Ciena Should Buy ADVA

While the ex-Nortel contingent, which has dominated the direction of Ciena in recent years, would almost assuredly be opposed to the idea because it would be viewed as a direct threat to its turf, the supplier would greatly benefit from purchasing ADVA Optical Networking. With the number of DWDM greenfield opportunities being few and far between at the moment, buying additional market share in the optical space would seem to make a lot of sense. In addition, Ciena would be able to leverage its existing relationships with large incumbent service providers, particularly in the US, to make significant penetration with ADVA’s gear, resulting in not only substantially greater revenue, but much higher margins for the German supplier. Most importantly, we believe that the top leadership at Ciena, which has had a propensity to adopt the philosophy of its latest major acquisition, would greatly benefit from ADVA’s track record based on realistic and practical decision making.

In acquiring ADVA, Ciena would be less likely to consider straying from its core competency in photonics, a possibility that can never be dismissed because of what we firmly believe has been an historical reluctance on the part of the CEO to state that he is running an optical company. ADVA would also bring to the table a wide assortment of enterprise customers and other end-users across a range of industries. In fact, the door would be opened to Ciena being more of an optical access player in general, including that ADVA has been trialing a WDM-PON solution. Other potentially unique aspects that could be gained from ADVA would include encryption and synchronization capabilities.

Of course, even assuming such an acquisition would happen, the real downside of such a buyout could easily be Ciena repeating its previous actions of alienating customers by discontinuing ADVA’s metro solutions in favor of its incumbent products, or in the case of the 4200, Nortel’s 6500 being preferred. (For a competitive analysis of this type of system vendors, see our report: Clash of Metro 100G Optical Vendors with Shifting Network Paradigm.) Obviously, the most beneficial arrangement would be in maintaining both product lines for as long as possible. While there would be higher operational costs in doing so, the long-term competitive and strategic advantages for Ciena would be the following:

1. The hardly inconceivable demise of Infinera could be hastened as Ciena/ADVA would be in a position to truly dominate the data center interconnect market.
2. Nokia Alcatel-Lucent’s strong presence in Europe could be considerably weakened with ADVA facilitating inroads by Ciena on the continent.
3. The R&D talent at ADVA would further bolster Ciena in terms of needed product differentiation because it is inevitable that Huawei Technologies will one day be allowed to provide systems to the US market, regardless of the type of traffic being carried.
4. Ciena may not have to sacrifice as much to ensure that it has appeased the Street sufficiently with a high enough number of backlog orders.
5. Ciena could probably somewhat save face by combining its Blue Planet division with ADVA’s Ensemble division.

Please consider another of our latest reports, Clash of Optical Component Vendors & Technologies in Data Center Networks.

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[written by Mark Lutkowitz]