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Tom MockVice President, Strategic Planning
May 5, 2004
Tom MockVice President, Strategic Planning
May 5, 2004
JP Morgan 32nd Annual Technology & Telecom Conference
JP Morgan 32nd Annual Technology & Telecom Conference
CIENA: Beyond OpticalCIENA: Beyond Optical
2
Forward-Looking Statements 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 January 31, 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.
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 January 31, 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.
3
AgendaAgenda
• Where we were
• What changed?
• CIENA: Beyond optical
• CIENA’s Transformation: Beyond the product portfolio
4
Core Network
CoreStream™
CoreDirector™
CIENA Led the Optical Core RevolutionCIENA Led the Optical Core Revolution
Acq’d Lightera,January, 1999
2000 - 20032000 - 2003
Ca
pe
x$
/ M
bp
s
Long Haul DWDM TransportLong Haul DWDM Transport
1996 - 20001996 - 2000
$25$25
$5$5
$50$50
CAPEXCAPEX OPEXOPEX REVENUEREVENUE
$ M
illi
on
s$
Mil
lio
ns 43%43%
36%36%16%16%
Core Optical SwitchingCore Optical Switching
0
100
200
300
400
500
600
700
99%99%
CAPEXCAPEXTraditionalTraditional
CIENACIENA 2000 - 20032000 - 2003
Ca
pe
x$
/ M
bp
s
Long Haul DWDM TransportLong Haul DWDM Transport
1996 - 20001996 - 2000
$25$25
$5$5
$50$50
CAPEXCAPEX OPEXOPEX REVENUEREVENUE
$ M
illi
on
s$
Mil
lio
ns 43%43%
36%36%16%16%
Core Optical SwitchingCore Optical Switching
0
100
200
300
400
500
600
700
99%99%
CAPEXCAPEXTraditionalTraditional
CIENACIENA 2000 - 20032000 - 2003
Ca
pe
x$
/ M
bp
s
Long Haul DWDM TransportLong Haul DWDM Transport
1996 - 20001996 - 2000
$25$25
$5$5
$50$50
CAPEXCAPEX OPEXOPEX REVENUEREVENUE
$ M
illi
on
s$
Mil
lio
ns 43%43%
36%36%16%16%
Core Optical SwitchingCore Optical Switching
0
100
200
300
400
500
600
700
99%99%
CAPEXCAPEXTraditionalTraditional
CIENACIENA 2000 - 20032000 - 2003
Ca
pe
x$
/ M
bp
s
Long Haul DWDM TransportLong Haul DWDM Transport
1996 - 20001996 - 2000
$25$25
$5$5
$50$50
CAPEXCAPEX OPEXOPEX REVENUEREVENUE
$ M
illi
on
s$
Mil
lio
ns 43%43%
36%36%16%16%
Core Optical SwitchingCore Optical Switching
0
100
200
300
400
500
600
700
99%99%
CAPEXCAPEXTraditionalTraditional
CIENACIENA 2000 - 20032000 - 2003
Ca
pe
x$
/ G
b/s
Long Haul DWDM TransportLong Haul DWDM Transport
1996 - 20001996 - 2000
$25$25
$5$5
$50$50
CAPEXCAPEX OPEXOPEX REVENUEREVENUE
$ M
illi
on
s$
Mil
lio
ns 43%43%
36%36%16%16%
Core Optical SwitchingCore Optical Switching
0
100
200
300
400
500
600
700
99%99%
CAPEXCAPEXTraditionalTraditional
CIENACIENA 2000 - 20032000 - 2003
Ca
pe
x
Long Haul DWDM TransportLong Haul DWDM Transport
1996 - 20001996 - 2000
$25$25
$5$5
$50$50
CAPEXCAPEX OPEXOPEX REVENUEREVENUE
$ M
illi
on
s$
Mil
lio
ns 43%43%
36%36%16%16%
Core Optical SwitchingCore Optical Switching
0
100
200
300
400
500
600
700
99%99%
CAPEXCAPEXTraditionalTraditional
CIENACIENA
Success driven by disruptive economics
5
Core Network
CoreStream™
CoreDirector™
CIENA’s Optical Portfolio ExpansionCIENA’s Optical Portfolio Expansion
Metro Network
MetroDirectorK2™
Access Network
ONLINE EdgeONLINE Edge
ONLINE™ Metro
Acq’d CyrasDec 2000
Acq’d ONIJune 2002
6
LinthicumLinthicumAlpharetta
$18 / Mbps$18 / Mbps$650 / Mbps$650 / Mbps $650 / Mbps$650 / Mbps
Source: Infonetics, Dell’Oro, CIENA Internal Estimates
Relative costof equipmentRelative costof equipment
The Operators’ “pain point”has moved…
The Operators’ “pain point”has moved…
…and spending has shifted to service delivery
…and spending has shifted to service delivery
Core Optical Market is in DeclineCore Optical Market is in Decline
$-
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
2002 2003 2004 2005 2006
Carr
ier
Spend (
$M
)
Core & Infrastructure Service Delivery
• 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.
