According to a number of sources Ciena is in advanced talks to purchase some Nortel assets; You can find the sources here at Total Telecom and here at Light Reading.
The assets in question are the Optical Networking and Carrier Ethernet Divisions. Since I am an admitted (or committed) Ethernet bigot, I’ll concentrate on how the acquisition of the Nortel Ethernet assets might affect Ciena.
Business
The numbers don’t lie, well maybe in Nortel’s case they do….but if we take them at face value this is a $1 billion plus per year business and that’s nothing to “sneeze at”. Ciena has done a good job of managing their business in these difficult times and has seen their stock double in the past year. Even so, this would be quite a pill for them to swallow. As of my latest information, the amount of cash Ciena has in the bank is shy of the yearly revenue of the Nortel Ethernet Business; And remember there’s an entire Optical Business in the mix as well. Considering that the securities markets are a bit wobbly right now I cannot imagine anyone being able to place a share offering So my best guess is that Ciena is considering taking on more debt to finance the acquisition, should one take place.
Product Integration
Now we have to consider the effect this will have on Ciena’s existing and future product development. Months after any acquisition occurs there is usually a bit of buyers remorse when one considers product development challenges that stem from diverse geographies, previously unknown development methods or, worst of all, core technologies licensed from third parties.
The main issue I see with the product integration stems from an entire line of Nortel gear that is an OEM arrangement from Tejas Networks. What this product line contributes to the Nortel bottom line is unknown to this author at this time but Tejas does have a world class PBB/PBT implementation that is gaining traction with customers in India and other regions in APAC.
One last and very interesting note about Tejas; For every $5 million sold by Nortel of Tejas gear under their OEM agreement, Nortel vests warrants of Tejas stock; A link outlining the Tejas-Nortel agreement is here.
I wonder if The Tejas stock comes with the purchase of the MEN business.
Technology Integration
As you may recall, in March of 2008 Ciena acquired a company by the name of World Wide Packets. World Wide Packets was (is) a Metro Ethernet solution based upon advanced Ethernet technologies designed to usher in Ethernet as a replacement for SDH/SONET in the Metro. This Acquisition was based largely on the capture of AT&T as a customer by World Wide Packets and the frame contract that came with it. A staple of the World Wide Packets technology development was based upon PBB/PBT protocols that Nortel has been championing for quite awhile.
Now we fast forward to late 2009 and Nortel is looking to shed their Metro Ethernet Business which, as described above, is based upon the same technology as the current Ciena Metro Ethernet solution.
Ciena has some PBB/PBT traction in the US but not yet seen Global, Nortel has with wins in Europe and Asia. This could lead to a renewed interest in Metro Networks based on such technology as Ciena could turn this into technology leadership of PBB/PBT based solutions.
Let me know what you think, please comment below.
