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CNBC- SQUAWK BOX
CIENA CEO PATRICK NETTLES
NOVEMBER 4, 1998
ABSTRACT: Nettles is mum on takeover talk, saying he intends to focus on improving the business of the company. Nettles refuses comment on CIENA's failed venture with AT&T and whether Lucent was involved. Yesterday CIENA announced it is entering a deal with Enron to help build an Internet protocol technology.
Mark: Since the company's $6.9 billion merger with Tellabs went up in smoke last month, CIENA is rumored to be involved in a number of deals, including one that the Tellabs deal might be back in the picture. Amidst the speculation, the fiber-optic capacity booster continues to build its business. Yesterday it announced it was entering a deal with Enron to help build an Internet protocol technology. On Wall Street, CIENA shares lost 3 and change yesterday closing at 18 1/4. If that doesn't look like that big a move, it would, if this were a logarithmic chart. Please note the range on chart is 90 points. So, even though it looks like a little squiggle, that's a lot of dollars. The high is 92. The low is 8. And where did it close yesterday, Jim, do you know?
Eighteen and change.
Mark: Joining to us talk about the business and rumors surrounding the company, Patrick Nettles, CEO of CIENA. Good morning, sir. Thanks for being with us.
Good morning.
Mark: First question I obviously have to ask is what happened with the AT&T deal? We talked to Michael Burke. He felt the circumstances under which the equipment was tested were, in his words, mysterious. He said it was hard to explain. You're familiar with the reports there may have been sabotage. What's your view?
It's hard to develop much more of a review than we had the last time we talked about it. In fact, we have no new information. We're focused on going forward with our business though and I think our announcement yesterday with Enron is part of the fabric of that.
Mark: All right, well, let's talk about what has been moving your stock. And apparently most of it started when Mr. Burke was here on CNBC's "Squawk Box." And we asked him about reviving the deal, because your stock was down so much. And he said the problem is that CIENA sees themselves as a $30 or $40 stock. That was taken as a positive when it really is a negative. It suggests that unless you can get more money than you think you're worth, you're not going to sell the company. I mean, clearly if you were worth what you're were selling for Tellabs, they'd offer it. And they haven't, have they?
Well, I'll put it this way. We are focused on our business and building the capability to serve our customers. We are not out trying to sell the company. Weren't looking for a sale. And the estimates of value, one way or the other, really aren't part of the fabric of our focus.
Mark: We're not going to get what you're saying is, "I'm not talking about this," right?
We're focused on business. That's what we said earlier.
Mark: That's fair. I've got ask and you can say, "I'm not going to talk about it." That's fair. Let's talk about your business. You didn't get the AT&T contract. You didn't get a big, what was it, Telecom Italia, big contract in Europe.
You do seem to be getting business from the upstarts. When are you going to get some big business?
We think that maybe the big business is with the upstarts, as you call them. I think the importance of that sector of market for 1999 is dramatically misunderstood. That's where the movement is underway. That's where this new architecture that we're pursuing with Enron is really going to be found and realized first. We are excited to be part of that. And that's really our focus. Now, that doesn't mean I'm not anxious to sell to the Bell operating companies or others that are traditional carriers. I think the interesting and important part of the Enron announcement, for example, is the leading edge aspect of it, the fact that this new architecture defines where networks will be in a few years.
Mark: Okay, Mr. Nettles. Jim Cramer has questions. We need to get a commercial break in first. Please stand by, sir, and we'll come back and talk to you some more. We're talking to Patrick Nettles, CEO of CIENA. Don't go away.
We're back talking with Patrick Nettles, chief executive officer at CIENA. And Jim wanted to get in.
Mr. Nelson, one thing we've seen this quarter is a lot of the companies that provide to the more aggressive, new younger companies. Such as the competitive local exchange carriers, have to make special deals with these C-lecs, because the bond market is closed off to them, because of all the problems we're having in the credit markets right now. Your company's a small company. Can you make a deal that a competitor can match? Or do you find yourself hopelessly outbid by larger companies that can afford to lose something on financing in order to win business?
That's something that we worried about, but it turns out, I think most of the companies we're dealing with are well financed. They've prepared themselves well for what they're planning to do over the next 12 to 18 months. For example, Enron, is not a small company, is not dependent on the bond market at this point to do what they want to do. I think that there is a risk for some companies. We haven't seen that. We haven't encountered that as a deal stopper in any of the business we're focused on today.
Mark: Joe Kernen.
Joe: Mr. Nettles, even though the stock's run up a little bit, it looks like it's going to open around 19. Considering someone was willing to pay such a much higher price, I'm talking about Tellabs in the past, with the stock at $19, is there any way that you can defend against someone that would offer, let's say, a 50% premium, $30?
Isn't it almost inevitable someone will come in here and take a run at CIENA?
I don't think there are unfriendly takeovers that succeed in high technology companies. In the simplest sense, a high-tech company's value is in its people. If the people aren't happy with the outcome, they aren't going to stick around. They'll vote with their feet. I think that there is a lot more value for us in focusing on building shareholder value in rebuilding our business, focusing our attention on customer services and customer benefits. That's what we're doing, that's the program for the next few months.
Joe: I just want to ask one more thing about the AT&T and the Lucent situation, because when it happened, you know, obviously everyone would whisper initially, "Oh, that's a little interesting, isn't it, that, you know, AT&T decided not go with, you know, CIENA and then there's Lucent, the former spin-off." But to see it actually verbalized by your company was what really raised a lot of eyebrows that maybe something's was going on. You say you don't have any additional information. Was there ever anything that actually pointed to some type of conspiracy there between Lucent and AT&T?
I really can't comment on the particulars of that. I think that if there were smoking guns, we'd be talking more explicitly about that. I think the concerns are behind us, as far as I'm concerned. We're looking at building business on customers who want to buy it. Whatever the reason AT&T made their decision. They made it. And we're going to keep going.
Joe: Rich McGinn, the CEO at Lucent, said it was absolute balderdash.
Mark: He's not going there.
Joe: I hear it. I was wondering if there was anything to read into that.
Mark: Let me ask you, Mr. Nettles, about Worldcom. They backed off, because they bought too much equivalent in first place, apparently because your equipment worked so well, they didn't realize they wouldn't need as much as they ordered. Are they going to come back and order more stuff? Worldcom and Sprint were big, big to your order flow.
Well, we expect to come back. There's activity that indicates that still, as we expected going to happen in 1999. I think the place we find ourselves as a company was in a transition so that now our business is spread over a larger number of customers. We have 14 customers contributing revenue today as opposed to two or three in the last year.
Mark: Mr. Nettles. Thanks a lot. Patrick Nettles, chief executive officer at CIENA.
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