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Interview: Gary Smith of Ciena
25 August 2010
As broadband data is putting pressure on operators’ backhaul networks, Ciena CEO Gary Smith discusses the scale that his acquisition of Nortel’s business will give
Gary Smith: Nortel had great technology, especially on the optical side. It was two years ahead of everyone else
The integration of Nortel’s metro ethernet business into Ciena “has gone very smoothly”, says Ciena’s CEO Gary Smith. “There’s a long way to go and it’s a long process.”
(Original GTB report: http://www.globaltelecomsbusiness.com/Article/2417390/Search/Results/Ciena-to-raise-250m-for-Nortel-purchase.html)
The takeover helps Ciena to boost its offer to carriers, which are facing major challenges as they strive to transport mobile video and data.
Ciena won the auction for Nortel’s global optical networking and carrier ethernet businesses by offering $530 million in cash plus $239 million principal amount of convertible notes due June 2017. The deal, announced at the end of 2009 and now completed, followed Nortel’s bankruptcy and the selling off of virtually all of what had been one of the world’s leading telecoms vendors.
But Smith and Ciena had been looking at Nortel before the Canadian company announced restructuring in early 2009. “Even before the bankruptcy they were engaged with a number of people, including us,” recalls Smith in an interview with Global Telecoms Business. “That gave us the chance to do a lot of planning.”
For example, Ciena consulted with a number of people who had been involved with previous integrations — including HP’s takeover of Compaq in 2002. Despite HP’s rocky couple of years after that, today the integration is widely acclaimed as a success. And Smith brought people who were already in Ciena into the team, “people who have this type of experience”.
Ciena took over Nortel’s metro ethernet network business, including its long-haul optical transport technology running at speeds up to 40 gigabits and 100 gigabits a second.
“People loved the technology,” says Smith. But they wanted a secure home for it. Now “the support from the customer base is tremendous”. Ciena won the business against competition from Nokia Siemens Networks, which had been expected to take over the Nortel unit. Since then NSN has agreed to buy much of the network equipment side of Motorola — see http://www.globaltelecomsbusiness.com/Article/2633272/Search/Results/NSN-spends-12bn-on-Motorola-takeover.html.
So what went wrong with Nortel? It was a telecoms conglomerate “and there is only room for a few of those in the world”, he says: Nortel was “subscale”. Since the bankruptcy different divisions of Nortel have been sold off to Ericsson, Genband, Hitachi and others.
But Ciena has “a very clean asset now” from the failed company. “Nortel had great technology, especially on the optical side. It was two years ahead of everyone else, but the corporation was challenged on scale and critical mass.”
Following the takeover Ciena is “now number one in North America in optical networking and number three globally”, says Smith. And Ciena has not lost its focus on optical ethernet networking: ethernet bringing “the benefits of ubiquity and economy”.
Now, he enthuses, Ciena is creating “a major powerhouse”, with “75% of the world’s major players as customers”. The company will have 4,000 people “and global scale”, he adds: “The real motivator for doing this was scale, to fund R&D and market coverage. Ciena has always had a reputation for innovation and together we can do more.”
About 2,000 Nortel people have joined Ciena, including 1,400 based in Nortel’s Canadian homeland. “The core team is very talented on the optical side and on the sales and the field sides,” he says. “We were nervous about how much talent was left.”
Within a few days of the closure of the merger the company announced its organisational structure. “We know what our portfolio is. The reception so far has been excellent.”
Fortunately for the integration team, the overlap in products “was not great”, he notes. Now the company has to migrate the Nortel access platform into the Ciena platform. The company has taken a 10-year lease on one of Nortel’s main Canadian labs. “The lab is probably the foremost optical lab in the world. That’s why it’s so far ahead in 40 and 100 gigabit services.”
Now carrier ethernet “is going crazy”, giving the company “tremendous opportunity”. But as carriers’ demands continue, the pressure will also continue. “We have a combination of technology and innovation that we have got to continue,” says Smith. Optical and ethernet are converging.
As the demise of Nortel and the sell-off of Motorola’s network equipment business have showed, the pressure on all vendors is high. Of those that started up during the first internet boom “us and Juniper are the only two companies that have survived”, he notes.
The company is already able to deliver 100 gigabits a second “and we’re looking beyond 100 gigs”, he adds. What follows? “Next, 400 gigabits a second,” he says, pauses, smiles and perhaps backtracks a little, unwilling to shorten the market for 100 gigs when it is at the leading edge: “I think 100 gigs will be particularly strong,” he says.
There is “real traffic” he says, and he is more relaxed than some about how operators will pay for it all. “The business models are evolving,” he says. “We just need the world economy to stay stable.” GTB
Further reading from Global Telecoms Business
Scale makes NSN confident about Motorola deal NSN's failed acquisition of part of Nortel
Enabling a smooth transition to IP Genband's acquisition of part of Nortel
Nortel to sell stake in Turkish unit Nortel selling interest in Nortel Netas in Turkey
Nortel may raise $1.1bn from patents sale
Ericsson buys $242m LG-Nortel stake
Ciena to raise $250m for Nortel purchase Ciena, headed by Gary Smith, is to raise $250 million to fund its purchase of Nortel Networks’ metro ethernet unit.
2005 article by Gary Smith http://www.globaltelecomsbusiness.com/Article/2200656/Search/Results/Ciena-improving-economics-in-3G-access-networks.html?Keywords=Ciena