Transcript Service

Friedman Billings Ramsey
8th Annual Growth Investor Conference
CIENA: Beyond Optical
Tom Mock
Sr. Vice President, Strategic Planning
June 3, 2004
Forward-Looking Statements
This presentation may contain “forward-looking statements.” These
statements are based on our expectations and are naturally subject to
uncertainty and changes in circumstances. Actual results could vary
materially from these expectations. More detailed information about the
risks involved in investing in CIENA’s stock are set forth in CIENA’s
Quarterly Report on Form 10-Q for the quarter ended April 30, 2004.
CIENA is under no obligation (and expressly disclaims any such
obligation) to update or alter its forward-looking statements, whether as
a result of new information, future events or otherwise.
2
Agenda
• CIENA’s approach
• Where we were
• What changed?
• CIENA: Beyond optical
• CIENA’s Transformation: Beyond the product
portfolio
3
Equipment Vendor Options
Sonus
Cisco
Do Nothing
Sycamore
Alcatel
Lucent
Nortel Juniper
Cut Costs (Limit
Products/Markets)
AFCI
Siemens Tellabs
Expand w/in
Existing Mkt
Enter New
Markets
Corvis
Radically
Alter Business
Model
CIENA’s approach: Designed to enable stronger long-term
revenue/earnings growth potential vs. short-term profitability with
nothing to fuel growth forward
4
CIENA Led the Optical Core Revolution
Success driven by disruptive economics
Core Network
Long Haul DWDM Transport
Core Optical Switching
$50
CoreStream™
600
500
400
300
99%
200
43%
$25
16%
36%
100
$5
0
CAPEX
CoreDirector™
$ Millions
Capex $ / Mbps
Gb/s
700
1996 - 2000
5
Traditional
CIENA
CAPEX
OPEX REVENUE
2000 - 2003
CIENA’s Optical Switching Leadership
Relative Optical Switching Capacity
CIENA Cumulative Optical Switch Capacity Shipped Relative To
Remaining Competitors, 2001 – Q203
60
• More optical switch capacity than all other
competitors combined.
• Shipped 630+ optical switches; >70% can
switch 640G
• Built the world’s largest intelligent optical
switch network: 115+ switches
• 20+ customers have field deployed at least
10 switches each
• 30+ customers on 4 major continents
50
40
30
20
4.4x
6x
9x
10
18 x
23 x
66 x
NORTEL
CISCO
MARCONI
0
CIENA
LUCENT
ALCATEL SYCAMORE
Source: Dell’Oro Q303 report for relative switching capacity. Excludes the former Tellium switch, which appears to be no
longer offered after Zhone acquired Tellium.
6
CIENA’s Optical Portfolio Expansion
Core Network
Access Network
Metro Network
CoreStream™
ONLINE™ Metro
CoreDirector™
MetroDirector
K2™
7
ONLINE Edge
Core Optical Market is in Decline
…and spending has shifted
to service delivery
The Operators’ “pain point”
has moved…
Relative cost
of equipment
$650 / Mbps
$18 / Mbps
$650 / Mbps
Alpharetta
Linthicum
•
The core is no longer the primary
challenge.
•
Carriers shifting emphasis from
CAPEX/OPEX reduction to top-line
growth.
•
Protecting voice revenues remains
a priority.
•
Service providers looking for
strategic partners to deliver
profitable broadband services
originating from the edge.
