- The Washington Times - Monday, August 25, 2003

Optical-networking company Ciena Corp.’s expansion plans and lower losses in its most recent financial quarter have left analysts mixed on the company’s ability to recover from the dot-com collapse.

The Linthicum, Md., company announced last week an agreement to buy Akara Corp., a Delaware storage networking company, for $45 million in cash and common stock.

The deal is expected to close by the end of the year, pending a board of directors vote by both companies.

The acquisition is part of Ciena’s plans to diversify and include more data products, said spokesman Denny Bilter.

“We’re a much different company than we were even a year ago, because our original business essentially dropped off after the bubble burst, and we were left with trying another strategy,” Mr. Bilter said.

Ciena stock, which has been hovering at $5 to $6 per share for the past six months, closed yesterday at $5.80, up 4 cents from a week earlier. Shares closed Friday at $5.86.

Ciena significantly narrowed its losses for its third fiscal quarter ended July 31 to $88,874 (42 cents per diluted share) from $159,985 (20 cents) a year earlier. Fully diluted earnings per share represent the value of convertible warrants and stock options.

But several analysts remained cautious about when the company will be profitable, with most predicting in the middle of Ciena’s fiscal 2005.

“I don’t argue with how the management is running the company — they’re making a lot of good decisions. It’s just not a great investment,” said Samuel Wilson, an analyst with JMP Securities, a San Francisco investment firm.

While Ciena has survived the burst of the dot-com bubble by diversifying and adding new customers, the company’s turnaround plan is “a multiyear time process,” said Mr. Wilson who does not own any Ciena stock.

“[Ciena] is taking a page out of Cisco’s handbook by buying late-stage startup telecom companies and marketing the product. But the growth from those companies will take time,” he said.

Timm Bechter, a broadband-equipment analyst for Legg Mason Wood Walker, said he is concerned about Ciena’s minimal cost-cutting efforts, but rated the stock a “buy” because of the potential growth from large customers like British Telecom. He does not own any Ciena stock.

“It’s the most speculative buy I have rated, but I think Ciena can execute better results if they can add another couple of large customers,” Mr. Bechter said.

One possibility could be winning a portion of a $200 million to $300 million federal government contract on a global information-grid bandwith expansion. Ciena has three separate bids on the project, and the winning bid is expected to be announced in September, Mr. Bechter said.

Mr. Bilter would not comment on the bids.

Reginal King, an analyst with San Francisco financial services firm WR Hambrecht + Co., said he was encouraged by the FCC’s recent phone-line rule changes.

The new rules allow large carriers like Verizon Communications Inc. and SBC Communications Inc. to keep high-speed fiber-optic lines off-limits to Internet rivals.

The rule change “is an incentive for large carriers that own their lines to spend more on select technologies,” such as Ciena’s networking products, Mr. King said, advising investors to hold the stock.

He does not own any Ciena shares.

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