Cultivating a Network

Telecom mergers and acquisitions are at a fever pitch as new technologies and changing markets force consolidations.

What Customers Want

Pressure to provide customers with the convenience of one-stop shopping is propelling some into the acquisition boom. That’s why diversification of its product line has been a key concern for Ciena Corp., of Linthicum, Maryland. The network-equipment manufacturer has acquired 11 firms since 1997, 4 of them since 2003. Ciena paid $637 million total for its four most recent purchases. Catena Networks and Internet Photonics, based in Kanata, Ontario, and Marlborough, Massachusetts, respectively, expanded Ciena’s product line beyond its original focus on optical infrastructure. Internet Photonics’s products, for example, now allow Ciena to offer video-on-demand capabilities.

“Our customers are looking for equipment makers that can provide a broad range of solutions,” says Tom Mock, Ciena’s senior vice president of strategy. “That has led us to broaden our portfolio.” Mock doesn’t rule out additional purchases, but concedes “we have a lot on our plate right now.” Indeed, like many in the sector, Ciena is still struggling to reverse steep losses. Since 2002, the company has had net losses of about $2.8 billion.

JDSU’s acquisitions this year are a critical component of a large-scale effort to restructure itself. Formerly known as JDS Uniphase Corp., the San Jose, California, company provides broadband test-and-measurement equipment and optical products for the telecommunications industry. Over the past two years, the company has refocused, shaving costs by outsourcing manufacturing and discontinuing several noncore businesses. Through recent acquisitions, “we’re fortifying our core business, diversifying, and investing for the future,” says Enzo Signore, vice president of corporate marketing.

In midsummer, for example, JDSU completed the $750 million purchase of Acterna Inc., of Germantown, Maryland. Acterna, a telecom-test-equipment maker, gives JDSU a direct link to service providers, including cable operators. Several weeks earlier, JDSU acquired privately held Photonic Power Systems Inc., in Cupertino, California, a pioneer in delivering power over fiber rather than copper. (Terms of the deal were not disclosed.) “This is a nascent technology that shows major promise,” says Signore.

As for CFOs, the telecom consolidation is shrinking the labor market for finance executives a bit. Fewer companies mean fewer top spots for CFOs, but demand for their skills is so heated in other sectors of the technology market that talented executives can pick and choose among job offers. “There are a lot of opportunities out there for good CFOs,” says JPMorgan’s Pillar.

P.B. Gray is a business writer based in suburban Boston.

Saying Hello to Good Buys
Telecom companies have been on a prolonged buying spree.
(All 2005)
Acquirer Target Value*
3/05 Warburg Pincus Telcordia Technologies $1,350
5/23 JDS Uniphase Acterna 760
4/26 Nortel Networks PEC Solutions 471
1/12 Cisco Systems Airespace 450
1/24 Nortel Korea LG Electronics 290
4/14 Cisco Systems Topspin Communications 250
7/11 Plantronics Altec Lansing Technologies 166
4/05 EADS Nokia Oyj-professional mobile 116
5/16 ECI Telecom Laurel Networks 88
5/26 Cisco Systems FineGround Networks 70
4/26 Cisco Systems Sipura Technology 68
3/29 Juniper Networks Kagoor Networks 68
6/07 Benq Siemens AG-mobile phone division 62
3/02 Alcatel SA Native Networks $55
*In $ millions
Note: Deals announced as of 9/30/2005
Source: Thomson Financial


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