Ciena snags WaveSmith

Optical networking vendor Ciena Wednesday announced a definitive agreement to acquire privately-held multiservice edge switch maker WaveSmith Networks for $158 million in stock.

Ciena was a third round investor in WaveSmith and distributed the company’s products. The acquisition announcement follows WaveSmith’s recent contract, valued at least $50 million over three years, to supply SBC with multiservice edge switches in 200 sites.

Shares of WaveSmith common and preferred stock will be exchanged for approximately 36 million shares of Ciena common stock. Ciena also will assume WaveSmith’s employee stock options, which will be converted into options to purchase Ciena shares.

The deal helps Ciena tap additional sources of revenue as sales of optical networking gear remain sluggish during the three-year-old telecom slump.

“Restoring growth and profitability to our business in this challenging environment requires that we be willing to take action to expand our addressable market to drive revenue,” said Gary Smith, Ciena’s president and CEO, in a statement. “Through the addition of WaveSmith, we gain access to a substantial incremental market opportunity for Ciena.”

Citing data from Infonetics Research, Ciena says the worldwide multiservice switch market addressed by WaveSmith’s products will grow from approximately $2.4 billion in 2003 to nearly $4 billion by 2006.

Ciena also has a multimillion-dollar investment in multiservice core switch maker Equipe Communications. That relationship has yet to bear fruit however, as Equipe has not yet announced any customer wins.

Smith says Ciena will maintain its relationship with Equipe.

For its part, Equipe says its relationship with Ciena is “healthy” and “ongoing.” Ciena will demonstrate Equipe’s gear in its booth at Supercomm in June, says Bob Sullebarger, vice president of marketing.

“We’re quite positive about the (WaveSmith) transaction,” Sullebarger says. “It show that Ciena is serious about Layer 2 switching.”

Equipe’s E3200 multiservice core switch is in two RBOC trials that are attached to RFPs, Sullebarger says. Equipe will enter lab trials with two European incumbent carriers in four to eight weeks, he says.

The boards of both Ciena and WaveSmith have approved the transaction, which is expected to close during Ciena’s third fiscal quarter 2003. WaveSmith will continue to operate from its Acton, MA., headquarters.