7
Network PhilosophyNetwork Philosophy
Converge functionality to reduce CAPEXConverge functionality to reduce CAPEX
Control network to reduce OPEXControl network to reduce OPEX
Capture revenues by increasing service bundleCapture revenues by increasing service bundle
8
Core Network
CoreDirector™
Capturing Services RevenueCapturing Services Revenue
Metro Network
MetroDirectorK2™
Access Network
ONLINE EdgeONLINE Edge
ONLINE™ Metro
Voice/video/DSL Services
VoD/HDTVServices
MPLS/ATM/FRServices
IPServices
Private LineServices
StorageServices
EthernetServices
An intelligent optical core enables an all-service network, but CIENA’s portfolio
lacked service delivery platforms customers needed to capture new
revenue growth
An intelligent optical core enables an all-service network, but CIENA’s portfolio
lacked service delivery platforms customers needed to capture new
revenue growthCoreStream™
9
CIENA’s Acquisition/Partnership GoalsCIENA’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
10
Preserve the Core; Expand Service PortfolioPreserve the Core; Expand Service Portfolio
• 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
• 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
VoIPVoIPHDTVHDTVVideo on DemandVideo on DemandEthernetEthernet
IP VPNsIP VPNsDSLDSLPrivate
LinesPrivateLines
StorageStorage
InternetAccessInternetAccess
11
Disciplined Acquisition StrategyDisciplined 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
DN™ 7
Core Network
CoreDirector™
Metro Network
MetroDirectorK2™
Access Network
ONLINE EdgeONLINE Edge
ONLINE™ Metro
Voice/video/DSL Services
VoD/HDTVServices
MPLS/ATM/FRServices
IPServices
Private LineServices
StorageServices
EthernetServices
Acq’d WaveSmithJune 2003
CoreStream™
Capturing Services RevenueCapturing Services Revenue
13
Disciplined Acquisition Strategy - WaveSmithDisciplined Acquisition Strategy - WaveSmith
Acquisition/Partner 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
MultiService Switching
Applications: DSL Aggregation, VoD, ATM,
Frame Relay
Applications: DSL Aggregation, VoD, ATM,
Frame Relay
Revenue per $ of CapExRevenue per $ of CapEx
150%increase
150%increase
Traditional DN
14
DN™ 7
Core Network
CoreDirector™
Metro Network
MetroDirectorK2™
Access Network
ONLINE EdgeONLINE Edge
ONLINE™ Metro
Voice/video/DSL Services
VoD/HDTVServices
MPLS/ATM/FRServices
IPServices
Private LineServices
StorageServices
EthernetServices
CN™ 2000
Acq’d AkaraAug 2003
CoreStream™
Capturing Services RevenueCapturing Services Revenue
15
Disciplined Acquisition Strategy - AkaraDisciplined Acquisition Strategy - Akara
SONET/SDH Storage
Traditional CN 2000
230%increase
230%increase
Applications Storage extension, Access WDM,
Low-Cost Ethernet Transport
Applications Storage extension, Access WDM,
Low-Cost Ethernet Transport
Revenue per $ of CapExRevenue per $ of CapEx
Acquisition/Partner 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
16
DN™ 7Catena
Internet Photonics
PacketWave™ (Luminous)PacketWave™ (Luminous)
ST™ (Laurel)
Core Network
CoreDirector™
Metro Network
MetroDirectorK2™
Access Network
ONLINE EdgeONLINE Edge
ONLINE™ Metro
Voice/video/DSL Services
VoD/HDTVServices
MPLS/ATM/FRServices
IPServices
Private LineServices
StorageServices
EthernetServices
CN™ 2000
Laurel PartnershipSept 2003
Luminous PartnershipSept 2003
CoreStream™
Capturing Services RevenueCapturing Services Revenue
17
BackgroundBackground
• Acquisition closed May 3, 2004.
