At a time when telecommunications spending has slowed, fiber-optic equipment maker Ciena Corp. announced yesterday it landed a two-year deal that is expected to bring in more than $150 million and sent the company's stock price up nearly 12 percent.
The Linthicum company said its telecommunications equipment would be used by TyCom Ltd., which is building an undersea optical network that will connect six continents and be more than 150,000 miles long.
"The fact that Ciena is getting a major part of this network ... is significant just because there aren't many of these to go around anymore," said Joe Gladue, an analyst who follows optical networking for the Chapman Co. in Baltimore.
Wall Street reacted kindly to the news, sending Ciena's stock price as high as $61.80 by mid-morning, up 11.8 percent from Monday's closing price of $55.28. Ciena shares closed at $61.60, up $6.32, or 11.4 per cent.
"The reason this is having such an effect on Ciena's stock is there aren't a whole lot of new network builds right now," Gladue said. "A lot of telecom carriers have scaled back their plans for network builds."
Through the agreement announced yesterday, Ciena will provide land links for the undersea network being built by TyCom, a subsidiary of conglomerate Tyco International Ltd.
Here's how the fiber-optic system is being built:
TyCom lays fiber-optic cables that carry phone and Internet data along the ocean floor. As the cables get closer to shore, they are armored and, in some cases, buried for the last 20 or 30 miles of the route for protection from anchors and fishing boats.
The cables then come up through a manhole and connect with a cable station, which in turn is connected with a network in a city.
Ciena's equipment will be used in the cable station and the land network. It will pick up the data, package it and then route it around the country, like a policeman directing traffic.
"The traffic is going to go in a tunnel under the water, and it's going to hit the land and it's going to go over land on the 'highway' that we provide for them," said Denny Bilter, senior director of marketing for Ciena.
Ciena's equipment being used for the network is newer, or next-generation, and reflects an industry trend toward next-generation equipment for fiber-optic networks.
Gladue called the contract win a validation of Ciena's products.
Bilter said Ciena has already received orders from TyCom for $150 million in equipment.
The equipment will be used in the United States, the United Kingdom, France, Germany and the Netherlands.
And that's just the initial, trans-Atlantic phase of the project. Ciena's equipment also may be used on TyCom's other networks around the globe.
"Even though this contract is impressive at $150 million, it's just the tip of the iceberg," said Prospero Roda, an analyst with Global Capital Securities in Baltimore.