- The Washington Times - Monday, May 24, 2004

Ciena Corp., the fourth-largest maker of fiber-optic equipment, is digesting its recent acquisitions and further cutting costs after announcing another quarterly loss.

The Linthicum, Md., company last week reported a wider loss for its second fiscal quarter ended April 30 to $76.2 million (16 cents per diluted share) from $75.4 million (17 cents) a year earlier. Diluted earnings per share include the value of convertible warrants and stock options.

The company’s sales edged up 1 percent to $74.6 million from $73.5 million last year.

Ciena, stung by the dot-com collapse, has been trying to diversify its products and services by buying up companies.

Ciena has bought four companies in the last year. Earlier this month it purchased Catena Networks Inc. and Internet Photonics Inc. for about $622 million in stock.

Catena Networks offers broadband access services, while Internet Photonics supplies optical Ethernet transport and switching services.

But analysts say high operating costs coupled with restructuring charges and sluggish sales from its subsidiaries may lengthen the time it takes for Ciena to return to profitability.

Gabriel Lowy, a technology research director for Blaylock & Partners LLP, said Ciena’s transition from circuit-switched networks, single connections used for telephone calls, to packet-switched networks, which can allow several connections from other mediums, could take 10 to 15 years.

“I think thus far they have had a difficult time in showing they could diversify successfully from their core optical portfolio and get meaningful traction with these acquisitions,” said Mr. Lowy. New York-based Blaylock & Partners has no business with Ciena.

Ciena also has a long way to go to control operating costs, Mr. Lowy said.

The company reduced its expenses in the quarter by 14 percent to $83.3 million. Ciena hopes to save $55 million to $65 million in operating costs this year by closing its San Jose, Calif., facility, said spokesman Aaron Graham.

But Mr. Lowy said the company will not see income until at least the second half of its fiscal 2005 year.

Mr. Lowy, who does not own Ciena stock, advised investors to sell.

Michael Davies, a technology analyst with New York brokerage firm Investec Inc., rated the company as above average in the market, but said Ciena executives must be more specific on the financial impact of its acquisitions.

The company forecasted that it will increase its revenue next quarter by as much as 30 percent.

Mr. Davies, who does not own any Ciena shares, said he expects the company stock to rise about 7 percent in the next year.

Ciena’s shares closed yesterday at $3.19 on the Nasdaq Stock Market, down 11 percent from a week earlier at $3.58. The stock hit a year high of $7.97 in January before dipping to the $3-to-$5 range.

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