• 75.9 million shares of CIENA Common Stock issued.
• Majority of shares not subject to lock-up.
• A leading innovator in the broadband access market
• Customers– Three RBOCs (including Bell South)
– Major IOCs
– CLECs
• Products– CNX-5
– CN1000
– CN1000FX
Yankee Group: Overall broadband equipment revenues in the access area will present a
market opportunity in excess of $7.5 billion
Yankee Group: Overall broadband equipment revenues in the access area will present a
market opportunity in excess of $7.5 billion
18
BackgroundBackground
• Acquisition closed May 3, 2004.
• 24.1 million shares of CIENA Common Stock issued.
• No lock-up.
• A leading supplier of carrier-grade optical Ethernet transport and switching solutions
• Customers– Six of the top ten U.S. cable operators (including Cablevision, Cox, Adelphia)
– Carriers such as TDS Metrocom deploying Ethernet private-line services
• Products– LightStack MXA
– LightStack MX
– LightStack GSLAM
– LightHandler
Infonetics Research: Worldwide Ethernet services market will grow from approximately $2.9 billion in
2003 to $7.5 billion by 2007.
Infonetics Research: Worldwide Ethernet services market will grow from approximately $2.9 billion in
2003 to $7.5 billion by 2007.
19
CIENA’s Transformation: Beyond the Product PortfolioCIENA’s Transformation: Beyond the Product Portfolio
• Shifting investment to access/service delivery from core
– Goal of reducing ongoing opex (exclusive of Catena/IPI) by 10% to 20% in FY ’04
– Announced facilities consolidation and associated headcount reduction affecting 425 employees (~25% of CIENA’s workforce prior to Catena/IPI) on April 20, 2004
– 2002-2003 investments will enable us to maintain core leadership
• 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
20
Transforming CIENA to Encompass Broadband Service DeliveryTransforming CIENA to Encompass Broadband Service Delivery
CAPEX/OPEX Savings
From (2003)From (2003)
High Quality/Low Volumes
Direct Sales Only
Service Revenues
Low Cost/High Volumes
Channels/Enterprise Pull
Value PropositionValue Proposition
CompetenciesCompetencies
Core Optical Broadband Edge & AccessTechnologiesTechnologies
FY ’02$361 million
FY ’02$361 million
FY ’03$283 million
FY ’03$283 million
Core NetworkingCore Networking
Metro NetworkingMetro Networking
Data Networking/Service Delivery
Data Networking/Service Delivery
Solutions & SoftwareSolutions & Software
Service/Tech SupportService/Tech Support
FY ’01$1.6 billion
FY ’01$1.6 billion
FY ’04(stated goal
prior to Catena & IPI)
FY ’04(stated goal
prior to Catena & IPI)
To Include (2005)To Include (2005)
T.B.D.T.B.D.