Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : TLAB info? -- Ignore unavailable to you. Want to Upgrade?

To: craig crawford who wrote (3112)	8/17/1998 8:13:00 AM
From: John Carragher	Read Replies (1) \| Respond to of 7342

August 17, 1998 Shares of Ciena and Tellabs Sink After Warning on Profit, Revenue By STEPHANIE N. MEHTA Staff Reporter of THE WALL STREET JOURNAL The stock of telecommunications-equipment makers and merger partners Tellabs Inc. and Ciena Corp. plummeted Friday after Ciena warned of disappointing fiscal third-quarter profit and revenue. Ciena, which makes gear that increases the capacity of fiber-optic telephone networks, also confirmed that some of its profit figures were misstated in a Tellabs merger-registration statement filed last month with the Securities and Exchange Commission. Ciena executives said the company corrected the error, first reported by the New York Times, in an SEC filing Friday morning. In Nasdaq Stock Market trading Friday, Ciena shares plunged $17.0625, or 24%, to close at $54.125; Tellabs fell $13.6875 a share, or 19%, to close at $58.125. Tellabs, of Lisle, Ill., has offered to acquire Ciena in a one-for-one stock swap originally valued at almost $7 billion. Based on Friday's closing prices, the transaction would be valued at about $6.3 billion. Shareholders of each company will vote on the transaction this week. In a news release, executives of both companies renewed their support for the deal. "Our business is fundamentally in a very strong position," Patrick Nettles, Ciena's chief executive, added in an interview Friday. "The fit is extraordinary." Tellabs didn't return telephone calls seeking comment. Analysts Praised Proposal Analysts have praised the proposed combination, which the companies announced in June. Tellabs makes "digital cross-connect" technology that helps telephone companies manage their networks, and it wanted to enter quickly the fiber-optic gear business; Ciena, of Linthicum, Md., had those systems and gear, but needed access to Tellabs customers. Ciena's lack of customer diversity, however, has raised some investor concerns. AT&T Corp. has said it won't deploy Ciena's 16-channel system, which splits a single strand of fiber into 16 separate streams of light. WorldCom Inc. also said it will scale back its purchases of Ciena gear. Ciena faces increasing competition from Lucent Technologies Inc., which has announced a system that would split a fiber into as many as 80 channels. On Friday, Ciena said that net income for the fiscal third quarter ended Aug. 1 was in the range of 13 cents to 15 cents a share. Analysts surveyed by First Call had expected the company to earn 32 cents a share. Ciena said it estimates revenue for the period rose to $129 million from $121.8 million a year earlier. The company said gross margins were hurt by a discount to a major customer in exchange for volume sales. Revenue was hurt by the delay of a $25 million order, Ciena said. The company is in the process of switching to calendar-year reporting from fiscal-year reporting. 'An Innocent Mistake' Separately, Ciena acknowledged an error in a Tellabs registration statement that contained terms of the acquisition. Instead of stating Ciena's gross profit, the line item contains the company's costs of goods sold for the six months ended April 30 and the comparable year-earlier period -- thereby understating the company's earnings. "It was an innocent mistake," said Eric Georgatos, Ciena's general counsel. He said the company learned of the error last week and corrected the figures in a filing Friday. While many analysts still believe the Tellabs-Ciena combination makes sense, a few questioned Ciena's ability to hit Wall Street's revenue targets. Some players had predicted Ciena would add about $800 million or more to Tellabs' 1999 sales. Given the gear maker's recent revenue growth, "I don't know if Ciena could [reach] that by itself," said Patrick Houghton, an analyst with Wheat First Union. "But with Tellabs' sales force, it's still a possibility." Return to top of page \| Format for printing Copyright c 1998 Dow Jones & Company, Inc. All Rights Reserved.