[[PR]] "Forget demons and move on, Ciena"
September 28, 1998
Inter@ctive Week via NewsEdge Corporation : Jon
Bayless seems to be buying all the shares of Ciena
Corp. stock he can put his hands on. And why not?
The company's shares have tanked, in the wake of one
of the most peculiar telecommunications mergers never
to take place.
From a peak of $92.38, the company's stock has plunged
to $12 per share. That's about half of where it stood on
its first day of trading in February 1997. You remember
that day. Ciena, off the bat, was treated as a $2.1 billion
company, the highest first-day value in history.
So, if you're Bayless, who is Ciena's chairman and lead
venture capitalist, it doesn't get any better than this: a
second chance to create a windfall. If you believe Ciena
still is a market-beating company.
Therein lies the rub.
Eighteen months ago, Ciena had a simple story to tell. It
had a technology, Dense Wave Division Multiplexing
(DWDM), for which long-distance companies would
beat down doors. It had a means for squeezing more and
more data onto an existing pair of optical fibers. Each
frequency, or "color," could carry 10 billion bits of data
per second. And this form of multiplexing meant each
strand of fiber could carry 16 or 40 or 80 different colors.
Maybe even 200. There's now talk of a single fiber
carrying 25 trillion bits of data per second.
The problem is that an advance in core communications
technology that great does not go unpunished. Now,
every networking gear maker worth its salt is developing
its own dense wave technology. By sometime next year,
rivals could be pulling even or possibly ahead.
It's not too dissimilar from the fate of Netscape
Communications Corp., which seemed to have the
Internet by the tail - and then got clobbered by
Microsoft Corp.
Here, investors again got carried away with a Cinderella
story. A small company with great technology has the
chance, in this case, to become the "next " Lucent
Technologies Inc.
Only they forgot to ask Lucent about the equation.
As senior writers Kathleen Cholewka and Louis Trager
chronicle in next week's Cover Story, Lucent has hardly
been sitting still since it was spun off from AT &T Corp.
two years ago. Indeed, if anything, Lucent has been
learning to speed up its internal research and
development so it can bring new products like its
WaveStar multiplexing technology to market in record
time.
Which means a company such as Ciena must battle not
just the vast intellectual resources of Bell Laboratories,
but the relationships that Lucent has cultivated for
decades with more of its former siblings, the regional
Bell operating companies.
Indeed, Bayless is honest about the real attraction of
the ill-fated merger of Ciena with Tellabs Operations Inc.
It was about sales forces, not technology. Tellabs was
able to sell effectively to the Bell telephone companies
and their emerging competitors in local communication
services, the next battleground for DWDM. Tellabs had
credibility that Ciena needed.
But now, Ciena has to work overtime to repair its
credibility. As the merger blew up, Ciena showed itself,
at best, to be at the mercy of forces beyond its control.
At worst, it shows itself incapable of withstanding the
heat turned up in the kitchen by rivals, customers and
even short sellers.
The big blow to Ciena's prospects was exquisitely timed,
coming one hour before Ciena and Tellabs shareholders
were to vote to approve the merger. That was AT &T's
announcement that it was halting testing of Ciena's
40-color systems and would not be a customer.
The presumption: that AT&T would elect to go with
Lucent instead. Even now, Bayless calls it "a political
decision" and implies the pullout could have been
influenced by the amount of stock that AT&T
executives hold in the Lucent spin- off, not just special
pricing and installation considerations that Lucent may
have offered.
Then, there was the "very sophisticated piece of
disinformation" that Vice President Dan McCurdy railed
about, which purportedly emanated from a Lucent
facility and allegedly affected AT&T's decision.
Finally, there's Bayless' assertion that a denigrate-Ciena
campaign was orchestrated in media such as The Wall
Street Journal by Rusty Rose, a Dallas investor best
known as a former part-owner in the Texas Rangers
baseball club. Rose, who wasn't available at press time
to comment, allegedly was exposed this summer by a
large bet that Ciena's shares would decline and had to
raise questions about whether the company's financial
results were inflated.
Bayless says it will now take a couple of quarters for the
company to "re- establish credibility" with Wall Street.
Given the amount of railing at hidden demons, that's an
understatement. Because, what the company needs
now, more than anything, is proof that its technology is
sound and its market leadership intact. Otherwise, its
credibility will not come back.
<<Inter@ctive Week -- 09-25-98>>
[Copyright 1998, Ziff Wire]
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