Ciena Annual Report 2010

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FY2010 Annual Report · Ciena

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: the network specialist

“ Today, Ciena is a focused

player with both global scale

and industry-leading solutions

that are well aligned to high-

growth markets and customer

network priorities.”

annual report 2010

improved operating leverage

expanded geographic reach

greater investment capacity

broadened customer relationships

enhanced product portfolio

accelerating our growth strategy

expanded addressable markets and applications

Ciena is the network specialist. We collaborate with customers worldwide to unlock the strategic potential of their networks
and fundamentally change the way they perform and compete. With focused innovation, Ciena brings together the reliability
and capacity of optical networking with the flexibility and economics of Ethernet, unified by a software suite that delivers the
industry’s leading network automation.

Gary B. Smith

A LETTER FROM GARY B. SMITH, PRESIDENT & CHIEF EXECUTIVE OFFICER

Fiscal 2010 was a momentous and transformative year for our company. We laid the

foundation of a solid platform for growth by taking bold, strategic steps that significantly

expanded our operations and strengthened our competitive position in the market-

place. As a result, today Ciena is a focused network specialist with both global scale

and industry-leading network solutions that are well aligned to high-growth markets

and customer network priorities.

Our successful acquisition of Nortel’s Metro Ethernet Networks (MEN)

business in March 2010 enhanced our leadership and solidified our momentum

in next-generation, converged optical Ethernet networking. In particular, we

broadened our product portfolio to include industry-leading, high-capacity

40G and 100G coherent optical transport solutions and greatly expanded our

customer relationships and geographic reach – today our 4,000+ employees

serve over 1,000 customers in more than 60 countries. Our decisive action

and the rapid and effective integration of our combined operations will

enable us to realize the desired financial, strategic and operational benefits

and, ultimately, the success of this acquisition. As a result of our thorough

planning and the dedication of our employees, we’ve been able to navigate

this period with exceptional support for our customers and minimal disruption

to our operations.

The market is embracing our solutions portfolio as well as the strategic vision

of the combined company. With more than $1 billion in revenue in fiscal 2010,

including 40% through international sales, the global momentum in our

business is evident. We have also successfully achieved initial synergies in the

cost structure of the combined operations and believe we can achieve additional

leverage. Complementing these financial milestones, we completed a

number of critical integration activities by fiscal year end and remain on track

to finalize the integration in 2011.

FIBER-BASED ETHERNET ACCESS,

MARKET SHARE *

TRAFFIC GROWTH IS ACCELERATING
PETABYTE IN THOUSANDS

H
T
N
O
M

/
E
T
Y
B
A
T
E
P

2010 2011

2012

2013
Source: Cisco

As we transformed our business and competitive position, we also took steps

to solidify our capital structure. We successfully completed two issuances of

convertible notes during fiscal 2010. As a result of these additional funds, we

exited fiscal 2010 with supplemental liquidity and we lengthened our average

debt maturity. Strategically, this enables us to continue to invest in and execute

on our vision for the combined business, positioning us to continue to take

advantage of evolving market opportunities.

We believe we are in the early stages of a broad, multi-year cycle of network

transition and optimization. The proliferation of high-bandwidth consumer

and enterprise applications, including video, mobile broadband and cloud

computing, continues to place unprecedented pressure on networks

worldwide. We witness this in our everyday lives with our increasing reliance

upon a growing set of applications and services. Just this year we saw some

incredible developments:

• Global mobile data traffic grew 68% in only six months … driven by a

98% increase in video traffic;

• Apple sold three million iPads in just 80 days;

• Facebook claimed to reach 200 million mobile members;

• NetFlix’s streaming video service, within months of being introduced,

was consuming an estimated 20% of total internet bandwidth during

peak time in the US alone;

• Of the roughly 210 million TV sets sold worldwide, 21% had an

Internet connection.

This broadening mix of high-bandwidth data and video communications

services, together with growing mobility and expanding wireless applications,

will require upgrades to existing network infrastructure to increase capacity,

add service flexibility, and improve overall performance.

