Ciena, ONI close deal, lop heads

Newly-merged optical vendors Ciena Corp. and ONI Systems Corp. have announced the immediate layoff of 225 employees and a further 110 job cuts in three months. The announcement was made after the merger was approved Tuesday.

The merged company says the layoffs and other cost-cutting measures will save up to US$65 million a year in operating expenses, but Ciena's President and CEO Gary Smith predicted that the vendor's revenues this quarter could dip anyway.

"Depending on the timing of acceptance and customer orders, Ciena's third quarter revenues, including revenues derived from ONI, could be down meaningfully from Ciena's stand-alone second quarter revenues," Smith said.

That means Ciena is deploying its CoreDirector optical switches for a customer, but might not get the check this quarter, according to a report by Nikos Theodosopoulos, a senior analyst with UBS Warburg.

Ciena's revenues in the second quarter, which ended April 30, were $87.1 million. Its net losses for the quarter were $612.2 million, much of it attributable to steps the company made to restructure in an effort to again save money.

Theodosopoulos predicts that the company won't be profitable until the end of 2004, but notes that it has $1.36 billion in net cash. The company shouldn't have to cut operating expenses again until next year if things don't improve.

The $900 million stock deal to buy ONI was announced in February and expands Ciena's products to include customer-premise equipment and SDH technology, the optical standard used in Europe that could help attract new customers overseas, says Current Analysis.

The combined company will have a portfolio of metro access, metro core and backbone optical gear, with ONI's metro DWDM equipment expected to supplant the metro DWDM systems Ciena developed on its own, Theodosopoulos says. The company competes against Cisco, Nortel, Lucent and Marconi.

Recently Ciena announced a deal to resell an ATM/MLS switch made by Equipe Communications in an effort to generate revenue to augment sales of its optical gear. Ciena is expected to soon announce a similar deal with multiservice edge switch startup Gotham Networks.

The major problem facing the company and other vendors of carrier gear is that carriers have drastically cut back on capital spending. The only recourse for vendors is to wait out the trend and prepare their product portfolios for when carriers resume spending.