Ciena's two-year deal with TyCom, initially valued at $150 million, is the latest in a series of wins for the optical equipment vendor that seems almost immune to the economic downturn.

The agreement covers Ciena's Multiwave CoreDirector and Multiwave CoreStream systems, which will be installed in the trans-Atlantic and Northern European terrestrial portions of the TyCom Global Network.

The TyCom contract is the sixth win Ciena has announced in as many months. With other unannounced wins likely, the vendor is faring far better than most in the telecom sector.

In fact, during its first-quarter earnings call in February, the company increased its guidance for the remainder of the year at precisely the time when many other vendors were lowering the bar for themselves. Ciena projects revenue growth of between 95% to 105% year over year, up from the 75% to 85% growth it previously anticipated.

“We believe we're seeing the leading edge of a significant shift in spending from legacy equipment to next-generation equipment,” Ciena's Chairman and CEO Patrick Nettles said at the time. “We also believe that tighter economic conditions are hastening this shift as service providers look to spend more wisely on less costly, more efficient networks.”

On Thursday, that guidance will undergo its first major test in the form of Ciena's second-quarter earnings call. Most analysts remain bullish.

Raj Srikanth, managing director at Deutsch Banc Alex Brown, said Ciena is “without a doubt” weathering the economic downturn better than most.

The vendor's main advantage is technological, Srikanth said. Ciena's CoreDirector is the only optical switch that can perform STS-1 grooming at a 256 × 256 port count, large enough for core switching, he said. Using these functions, the switch can act as an add/drop multiplexer, letting carriers more efficiently provision bandwidth from the core.

“That function is gaining them enormous traction because they are clearly able to provide a migration path to enable new services,” Srikanth said.

Another of Ciena's technological differentiators is based on the company's approach to networking. Ciena considers ultra-long haul to be a subset of long haul rather than a different category and integrates that functionality into its long-haul products.

“TyCom's network includes both long-haul and ultra-long-haul links,” according to a note from Alkesh Shah, managing director with Morgan Stanley Dean Witter. “Ciena's CoreStream is capable of supporting both applications on a link-by-link basis, simplifying network design and management.”

Non-technical factors also have contributed to Ciena's strong performance.

According to Simon Leopold, industry analyst with Merrill Lynch, the company has better visibility — and less uncertainty — than most vendors because it installs most of the equipment it sells, giving it firsthand knowledge of the progress of its clients' network builds.

Ciena's management also has earned the confidence of the investment community through experience, Leopold said.

“Right after the merger broke off with Tellabs, [in 1998]… many people were questioning the viability of the company,” he said. “This is a management team that turned the company around from its lows. If you look at many of the new companies, they have not been tested that way.”

Leopold also said luck is at play, noting that many Ciena customers are currently in network builds, helping to keep the company's revenue stream steady.

Recent weeks, however, have seen some of the capital-expenditure cuts hit close to home for Ciena. Customers McLeodUSA and Genuity both cut their spending forecasts for 2001. A Ciena spokesman said he was unsure whether those cuts would affect Ciena's sales.

The slowdown also is putting pricing pressure on many in the optical space, making it difficult for companies to maintain their margins, Leopold said.

“We are hearing more about price competition and pressure from carrier customers,” he said. “Many of Ciena's competitors have [lowered their prices].”