To that end, next-gen high capacity optical transport and switching as well

as Carrier Ethernet-based wireless backhaul and business services have all

been identified as markets targeted for greater investment by carriers in 2011

and beyond. We see strong alignment of our portfolio with these critical

network priorities with a solution set that enables our customers to improve

their competitive positions through the rapid, efficient and profitable delivery

of new services. In 2011, we plan to exploit that strong market position,

increased scale and clear technology leadership to take share. We believe

we have greater opportunity to expand our product footprint within our

existing customer base while winning new customers around the globe.

And, our increased scale gives us the ability to more effectively support

a robust yet focused portfolio as well as a larger customer base.

PAGE 2 ANNUAL REPORT 2010

* Heavy Reading: 4Q 2009 through YTD 2010

18/ 25

SERVING 18 OF THE WORLD’S 25

LARGEST NETWORK OPERATORS,

LEADING ENTERPRISES, AND

GOVERNMENT AGENCIES

15%

GLOBAL LONG-HAUL AND METRO

WDM SEGMENTS, MARKET SHARE **

Another industry dynamic that we believe may serve us well in 2011 is customers’

growing desire to establish closer and more collaborative relationships with

their technology vendors, which will drive a global change in our competitive

landscape toward a smaller set of more strategic suppliers across the industry.

We believe Ciena’s position as the network specialist with scale resonates in

such an environment, where we can partner with our customers at a deeper

level than generalist network suppliers can to solve specific business

challenges using tailored network technology.

In summary, we made significant progress in 2010 toward realizing our strategic

vision and creating a new level of influence in the future of networking. With

a leading position in the shift toward high-capacity, next-generation network

architectures, we are well placed to benefit from today’s market trends that

are driving a new wave of high-bandwidth services. We’ve built tremendous

momentum during 2010 in delivering the network capacity and intelligence

our customers require to support those growing demands while enabling

the economics that help drive profitable business models.

As we look to advance our position in 2011, particularly in our work to complete

integration activities and deliver on the full value of the combined company,

we will maximize our commitment to focused innovation and our dedication

to cultivating strategic relationships that drive operating performance.

The milestones we have achieved in 2010 and the objectives we are focused

on for 2011 ultimately come down to our global organization and the dedication

of the people who execute the plan every day. Many thanks go to our customers,

partners, employees, and stakeholders who have continued to support Ciena.

Leveraging the foundation created in 2010, we look forward to another

successful year as we enable the deployment of the next generation

of networks.

Gary B. Smith
President and Chief Executive Officer

** Dell’Oro: 4Q 2009 through YTD 2010

ANNUAL REPORT 2010 PAGE 3

delivering solutions in
60+ countries to more
than 1,000 companies

500+

NORTH AMERICA

250+

EUROPE, MIDDLE EAST

AND AFRICA

70+

CARRIBBEAN AND

LATIN AMERICA

80+

ASIA-PACIFIC

PAGE 4 ANNUAL REPORT 2010

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
Form 10-K
Annual Report
Pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934

(Mark One)
[X]

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended October 31, 2010

[X]

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _______________ to _______________

Commission file number 0-21969

Ciena Corporation

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)

1201 Winterson Road, Linthicum, MD
(Address of principal executive offices)

(410) 865–8500
(Registrant’s telephone number, including area code)

23–2725311
(I.R.S. Employer Identification No.)

21090–2205
(Zip Code)

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $0.01 par value
Title of Each Class

The NASDAQ Stock Market
Name of Each Exchange on Which Registered

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES [X] NO [ ]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
YES [ ] NO [X]

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.4-5 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES [X] NO [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.

[ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition
of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
YES [ ] NO [X]

The aggregate market value of the Registrant’s Common Stock held by non-affiliates of the Registrant was $1.4 billion based on the
closing price of the Common Stock on the NASDAQ Global Select Market on May 2, 2010.

The number of shares of Registrant’s Common Stock outstanding as of December 15, 2010 was 94,146,715.

