The Maryland-headquartered firm currently has about 1,000 employees at its Ottawa R&D lab – the largest in the company – who are primarily focused on developing technology allowing ever-larger volumes of data to be transmitted across fibre optic networks.
More than 100 of those employees gathered in the foyer of Lab 10 at the former Nortel Networks campus on Carling Avenue on Monday afternoon to hear company officials and politicians announce a funding agreement between Ciena (NASDAQ:CIEN) and the provincial government.
Under the deal, Queen’s Park – on track to run up an $18.7-billion deficit in 2010-11 – will give Ciena $25 million to create 353 "good jobs," support another 967 existing positions and hire 125 university graduates.
Last March, Ciena completed its US$773.8-million purchase of Nortel Networks’ metro Ethernet networks division, effectively doubling the company’s size. James Frodsham, a senior vice-president and Ciena’s chief strategy officer, said Monday’s announcement is further proof the company intends to remain in the nation’s capital.
“Clearly, with the talent base here, we are committed to Ottawa,” said Mr. Frodsham, who is based in the city and is a former Nortel employee.
There was some discrepancy over whether Ciena would have gone ahead with its $900-million R&D investment even without government support. In an interview with reporters, Sandra Pupatello, Ontario’s minister of economic development and trade, initially said the expenditure would not have happened without the public contribution.
When pressed, she changed her answer, saying, "The size and scope of their investment is different from what they thought when they first started entertaining the notion of coming into Canada."
For his part, Mr. Frodsham said Ciena is accelerating its R&D investment plans as a result of the provincial agreement.
"Getting to market faster means you hopefully win more market share and grow faster," he said.
This is the second time in barely a month Ms. Pupatello held a press conference at Carling Place to announce taxpayer support for one of the buyers of Nortel’s business units.
In December, the provincial government announced it was giving Avaya Canada $5 million on the condition it keep 350 "highly skilled" jobs in Ontario. The company said a total of $170 million would flow through its Ontario facilities over three years, but said employment levels at its Ottawa R&D lab would remain constant.
Claude Haw, president and CEO of OCRI, said Monday the announced spending plans by Avaya and Ciena – as well as the arrival of other global companies like Huawei, which officially opened its Ottawa R&D lab last year – shows telecom is far from dead in the nation’s capital.
"While we used to have Nortel, now we have almost all the major telecom equipment makers in Ottawa," he said in an interview.
Ciena is considered by some to be one of the most highly leveraged companies in the communications equipment industry with a debt-to-equity ratio of 9.06.
In late September, investment research firm Morningstar initiated credit coverage of Ciena with a CCC rating, reflecting the increased debt load the company took on following the Nortel acquisition "and its inability to generate consistent profitability over the past decade."
"The MEN deal consumed much of what cash the firm had left," Morningstar said.
When asked about Ciena’s long-term debt levels, which stood at US$1.44 billion on Oct. 31, 2010, Mr. Frodsham noted the company raised roughly US$700 million in two oversubscribed convertible debt offerings last year, leaving the company with more than US$688 million in cash at the end of its most recent financial quarter.
"We’re feeling that our balance sheet is in good shape and we’re looking to grow the business," he said.
In December, Ciena reported a quarterly net loss of US$80.3 million, compared to a net loss of US$26.7 million a year earlier. Revenues were up seven per cent to US$417.6 million, which includes US$255.6 million derived from Nortel’s Metro Ethernet Networks divisions.
The company is expected to move its local operations in the coming years as the Department of National Defence moves into the former Nortel campus.
When the sale was announced last year, Nortel said it was directed by Public Works to exercise an early termination clause in its lease with Ciena, shortening the lease term to five years from 10 and triggering a US$33.5 million repayment to Ciena from the escrowed sale proceeds from the acquisition.
In earlier correspondence, the company said it is not required to vacate its 265,000 square feet until March 2015 at the earliest, but the federal government has indicated it is willing to be flexible.
Mr. Frodsham said Ciena is surveying the local commercial real estate market and has not made a decision whether it will take space inside existing buildings or construct new facilities.