Carrier Spend ($M)
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$2002
2003
2004
Core & Infrastructure
2005
2006
Service Delivery
Source: Infonetics, Dell’Oro, CIENA Internal Estimates
8
Capturing Services Revenue
Core Network
Access Network
Metro Network
VoD/HDTV
Services
CoreStream™
An intelligent optical core enables an allservice network, but CIENA’s portfolio
lacked service delivery platforms
customers needed to capture new
revenue growth
Voice/video/
DSL Services
MPLS/ATM/FR
Services
IP
Services
Storage
Services
ONLINE™ Metro
CoreDirector™
Ethernet
Services
Private Line
Services
MetroDirector
K2™
9
ONLINE Edge
Preserve the Core; Expand Service
Portfolio
Video on Demand
Ethernet
Storage
IP VPNs
Internet
Access
HDTV
Private
Lines
VoIP
DSL
• Protect brand and customer base by continuing investment in the core
at reduced levels
• Diversify into service delivery with a coherent portfolio
• Target underserved, high growth segments that leverage CIENA’s
brand and customer equity
10
CIENA’s Acquisition/Partnership Goals
1. Expand addressable market with service
delivery platforms
2. Leverage core leadership/strengths
3. Leverage customer base/relationships
4. Improve CIENA’s business model
–
Drive revenue growth
–
Improve gross margins
–
Push toward sustained profitability
11
Disciplined Acquisition Strategy
Candidates should:
– Be disruptive to existing network economics
– Fit with CIENA’s network vision
– Have adjacency (via customer or technology)
– Deliver good margin profile
– Have channel fit or provide new channel
– Have visible path to #3+ market share in growth
market
12
CIENA’s Expansion into Service Delivery
Estimated Global Market Opportunity from Recent Acquisitions
$8,000
$7,000
$ (Millions)
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
$2003
Wavesmith
(June 2003)
2004
Akara
(Sept 2003)
2005
2006
2007
Internet Photonics
Catena
(May 2004)
(May 2004)
Sources include: Yankee Group, April 2004; Infonetics, May 2004; IDC, January 2004; RHK, March 2004; and
13
CIENA internal estimates.
Capturing Services Revenue
Core Network
Access Network
Metro Network
VoD/HDTV
Services
Laurel
Partnership
Sept 2003
Internet Photonics
Catena
DN™ Series
Voice/video/
DSL Services
MPLS/ATM/FR
Services
CoreStream™
Agility
CN™ 2000
ST™ (Laurel)
Storage
Services
ONLINE™ Metro
CoreDirector™
PacketWave™ (Luminous)
MetroDirector
K2™
Luminous
Partnership
Sept 2003
14
IP
Services
Ethernet
Services
Private Line
Services
CN 2600
(formerly ONLINE Edge)
Bundled Service Delivery To Large
Enterprises (Service Provider Case)
Service
End-User
Layer 2/3
SLC-5
CNX-5
Video
Internet
Access
Voice
Network
ST 200
Residence
CN1000
PL
FR
Ethernet
Small & Medium
Enterprise
Converged
Multi-service
Core
CN 2600
CN 4310
IP VPN
Storage
Improved margins on storage & ethernet services
ATM

Layer 1/2
CN 4310
Large
Enterprise
Note:  services also enabled by CoreDirector,
CoreStream Agility, and ONLINE Metro
• Economical sub-rate storage over anything (CN2000)
• Economical metro ethernet (CN 4310)
Deliver high-value managed storage services
• Enhanced service monitoring & demarcation (CN2000)
15
Bundled Service Delivery To Residential
Consumers (MSO Case)
Service
End-User
Network
Hub
Cable
Modem
Video
Internet
Access
Voice
CMTS
Headend
VOD Server
Cluster
Set-Top
Residence
QAM
Converged
Multi-service
Core
PL
Ethernet
IP VPN
Layer 2/3
Small & Medium
Enterprise
CN 2300
CN 4300
Storage
Layer 1/2

Improved margins on storage & ethernet services
Large
Enterprise
• Economical sub-rate storage over anything (CN2000)
• Economical metro ethernet (IPI 4300)
Deliver high-value managed storage services
• Enhanced service monitoring & demarcation (CN2000)
16
CIENA’s Solutions Portfolio –
Core to Door
Broadband
Access
Multiservice
Edge Switching
Core Transport
& Switching
Multiservice
Access
Metro Transport
& Switching
17
CIENA’s Solutions Portfolio –
Core to Door
Broadband
Access
Multiservice
Edge Switching
1000 Series
7000 Series
CNX 5, CN™ 1000
DN™ 7000, DN 7050,
DN 7100, DN 7200
Core Transport
& Switching
10000 Series
Multiservice
Access
2000 Series
CN 2000, CN 2100, CN 2110,
CN 2130, CN 2200, CN 2300,
CN 2600
Metro Transport
& Switching
4000 Series
CN 4300, CN 4310, ONLINE™ Metro
MetroDirector K2™
18
CoreDirector™
CoreStream™
CoreDirector CI
CoreStream Agility
CIENA’s Transformation: Beyond the
Product Portfolio
•
Shifting investment focus from core to access/service delivery
– Committed to maintaining technology leadership in the core
– Leveraging 2002-2003 investments:
•
•
CoreStream Agility, new core transport platform won Gig-BE and MCI
•
Enhanced CoreDirector features/functionality
Anticipate exceeding previous cost reduction goals
– Expected 10% to 20% ongoing opex reduction in FY ’04.
