Uncommon Wisdom

Dec 11 2009   4:36PM GMT

Ciena’s Q4 report points to core incumbency challenges

Tom Nolle Tom Nolle Profile: Tom Nolle

Ciena reported its fourth-quarter numbers on Thursday morning, which showed sales down about 18% from last year but somewhat better than expected in the current quarter. Guidance was cautious, and investors took the stock down.

Ciena’s challenge is the duopoly of articulation and competition from Asia. Its acquisition of the Nortel Carrier Ethernet assets probably do the company less good than it would have done for Nokia Siemens Networks, who had little U.S. market position. Its core incumbency is the one most threatened by Huawei, a threat that’s growing even in the U.S.

By focusing on lower-level assets, Ciena is taking its eye off the ball in the service management and higher-layer services space. Ciena has reasonable assets in service management and even the potential for a service-layer story, but like most vendors, Ciena seems trapped in early-2000s buzzwords and jargon. Operators have moved into the purchase planning process for its service-layer initiatives and is looking for stuff that contributes, even if that stuff is down at the bottom of the network stack.

The question now is whether Huawei, who was unique in seeing its strategic credibility rise sharply with operators in 2009, will actually end up being more strategically credible, as well as cheaper. If that happens, Ciena is in for a very sad 2010.

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