Ciena: The “Blue Planet” Metamorphosis

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A few years ago, fibeReality wrote: “We believe that historically, [Ciena] has had a penchant for readily transitioning to the strategies and philosophies of executives, particularly brought on through acquisitions…” At least when it came to certain negative effects of the “Nortelization” of the firm, they were tempered by the actions of the CTO office. While in 2016, we were concerned about adequate revenue generation, it did not come to pass for various reasons, including: the substantial improvement in the US economy, Fujitsu’s move to a disaggregated approach, Infinera’s position becoming extremely weakened (while removing Transmode and Coriant as competitors), ZTE almost being destroyed, Nokia Networks’ continuing ambivalence at best toward optics (and its inability to divest those assets), and ADVA Optical Networking previously getting too immersed into the hyperscale vortex. Still, Ciena’s upper leadership sees the handwriting on the wall, when it comes to margins not likely to improve dramatically, and eventually even revenues hitting a ceiling, and like Cisco Systems in general, moving more in a software direction is part of the game plan for the former in achieving further diversification. In addition, Ciena’s cultural proclivity is still in play, as the transformation of “Blue Planet” is being driven by its last two acquisitions, Packet Design and DonRiver, but this time, luckily, without taking on any noticeable, undesirable baggage. However, the big difference compared to other past buyouts is that they are battling the rest of the sales groups inside the firm for revenue recognition.

After Ciena bought Cyan, we stated that the former likely paid too much. We certainly stand by that assertion, given that it unwisely destroyed the high-margin, transport gear of the latter, and the sales performance of the original “Blue Planet” has been less than stellar, to say the least. Moreover, there are obviously the costs of purchasing the solutions from both startups.

Indicative of a considerable alteration, and the large amount of dependence by Ciena’s top leadership in Hanover, MD on its new direction is the fact that that two key members of the engineering group of the former are now the CTO and Vice President of Engineering of the “Blue Planet Group,” and that there are also a few new VPs from the latter. Even so, just as “Cyan” was initially impacted by the “ex-Nortel”-centric folks, they have continued to the present day of being influential in affecting the growth of the software business. Actually, it is easy enough to discover that the former Manage, Control and Plan (OneControl replacement) software from the original Blue Planet had been shifted back to the hardware Product Line Management (PLM) group in Ottawa.

One would hope making the Blue Planet group an “independent division,” would prevent another such occurrence. Naturally, the concept of autonomy in this sense is somewhat of an illusion, in that many customers will, of course, not readily divorce it in their minds from the rest of the firm. More significantly, the 6500, the flagship of the Canadian execs, is dependent on Packet Design to move up the stack.

Furthermore, when it comes to Ciena designing new concepts, including the involvement of software, but not related to the next evolutionary step for PLM up north, it still appears to be all about turf protection in Ottawa, and so there is ample foot dragging with the hope that the idea will just go away. Fortunately for those Canadians, the re-designed “Blue Planet,” should have a noticeable impact on both the top and bottom lines, helping to protect the core optical business, as, in our opinion, there seems to be quite a bit of legitimate interest from customers in the offerings developed by Packet Design as well as by DonRiver.

As always, fibeReality does not recommend any securities, and this writer does not invest in any companies being analyzed by us.

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[written by Mark Lutkowitz]