Documents Incorporated by Reference

Part III of the Form 10-K incorporates by reference certain portions of the Registrant’s definitive proxy statement for its 2011 Annual
Meeting of Stockholders to be filed with the Commission not later than 120 days after the end of the fiscal year covered by this report.

Ciena Corporation 10-K

Table oF ConTenTs

PaRT I

Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Item 4. Removed and Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

PaRT II

Item 5.

Market for Registrant’s Common Stock, Related Stockholder Matters
and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Item 6. Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Item 7.

Management’s Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . 70

Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

Item 9.

Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .111

Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .111

Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .113

PaRT III

Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . .114

Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .114

Item 12.

Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .114

Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . .114

Item 14. Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .114

PaRT IV

Item 15. Exhibits and Financial Statement Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .115

Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .116

Ciena Corporation 10-K

PaRT I
The information in this annual report contains certain forward-looking statements, including statements related to our

business prospects, the markets for our products and services, and trends in our business that involve risks and uncer-

tainties. Our actual results may differ materially from the results discussed in these forward-looking statements. Factors

that might cause such a difference include those discussed in “Risk Factors,” “Management’s Discussion and Analysis of

Financial Condition and Results of Operations,” “Business” and elsewhere in this annual report.

ITem 1. busIness

overview

We are a provider of communications networking equipment, software and services that support the transport, switching,

aggregation and management of voice, video and data traffic. Our Packet-Optical Transport, Packet-Optical Switching

and Carrier Ethernet Service Delivery products are used, individually or as part of an integrated solution, in networks

operated by communications service providers, cable operators, governments and enterprises around the globe.

We are a network specialist targeting the transition of disparate, legacy communications networks to converged, next-

generation architectures, optimized to handle increased traffic volumes and deliver more efficiently a broader mix

of high-bandwidth communications services. Our communications networking products, through their embedded

software and our network management software suites, enable network operators to efficiently and cost-effectively

deliver critical enterprise and consumer-oriented communication services. Together with our comprehensive design,

implementation and support services, our networking solutions offering seeks to enable software-defined, automated

networks that address the business challenges, communications infrastructure requirements and service delivery needs

of our customers. Our customers face a challenging and rapidly changing environment that requires their networks be

robust enough to address increasing capacity needs from a growing set of consumer and business applications, and

flexible enough to quickly adapt to execute new business strategies and support the delivery of innovative, revenue-

creating services. By improving network productivity and automation, reducing network costs and providing flexibility

to enable differentiated service offerings, our networking solutions offering creates business and operational value for

our customers.

Acquisition of Nortel Metro Ethernet Networks Business (the “MEN Acquisition”)

On March 19, 2010, we completed our acquisition of substantially all of the optical networking and Carrier Ethernet

assets of Nortel’s Metro Ethernet Networks business (the “MEN Business”). The MEN Business that we acquired is a

leading provider of next-generation, communications network products, with a significant global installed base and a

strong technology heritage. The MEN Business is a leader in high-capacity 40G and 100G coherent optical transport

technology that enables network operators to seamlessly upgrade their existing 2.5G and 10G networks, thereby

enabling a significant increase in network capacity without the need for new fiber deployments or complex reengineer-

ing. The product and technology assets that we acquired include Nortel’s:

•

long-haul optical transport portfolio;

• metro optical Ethernet switching and transport solutions;

• Ethernet transport, aggregation and switching technology;

• multiservice SONET/SDH product families; and

• network management software products.

In addition to these products, we also acquired the network implementation and support service resources related to

the MEN Business.

We believe that our acquisition of the MEN Business represents a transformative opportunity for Ciena. We believe that

this transaction strengthens our position as a leader in next-generation, converged optical Ethernet networking and

accelerates the execution of our corporate and research and development strategies. We believe that the additional

Ciena Corporation 10-K

geographic reach, expanded customer relationships, and broader portfolio of complementary network solutions

derived from the MEN Business allow us to better compete with traditional, larger communications network equipment

vendors. We also believe that our broadened product and services portfolio positions us to address a wider range of

customer segments, applications and service delivery opportunities. As a result of the MEN Acquisition, we added

approximately 2,000 employees, including significant additional engineering talent, which nearly doubled our head-

count. We expect our increased scale will enable additional operating leverage and optimize our research and develop-

ment investment toward next-generation technologies and product platforms.

