Ciena back on track post-Nortel merger

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Before it sold its Metro Ethernet Networks (MEN) group to Ciena, Nortel gave customers and select analysts a deep look each fall at near- and long-term products and technology at its premier R&D labs in Ottawa.
 
Ciena, having adopted a best-practices approach to its integration with MEN, has embraced Nortel’s tradition of providing an annual look behind the curtain.
 
Having just returned from this year’s pilgrimage, we can report that after only six months, Ciena is admirably far along with its efforts to integrate the best of its technology across its converged optical and Ethernet products.
 
The company is freshly armed with cash, and a glimpse into its future products and capabilities indicates Ciena will be on the leading edge in bringing next-generation packet/optical technology to market, which should improve its competitiveness in the market.
 
A lot has changed in a year. When we visited Ottawa last year, Nortel MEN was in chapter 11 bankruptcy; Ciena had not yet made its stalking horse bid; and the company was doing its best to stem the exodus of its valued customer base.
 
It’s only been six months since Ciena acquired Nortel’s MEN unit, but already Ciena is well along in its efforts to integrate control and management plane functions across its legacy Ciena and Nortel products.
 
In contrast, the last big merger of companies with ON products – Alcatel and Lucent in 2006 – did not go nearly as smoothly: the companies were much larger and more complex to integrate and had significantly more overlap in product lines. Ciena-Nortel is smaller and appears to be a quicker, cleaner integration.
 
 
The labs had a fresh coat of paint (in Ciena colors, of course) and the mood was very upbeat. Ciena also introduced new product branding aimed at unifying the new Ciena’s product portfolio around the “Activ” brand.
 
Product lines include ActivFlex and ActivSpan; the 5400 and OME 6500 fall under the ActivFlex brand, while the 4200 and CPL product line falls under the ActivSpan brand.
 
Most of what we see at events like these is subject to non-disclosure agreements, but we can report that there are some impressive innovations and product updates coming by year-end from Ciena in areas such as 40G/100G; electric and photonic switching; carrier Ethernet; software for control plane interworking; and network service management planning tool updates.
 
Together, these releases will provide a unified optical and Ethernet product-line architecture. Ciena is making excellent use of its expertise in coherent systems and is pushing the envelope with its third-generation capabilities to demonstrate significant increases in transmission capacity past 100G.
 
Not only has Ciena acted quickly to integrate its product offerings, but has also put its financial house in order; it has retired debt, is poised to significantly reduce IT expenses in the coming months, and has significant cash on hand.
 
As part of the MEN transaction, Ciena is paying Nortel (or what’s left of it) a hefty fee to manage its SAP business database, which is cutting into Ciena’s profitability. Come January, after Ciena completes converting data over to its own Oracle database, transaction fees paid to Nortel will cease and the expense savings will flow directly to the bottom line.
 
In related news, Ciena completed the sale of $350 million of unsecured convertible senior notes bearing an interest rate of 3.75%, which will come due in October 2018.
 
 
The additional funding, along with current cash and cash equivalents, gives Ciena nearly $800 million in cash with which to fund operations, including R&D.
 
 Also announced this week was the sale of the Carling research facility in Ottawa – home of the newly repainted Ciena R&D labs – to the Canadian government.
 
The Nortel MEN transaction included a 10-year lease on the facilities that had a 5-year buyout option. Ciena was informed that the Canadian government would be exercising its rights under that option and thus Ciena has to move in the next five years.
 
The news was not a surprise to the company and should not be a problem as Ciena has other facilities in the Ottawa area. It does not foresee finding new facilities for its approximately 1,000 employees who work there to be an issue. Not to mention, it gets a sizeable monetary incentive to move.

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