Ciena opts for ONI

Consolidation has been talked about for a while now, and by the looks of Ciena’s move to acquire ONI Systems for around $850 million in stock, that consolidation is starting.

The two companies should make a good match, with the bulk of Ciena’s strength in the optical long haul space and ONI’s prowess in the metro DWDM space. The move is expected to further Ciena’s position in the more prosperous metro market, compared to the definitely dampened long-haul optical space.

“The world has changed a lot in the last year for companies trying to penetrate the traditional carrier [space],” said Steve Chaddick, chief technical officer at Ciena. While ONI has received good feedback from established providers such as the RBOCs, those providers were hesitant to go with the company because they needed “critical mass,”

according to Chaddick. By pairing with Ciena the company should be able to gain more traction with those established providers, he said.

But along with the gains Ciena hopes to usurp from ONI, it will also be taking on some negatives. As part of the deal Ciena assumes $300 million in convertible debt from ONI and while Ciena paid $850 million for ONI, the company only had $195.7 million in revenue last year.

Unlike most of the typical telecom acquisitions, ONI’s CEO Hugh Martin plans to stay on with the company until the integration process is complete and then move on.

According to Chaddick, further consolidation of the industry should be expected and is healthy for the industry as a whole.

Shares of Ciena were down 37 cents to $8.35, ONI shares were up 32 cents to $5.32.