See Note 2 to the Consolidated Financial Statements found under Item 8 of Part II of this annual report for addi-

tional information relating to the purchase price of the MEN Business, and “Management’s Discussion and Analysis

of Financial Condition and Results of Operations” in Item 7 of Part II of this annual report, for additional information

describing the effect of this transaction on our business, results of operations and financial position.

Segment Data and Certain Financial Information

Effective upon the completion of the MEN Acquisition, we reorganized our internal organizational structure and the

management of our business. See Note 20 to the Consolidated Financial Statements found under Item 8 of Part II

of this annual report. We currently organize our operations into four separate operating segments: “Packet-Optical

Transport,” “Packet-Optical Switching,” “Carrier Ethernet Service Delivery,” and “Software and Services.” The matters

discussed in this “Business” section should be read in conjunction with the Consolidated Financial Statements found

under Item 8 of Part II of this annual report, which include additional financial information about our operating seg-

ments, total assets, revenue, measures of profit and loss, and financial information about geographic areas and custom-

ers representing greater than 10% of revenue.

We generated revenue of $1,236.6 million in fiscal 2010, as compared to $652.6 million in fiscal 2009. Annual revenue

growth in large part reflects the addition of the MEN Business on March 19, 2010. For more information regarding our

results of operations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in

Item 7 of Part II of this annual report.

Corporate Information and Access to SEC Reports

We were incorporated in Delaware in November 1992, and completed our initial public offering on February 7, 1997.

Our principal executive offices are located at 1201 Winterson Road, Linthicum, Maryland 21090. Our telephone number

is (410) 865-8500, and our web site address is www.ciena.com. We make our annual reports on Form 10-K, quarterly

reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, available free of charge on the

Investor Relations page of our web site as soon as reasonably practicable after we file these reports with the Securities

and Exchange Commission (SEC). We routinely post the reports above, recent news and announcements, financial

results and other important information about our business on our website at www.ciena.com. Information contained

on our web site is not a part of this annual report.

Industry background

The markets in which we sell our communications networking solutions have been subject to dynamic changes in recent

years, including increased competition, growth in traffic, broader service offerings, and evolving technologies, market

opportunities and challenges.

Increased Capacity Requirements and Multiservice Traffic Driving Increased Transmission Speeds

Today’s networks are experiencing strong traffic growth and new service demands. Increasing network capacity

requirements are being driven by growing use of and reliance upon communications services by consumer and enter-

prise end users for a wide range of personal and business tasks, as well as the expansion of high-bandwidth, wireline

and wireless service offerings.

Business customers seeking to improve automation, efficiency and productivity have become increasingly dependent

upon enterprise-oriented communications and data services. Enterprises require robust networks to facilitate global

Ciena Corporation 10-K

expansion of operations, enable employee mobility and utilize video services. As their workforces are becoming more

mobile, enterprises are driving demand for seamless access to critical business applications and data. In addition,

enterprise technology trends such as IT virtualization and cloud computing are also placing new capacity and service

requirements on networks. Growth in enterprise-oriented communications applications has resulted in expanded

carrier-managed offerings of these and other business services. In addition, a number of large enterprises, government

agencies and research and education institutions have decided to forego these traditional communications service

offerings in favor of building their own, secure private networks.

At the same time, an increasing portion of network traffic is being driven by consumer-oriented applications. Growing

consumer adoption of broadband technologies, including peer-to-peer Internet applications, residential video services,

online gaming and music downloads, as well as expanding mobile video data services, are dramatically increasing net-

work traffic. This multiservice traffic growth requires the transition to higher capacity networks with increased transmis-

sion speeds, often with lower latency, such as our 40G and 100G coherent optical transport technology.

