Another Positive Step for Ciena

Implications: 1.      There are signs that Ciena is starting to feel just a pinch of the economic slowdown. 2.      OEM agreements will be helpful in providing additional sales channels for the increasingly adaptable CN 4200. 3.      The recently stated financial performance of British Telecom could spell trouble for Ciena in the long term.

Analysis:  Apparently, in the past, Ciena has not allowed the OEMing of many of its products.  The supplier never wanted to share its intellectual property with anybody else, and with an OEM agreement, the manufacturer has to give up some technical information.  So, it is a demonstration of the high confidence level at Ciena that the 4200 will retain its very dominant position for a long time.  Another sign of the product’s uniqueness is that an optical powerhouse, Hitachi, is indirectly admitting that it does not have a comparable solution. 

The multidimensional nature of the 4200 requires more of a comprehensive distribution strategy.  The product’s Ethernet capability was bolstered with the World Wide Packets acquisition, but of course, the gear can also be used in IP and TDM scenarios.  It actually has the appearance of a god box without the negative characteristics associated with such solutions – as it is low in cost and does not put a disproportionate amount of traffic at risk, if there happens to be a failure. Clearly, the appeal is in not needing to have multiple boxes at a remote site location in order to handle diversified services.   

While business is not quite as robust as three months ago, Ciena appears to still be ahead of its expectations with revenues for the fiscal year probably winding up at least 30 percent over the last one.  The vendor has pretty much caught up now on its manufacturing. And still in comparison with other public network transport vendors, Ciena is by far in the best competitive shape in the market.  

The financial difficulties at British Telecom will not have a negative effect on Ciena in the short term.  However, later on, there is the possibility of curtailing the 21st Century Network – or at least a modification in both size and scope.   T

he announcement of the OEM deal with Hitachi is nothing short of impressive.  Overall, the partnership should help Ciena get more business abroad, and potentially lead to new opportunities for Hitachi in the US.