tom mock vice president, strategic planning may 5, 2004 tom mock vice president, strategic planning...

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


1996 - 20001996 - 2000

$25$25

$5$5

$50$50


$ M

illi

on

s$

Mil

lio

ns 43%43%

36%36%16%16%


0

100

200

300

400

500

600

700

99%99%


CIENACIENA 2000 - 20032000 - 2003

Ca

pe

x$

/ M

bp

s


1996 - 20001996 - 2000

$25$25

$5$5

$50$50


$ M

illi

on

s$

Mil

lio

ns 43%43%

36%36%16%16%


0

100

200

300

400

500

600

700

99%99%


CIENACIENA 2000 - 20032000 - 2003

Ca

pe

x$

/ M

bp

s


1996 - 20001996 - 2000

$25$25

$5$5

$50$50


$ M

illi

on

s$

Mil

lio

ns 43%43%

36%36%16%16%


0

100

200

300

400

500

600

700

99%99%


CIENACIENA 2000 - 20032000 - 2003

Ca

pe

x$

/ G

b/s


1996 - 20001996 - 2000

$25$25

$5$5

$50$50


$ M

illi

on

s$

Mil

lio

ns 43%43%

36%36%16%16%


0

100

200

300

400

500

600

700

99%99%


CIENACIENA 2000 - 20032000 - 2003

Ca

pe

x


1996 - 20001996 - 2000

$25$25

$5$5

$50$50


$ M

illi

on

s$

Mil

lio

ns 43%43%

36%36%16%16%


0

100

200

300

400

500

600

700

99%99%


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™ 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™ Metro


VoD/HDTVServices

MPLS/ATM/FRServices

IPServices


StorageServices

EthernetServices

Acq’d WaveSmithJune 2003

CoreStream™


13

Disciplined Acquisition Strategy - WaveSmithDisciplined Acquisition Strategy - WaveSmith

Acquisition/Partner candidates should:







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™ Metro


VoD/HDTVServices

MPLS/ATM/FRServices

IPServices


StorageServices

EthernetServices

CN™ 2000

Acq’d AkaraAug 2003

CoreStream™


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:







16

DN™ 7Catena

Internet Photonics

PacketWave™ (Luminous)PacketWave™ (Luminous)

ST™ (Laurel)

Core Network

CoreDirector™

Metro Network

MetroDirectorK2™

Access Network


ONLINE™ Metro


VoD/HDTVServices

MPLS/ATM/FRServices

IPServices


StorageServices

EthernetServices

CN™ 2000

Laurel PartnershipSept 2003

Luminous PartnershipSept 2003

CoreStream™


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




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.

Thank You!Thank You!

tom mock vice president, strategic planning may 5, 2004 tom mock vice president, strategic planning...

Documents

cienas portfolio

cienas brand

allservice network

cienas stock

service providers

existing network economicsfit

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market share