- The Washington Times - Monday, December 17, 2001

Shares of Linthicum, Md.-based Ciena Corp. slid more than 20 percent last week, after announcing a loss of $1.8 billion in the fourth quarter.
The company also predicted continued losses over the next several months, as key customers continue to cut costs in an economic environment unforgiving to the telecommunications sector.
Shares of Ciena fell from $17.97 last Wednesday to $14.26 Friday on the NASDAQ.
"The telecom industry is facing a dynamic and challenging market environment, the uncertainty of which has only been accentuated by the larger, overall economic environment," says Ciena President and CEO Gary Smith last week.
Ciena is the No. 2 manufacturer of materials used in optical networks, trailing only Lucent Technologies Inc. It reported fourth-quarter revenues of $367.8 million, an increase of $80 million over the like quarter a year ago. It is expected to lose money over the next several months, due to anticipated spending cuts by big customers, including Qwest Communications, which last Thursday cut its 2002 spending forecast from $5.5 billion to $4.3 billion.
Decreased spending by customers has become a significant concern among analysts who cover the company.
"Ciena customer concentration has finally caught up with the company," says Merrill Lynch telecommunications analyst Michael Ching in a research note. "The outlook appears worse than we imagined."
Qwest, Sprint Inc. and Tycom Inc. accounted for 67 percent of Ciena's sales during the October quarter, and as a group, they are expected to decrease capital expenditures by 34 percent in 2002.
"We remain concerned that these carriers will reduce [capital expenditure] plans further," writes Mr. Ching, who rates the stock neutral in the short term but a "buy" in the long term.
Many analysts indicate comfort with riding Ciena over the long term.
"I think the downturn is as a result of the economy," says David Toung, an analyst with McDonald's Investments in New York. "They have a very good track record of execution."
Mr. Toung rates the stock a "buy." He and other analysts say they are optimistic Ciena can rebound quickly with any eventually upturn in the economy. The company has been a fan of investors since its inception nine years ago, mainly because it is one of the few young companies in the telecom sector to have turned a profit and because it gained significant market share from larger rivals in a short time.
The company announced profits as large as $54 million in each quarter of the past two years, save for this past spring when it had to deal with costs from the $2.6 billion stock purchase of Cyras Systems Inc. The bulk of the loss this quarter stems from a write-off of $1.72 billion of that purchase price.
Ciena laid off 400 workers last month. It now employs about 3,400 people, but that number is expected to decline by at least another 10 percent.
"Unless we see a quick rebound in demand, we would not be surprised if Ciena cuts its costs further," Mr. Ching writes.
Ciena's Mr. Smith says the company plans to use the economic downturn to its advantage.
"Where others in the industry have elected to cut dramatically in attempts to preserve cash and merely survive in the economic downturn, we can continue to invest in strategic areas such as research and development and sales," he says.

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