Multiservice Traffic Growth Requiring Transition to Flexible Network Architectures

A broadening mix of high-bandwidth, data and video communications services, together with growing mobility and

expanding wireless applications, will require upgrades to existing network infrastructure, including mobile backhaul

and traditional wireline networks. The growing mix of high-bandwidth and latency-sensitive traffic, and an increased

focus on controlling network costs, are driving a transition from multiple, disparate SONET/SDH-based networks to

more efficient, converged, multi-purpose Ethernet/IP-based network architectures. The industry has seen network

technology transitions like this in the past. These large investment cycles tend to happen over multi-year periods. For

instance, from the mid 1980s to the mid 1990s, service providers focused network upgrades on the transition required

to digitize voice traffic. From the mid 1990s to the mid 2000s, service providers focused network upgrades on the

transition to SONET/SDH networks designed to reliably handle substantially more network traffic. We believe that the

industry is currently in the early stages of network transition to multi-purpose Ethernet/IP-based network architectures

that more efficiently handle a growing mix of multiservice traffic with a greater concentration of data.

We refer to our implementation of next-generation network architectures that address this transition as “converged

optical Ethernet.” Our converged optical Ethernet approach brings together the reliability and capacity of optical

networking with the flexibility and economics of Ethernet, unified by our embedded and network management soft-

ware. These attributes enable a network that is resilient, reconfigurable and automated. These network attributes are

essential to support next-generation services and applications at the performance level required by end users. We

see opportunities in providing a portfolio of carrier-class solutions that facilitate this transition to converged optical

Ethernet networks.

Value Transition from Networks to Applications

In the past, enterprises and consumers perceived value in network connectivity. End users of networks now place a

higher value on the services or applications accessed and delivered over the network. As a result, in order to compete,

service providers need to create, market, and sell profitable services as opposed to simply selling connectivity. Some of

the areas that service providers are pursuing to compete and drive end user value include.

•

IT VIrTualIzaTIon. IT Virtualization moves a physical resource from a user’s desktop into the network, thereby

making more efficient use of information technology resources. This approach has many appealing attributes

such as lowering barriers of entry into new markets, and adding flexibility to scale certain aspects of a business

faster and with less expense.

• “Cloud” SerVICeS. Cloud services are characterized by the sharing of computing, storage and network

resources to improve economics through higher utilization efficiencies. IT and network service providers are

centralizing these resources in order to offer usage-based and metered services that are hosted remotely across

a network. Smaller enterprises and consumers can subscribe to cloud services to replace local, on-site facilities,

while larger enterprises and data center operators may use private clouds to consolidate their own resources and

public clouds to accommodate peak demand situations, often in combination.

Ciena Corporation 10-K

• MobIlITy. The emergence of smart mobile devices that deliver integrated voice, audio, photo, video, email and

mobile web capabilities, like Apple’s iPhone™ and Android™-based smart phones, are rapidly changing the

service type and magnitude of data traffic carried by wireless networks. The increase in availability and improved

ease of use of web-based applications from mobile devices expands the reach of virtualized services beyond a

wireline connection. For instance, consumer-driven video and gaming are being virtualized, allowing broad access

to these applications, regardless of the device or the network used.

We believe these shifts, and end user expectations regarding quality of service for these applications, will require com-

munications network infrastructures to be more automated, robust and flexible.

Market Conditions and Effect on Network Investment

As a result of the sustained period of economic weakness and uncertainty surrounding global macroeconomic condi-

tions, our industry has experienced cautious capital expenditures, particularly among large service provider customers,

as they have sought to conserve capital or address uncertainties or changes in their own business models brought on

by broader market challenges. These dynamics have placed increased scrutiny and more rigid prioritization on network

spending. Our customers seek to create and rapidly deliver new, robust service offerings and dedicated communica-

tions at increasing speeds to differentiate from competitors and grow their business. At the same time, they are increas-

ingly seeking ways to optimize their network operating and capital costs. We believe that these dynamics will result in

a shift in network spending toward high-capacity, next-generation network architectures. By utilizing scalable networks

that are less complex, less expensive to operate and more adaptable, network operators can derive increased value

from their network investments through the rapid, efficient and profitable delivery of new services.

strategy

Key components of our corporate strategy are set forth below:

MaInTaIn and exTend TeChnology leaderShIp In ConVerged opTICal eTherneT neTworkIng To

drIVe SaleS aCroSS produCT porTfolIo. Through continued investment and innovation, our strategy is to

enhance our leading, next generation coherent transport technology for high capacity long-haul and metro networks.

