Credit Suisse analysts upgraded Ciena from neutral to outperform, citing sales growth and better operational leverage. Thanks to the lift, Ciena’s share price jumped to $12.77 – a far cry from its 52-week low of $4.98 – by 11:43 a.m. Eastern.
Perhaps what’s most meaningful to Ciena, though, is Wall Street’s view of the purchase of bankrupt Nortel Networks’ Metro Ethernet Networks unit and the associated assets. The deal puts Ciena in a much better competitive position, Credit Suisse said, echoing what telecom industry observers have said since Ciena last fall started pursuing Nortel’s properties. Despite some concerns over integration and cost controls, there has been almost universal agreement that Ciena is the best company to take over Nortel’s Ethernet division. That’s because the Maryland-based company now gains geographic reach, Nortel’s customers and access to partnerships with companies including IBM. Thus, Ciena’s target markets will expand from just carriers to financial services.
All of that bodes well for Ciena, even though integrating Nortel’s people, operations and products won’t be easy, Credit Suisse noted. Ciena intends to offer jobs to at least 2,000 former Nortel workers, including many overseas. Sure, that’s going to involve dealing with foreign regulatory regimes and unions, but keeping the collective institutional memory and skills of those Nortel employees should prove invaluable.
Ciena in November 2009 defied the odds to win Nortel’s Metro Ethernet Networks business at auction by plunking down $530 million in cash and $239 million in convertible notes to beat out rival Nokia Siemens Networks, which had the backing of a JP Morgan Chase private equity group.
The outcome in Ciena’s favor flaunted some predictions from analysts, who didn’t think the telecom gear maker would be able to pay much more than the $521 million it pledged to kick off the auction. Ciena in September 2009 reported another in a string of quarterly losses, this time to the tune of $554.5 million, due to the recession and subsequent restructuring.
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