Why Ciena acquired Worldwide Packets

One analyst on Wednesday’s conference call asked if AT&T had “pushed” Ciena to do the deal, perhaps because the carrier liked WWP’s products but typically doesn’t buy from vendors as small as WWP (which employs just 145 people).

“We’ve seen other companies buy privately held vendors, often times because the carrier’s saying, ‘If you own this, we will buy it,’ and yet we never saw the revenues materialize,” one analyst said.

Smith admitted that, when sales of WWP gear to AT&T start ramping early in the 2009 fiscal year, AT&T will likely be the biggest customer of those products that year. But he argued that AT&T was not the only reason for the deal, adding that WWP has more than 100 other customers, and Ciena has over 300—many of which are potential purchasers of WWP gear. “Clearly it is incredibly helpful to have a large sponsoring customer like AT&T,” Smith said. “But we also we see opportunities to take this to other customers that we already have. And WWP has done a good job garnering an impressive customer base as well.”

Later, he added, “The time-in and time-to-market aspect of this was very important to us, in terms of integrating the products from our sales force so our sales force can go out and sell. And also making sure new platforms were linked from a technology point of view. The medium to long-term, defined as fiscal year 2009, dictated that this was right thing to do at this time.”

In addition to giving Ciena more Layer 3 technology than it previously had, Ciena says WWP’s focus on Ethernet is consistent with its own commitment to embracing Ethernet as an increasingly vital technology in carrier networks.

“[WWP] has addressed a number of the operations and management, service and provisioning pieces of Ethernet,” said Steve Alexander, Ciena’s chief technology officer. “When you look at how a carrier operates, the ability to have a demarcation capability, the ability to provision remotely and diagnose what’s going on in the network is very important. Worldwide has basically solved many of those problems.”

“We believe the deal makes sense strategically, as WWP will allow Ciena to bolster its Ethernet portfolio to service the growing carrier Ethernet market,” UBS Investment Research analyst Nikos Theodosopoulos said in a note today. “However, we question the valuation.”