We intend to extend our technology leadership and leverage our market share in Packet-Optical Transport products to

drive sales of our Packet-Optical Switching and Carrier Ethernet Service Delivery products. We intend to expand our

data-optimized, Packet-Optical Switching solutions, specifically our ActivFlex 5400 family of Reconfigurable Switching

Systems, to enable an end-to-end OTN and Ethernet-based architecture that offers better cost per bit, more flexibility,

and higher reliability for network operators. We also seek to expand our Carrier Ethernet Service Delivery portfolio,

including high-capacity (terabit scale) Ethernet metro aggregation switches, for mobile backhaul and business Ethernet

services. An important component of our research and development strategy is to enhance our embedded and net-

work management software. By creating a common network management software platform across our expanded

product portfolio, we seek to enable service level management across network layers, rapid service provisioning,

increased automation and leverage across our customer solutions.

dIVerSIfy our CuSToMer SegMenTS and CuSToMer applICaTIon of our produCTS. Historically, service

providers have represented the largest portion of our revenue, with their application of our products largely support-

ing terrestrial, wireline networks. Part of our strategy is to seek opportunities to address new customer segments,

and increase our sales to wireless providers, cable and multiservice operators, enterprises, government agencies and

research and educational institutions. We are also seeking to sell our product and service solutions to support addi-

tional network applications, including in submarine networks, content delivery networks, business Ethernet services and

mobile backhaul. While we seek to penetrate new customer segments and broaden the applications for which custom-

ers select our solutions, we also intend to win new service provider customers in existing markets and expand our mar-

ket share in existing accounts by cross-selling our broader portfolio.

expand our geographIC reaCh. We seek to build upon the broader global presence of our business provided by

the MEN Acquisition through expansion of our geographic reach and market share in growing markets including Brazil,

Ciena Corporation 10-K

the Middle East, Russia and India. We intend to penetrate new geographies through a combination of direct resources

and third party channels, such as reseller, service providers and integrators, for marketing, selling and distributing

our solutions. We also intend, through cross-selling and other sales initiatives, to increase sales of our Packet-Optical

Switching and Carrier Ethernet Service Delivery products in international markets. We also seek to build the Ciena

brand globally through additional marketing initiatives.

leVerage our ConSulTaTIVe, neTwork SpeCIalIST approaCh. Our close relationship with customers in the

design, development, implementation and support of our solutions offering is a key differentiator for our business and

provides us with unique insight into their business and network needs. We believe that by offering an expanded portfo-

lio of professional services that meets the business needs of our customers, we bring strategic value to customer rela-

tionships beyond the sale of our next-generation communications networking products. This service-oriented solutions

offering allows us to work closely with customers in their design, deployment and delivery of new services. By under-

standing and addressing their network infrastructure needs, the competitive landscape, and the evolving and chal-

lenging markets in which our customers compete, we believe our customized solutions offering, including advanced

services, creates additional business and operational value for our customers, enabling them to better compete in a

challenging environment.

SuCCeSSfully CoMpleTe The InTegraTIon of The Men buSIneSS and aChIeVe deSIred operaTIng

leVerage. We continue to make significant progress on activities relating to the integration of the MEN Business. We

have completed our organizational structure, sales coverage plans and decisions regarding the rationalization of our

combined product portfolio. We have also realized initial operating synergies from the combined company and are

approaching an exit from the transition services currently provided by an affiliate of Nortel. We intend to devote the

necessary time and resources toward the successful completion of remaining integration activities. A number of these

are complex, including the rationalization of our supply chain, third party manufacturers and facilities, the complete

integration of our networking equipment offering, the development of a common network management system across

our expanded portfolio, and the winding down of transition services. We seek to leverage the longer-term opportuni-

ties, including improved operating efficiencies, presented by these activities.

