Summary
Ciena knocked the socks off of us with its recent announcement of the new CoreDirector and the 5400 family. Such a reaction from us is very rare. There is no doubt that the vast majority of people at Ciena wishes that there was at least a little bit more separation between that announcement and the publicizing of the bid for Nortel’s assets.
Analysis
There is no doubt that there are some moves that Ciena would like to make sooner rather than later. However, purchasing those assets from Nortel to achieve that goal would essentially be a big downer. After making one of the most important announcements in its history -- of a major technology feat in the optical realm, it would appear to be a step backwards and at least somewhat contradictory in that the company knows that if the money was instead spent on R&D, it could take care of all of its needs in the shortest amount of time. In addition, Nortel’s installed base brings extremely little to the table – other than headaches associated with a lot of old technology. Many customers have been alienated over issues such as manufacturer-discontinuation activities by the Canadian company. There is a good chance that Ciena’s folks will get thrown out the door if they say they are the new Nortel sales people. Ciena on its own would win much of that business at those carriers anyway. Moreover, Nortel’s optical business right now is strictly building out on what it already has in networks – such as the delivery of new nodes or cards. Its new equipment sales tend to go to enterprise and smaller carriers that would have had no interest in them in the past – but now they can get them for a song.
In fairness, there are some positive points to such a deal. Ciena would have more access to markets abroad. Nortel is especially entrenched at large service providers in Europe. It would make the supplier fairly untouchable in terms of getting bought out (the leadership at the supplier has no interest in getting acquired). Ciena would get a standalone ROADM that is built into a DWDM. The vendor would also become more competitive with a full optical product line that would be able to directly take on Ericsson, Alcatel-Lucent, etc. In addition, Nortel has a very exceptional design with its mesh offering. Still, taken all together it is hard to see how it significantly enhances Ciena’s product line.
The R&D leadership at Ciena appears to want to hold onto their existing technology. Just give them the money and they will speed up development, and they will get the necessary extensions and additions out. The engineers at the company seem to feel the same way in that they could design a better product than what can be bought. The sales and marketing people at Ciena are the ones that are apparently saying that they need these products from Nortel now. Yet, it would be hard to believe that Ciena could not develop some elements in a timely fashion that would evidently be a lot less complex than the 5400 products – both in the SONET and Ethernet realms.
The sales folks are most fearful of Ericsson introducing new products to the US market. Still, at least a little bit of it seems to be related to the marketing folks unwilling to just get out of the way of the R&D people – and let them continue to execute – it is almost as if they need to feel like they are accomplishing something.
Ciena’s outlook is very bright and it does not need this acquisition. The solutions that are necessary for the supplier are already in the development pipeline – the money would be better invested there.
Samuel Greenholtz consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
