RBOCs Should Encourage Fujitsu to Rescue Ciena

Implications: 1.      While on paper, a Tellabs-Ciena merger would make a lot of sense, one problem is the deep cultural differences between the two suppliers. 2.      The earlier proposed merger between Tellabs and Ciena had a different CEO at the helm of the latter – one whose vision was more in line with the leadership of the former. 3.      With a long track record in proven reliability of product quality and service, Fujitsu could be the next best option for purchasing Ciena.

Analysis:  It could be argued that a takeover by Fujitsu of Ciena would actually offer the best of all worlds.  The Japanese company has given the US division a lot of autonomy, which has resulted in it becoming a staunch incumbent supplier to the service provider market in the States – and highly respondent to the requirements of these customers.  At the same time, in becoming part of a global conglomerate, Ciena’s operation would be sheltered and would be able to fully execute without as much concern over the impact of the ups and downs in the marketplace.  

Ciena would round out Fujitsu’s product portfolio in the transport sector and it would gain a couple of very attractive solutions to sell to its strong base in Japan – as well as other parts of Asia.  With a broader offering, the Japanese supplier would be less prone to take a hit on margins with its negotiations with the RBOCs.  An acquisition would also preempt any further dealings between arch rivals, Hitachi, and Ciena – the former perhaps looking to get higher up the optical food chain in a much bigger way in the US.  

In addition, Fujitsu has to be concerned about the further encroachment of Chinese vendors, such as Huawei, into the North American market – including the possibility of the latter picking up assets from Nortel on the cheap.  Acquiring Ciena would be an audacious defensive move in becoming an even higher premium equipment vendor – and being better able to fend off the deep undercutting on price by the Chinese suppliers.  

One last thought would be that this type of merger could be problematic for Fujitsu as far as government contracts are concerned. A foreign owned company may have difficulty gaining approval for deployment in the US Government agencies.