– Now expect cost savings will be ~30%
19
Focused Cost Reduction
$140,000
1st full qtr of
ONI-related expenses
$120,000
25%
$100,000
$90-$94m
Guidance
$80,000
$65-$70m
$60,000
G&A
S&M
R&D
$40,000
20
Q1 ‘05
Q4 '04
Q3'04
Q2'04
Q1'04
Q4'03
Q3'03
Q2'03
Q1'03
Q4'02
Q3'02
Q2'02
$0
Q1'02
$20,000
Focused Cost Reduction
$140,000
1st full qtr of
Catena & IPI expenses
$120,000
35%
$100,000
$90-$94m
Guidance
$80,000
$65-$70m
$60,000
G&A
S&M
R&D
$40,000
21
Q1 '05
Q4 '04
Q3'04
Q2'04
Q1'04
Q4'03
Q3'03
Q2'03
Q1'03
Q4'02
Q3'02
Q2'02
$0
Q1'02
$20,000
Focused Cost Reduction
$140,000
$120,000
Up to 44%
$100,000
Guidance
$80,000
G&A
$60,000
S&M
R&D
$40,000
22
Q1 '05
Q4 '04
Q3'04
Q2'04
Q1'04
Q4'03
Q3'03
Q2'03
Q1'03
Q4'02
Q3'02
Q2'02
$0
Q1'02
$20,000
CIENA’s Transformation: Beyond the
Product Portfolio
•
Shifting investment focus from core to access/service delivery
– Committed to maintaining technology leadership in the core
– Leveraging 2002-2003 investments:
•
•
CoreStream Agility, new core transport platform won Gig-BE and MCI
•
Enhanced CoreDirector features/functionality
Anticipate exceeding previous cost reduction goals
– Expected 10% to 20% ongoing opex reduction in FY ’04.
– Now expect cost savings will be ~30%
•
Manufacturing nearly 100% outsourced
– Currently working to consolidate contract manufacturers
•
Services business restructured to profitability
•
Sales force revamped to include skills/experience required for
broader portfolio
•
30+ channel partners developed to target enterprise
opportunities/new geographies
23
CIENA’s Strong Cash Position
Q2 ‘04
Cash used in Q2 ’04:
$60 million
Cash & Cash Equiv Balance:
$1.5 billion
Q3 ’04 Expected Cash Use
Operating cash:
~$60-$65 million
Expected Deal &
Restructuring cash use:
~$25 million
Short-term quarterly cash use target: $50-$70 million
Long-term Debt
$690 million 3.75% converts due 2008
24
Transforming CIENA to Encompass
Broadband Service Delivery
From (2003)
To Include (2005)
Value Proposition
CAPEX/OPEX Savings
Service Revenues
Technologies
Core Optical
Broadband Edge & Access
Competencies
High Quality/Low Volumes
Direct Sales Only
Low Cost/High Volumes
Channels/Enterprise Pull
FY ’01
FY ’02
FY ’03
FY ’04
$1.6 billion
$361 million
$283 million
(stated goal
prior to Catena & IPI)
Core Networking
Service/Tech Support
Metro Networking
Solutions & Software
25
Data Networking/
Service Delivery
T.B.D.
Thank You!