Ciena Ratings Suffer Over High Nortel 'Execution Risk'

Ciena Corp. (CIEN) share prices fluctuated on Friday after investment bank Barclays Capital downgraded the equipment maker’s ratings.

Analyst Jeff Kvaal said in a client memo that Ciena’s takeover of bankrupt Nortel Networks’ Ethernet assets lowers sales expectations and “comes with high execution risk.”

Nortel’s growth, he added, “does not imply a premium and we think Ciena's opex discipline has been uneven. Packet over optical may be a significant tailwind, though likely over many years."

Ciena’s stock was down more than 3 percent at one point and by 12:01 p.m. Eastern had landed at $12.71, a 1.24 percent drop.

Ciena won Nortel’s highly coveted Metro Ethernet Networks (MEN) unit at a November auction, beating rival Nokia Siemens Networks with a bid of $530 million in cash and $239 million in convertible notes.

Yet, despite some concerns over integration and cost controls, there has been almost universal agreement that Ciena is the best company to take over Nortel’s Ethernet properties. That’s because the Maryland-based company now gains geographic reach, Nortel’s customers and access to partnerships with companies including IBM. Thus, Ciena’s target markets will expand from just carriers to financial services.

Still, Kvaal doesn’t seem convinced, and he cut Ciena from overweight to equal weight.

“Ciena is no longer inexpensive enough for its long-term story,” he said.