1996 when it
shipped the first system capable of packing 16
"channels" of light onto an optical fiber, offering
phone companies a way to ease network capacity
strains. Lucent, Alcatel (ALA:NYSE) and other
established telecom suppliers hustled to match the
upstart.
Ciena quickly scaled to 40 channels, but its stock
plunged the day Lucent announced an 80-channel
product in January 1998.
Lucent says its announcement of the 80-channel
product caused no disruption in the optical industry.
But Slocum and other industry experts say it used
a strategy long practiced by the likes of IBM
(IBM:NYSE): "freezing" a market, or announcing a
product long before it is ready. The intention is to
convince customers not to flock to a competitor's
offering.
Ciena has a complicated relationship with Lucent,
because it is the sole supplier of two chips used in
Ciena's optical products. Ciena relies on other rivals
such as Alcatel and Nortel (NT:NYSE) for laser
components. Mike Margolies, president of the
independent analyst shop Avalon Research, says
Ciena might stress that relationship by sniping at it
in SEC documents.
"The competitive risk is that there's obviously
increased hostility or noise between these two
companies," says Margolies, who recommends
selling Ciena shares.
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