Customers and markets

Our customer base, and the geographic markets and customer segments into which we sell our products and services,

have expanded in recent years, in part as a result of the acquisition of the MEN Business. The network infrastructure

needs of our customers vary, depending upon their size, location, the nature of their end users and the applications or

services that they deliver and support. We sell our product and service offerings through our direct sales force and third

party channel partners to end user network operators in the following customer segments:

Communications Service Providers

Our service provider customers include regional, national and international, wireline and wireless carriers. These cus-

tomers include AT&T, Bell Canada, BT, Cable & Wireless, CenturyLink, Clearwire, France Telecom, Korea Telecom,

Qwest, Sprint, Tata Communications, Telefonica, Telmex, Telus, Verizon and XO Communications. Traditional telecom-

munications service providers are our historical customer base and continue to represent the largest contribution to

our revenue. We provide service providers with products, from the network core to its edge, that address growing

bandwidth demand from voice, video and data service applications. Our products enable a flexible, high-capacity, con-

verged network that enables service providers to increase revenue through new service offerings and to reduce capital

and operating network costs by aggregating multiservice traffic. Our products also enable service providers to support

key applications for enterprise users, including carrier-managed services, wide area network consolidation, inter-site

connectivity, storage extension, business continuity and Ethernet services.

Cable Operators

Our customers include leading cable and multiservice operators in the U.S. and internationally. These customers

include Comcast, Cox, RCN, Rogers, Time Warner and Cogeco. Our cable and multiservice operator customers rely

Ciena Corporation 10-K

upon us for carrier-grade, optical Ethernet transport and switching products to support enterprise-oriented services.

Our platforms allow cable operators to integrate voice, video and data applications over a converged infrastructure and

scale their networking infrastructure to keep ahead of the bandwidth and application demands of their subscribers.

Our products support key cable applications including broadcast and digital video, voice over IP, video on demand and

broadband data services.

Enterprise

Our enterprise customers include large, multi-site commercial organizations, including participants in the financial,

healthcare, transportation, utilities and retail industries. Our solutions enable enterprises to achieve operational

improvements, increased automation and information technology cost reductions. Our products enable inter-site con-

nectivity between data centers, sales offices, manufacturing plants, retail stores and research and development centers,

using an owned or leased private fiber network or a carrier-managed service. Our products facilitate key enterprise

applications including data, voice and video transport, Ethernet business services, storage extension, business continu-

ity, online collaboration, video conferencing, cloud computing, low latency networking and wide area network (WAN)

encryption. Our products also enable our enterprise customers to prevent unexpected network downtime and ensure

the safety, security and availability of their data.

Government, Research and Education

Our government customers include federal and state agencies in the U.S. as well as government entities outside of the

U.S. Our customers also include domestic and international research and education institutions seeking to take advan-

tage of technology innovation, improve their information infrastructure, and facilitate increased collaboration. Our

solutions feature ultra-high capacity, reconfigurability and service flexibility to meet the requirements of supercomput-

ing systems. Our products, software and services enable these customers to improve network performance, capacity,

security, reliability and flexibility. We collaborate with leading institutions to provide government and research and edu-

cation communities with optimized networks that minimize cost and complexity, through initiatives that support intel-

ligent control plane technologies, interoperability and scalability.

Products and services

We offer a portfolio of communications networking products that form the building blocks of resilient and automated,

next-generation networks. Our product portfolio consists of our Packet-Optical Transport, Packet-Optical Switching

and Carrier Ethernet Service Delivery products, as well as the embedded and network management software that sup-

ports these platforms.

We have focused our product and service offerings to address the following network priorities: core and metro network

modernization, managed services and enterprise applications, Carrier Ethernet-based mobile backhaul and high-

capacity submarine networks. In the network’s core, we deliver high-capacity transport and switching products that

create an automated, dynamic optical infrastructure supporting a wide variety of network services. In the metro portion

of the network, we deliver a comprehensive, converged transport and switching solution that manages circuits, wave-

lengths and packets. In managed services applications and enterprise networks, we enable enterprise-oriented services

including storage, data connectivity, video and business Ethernet services. In mobile backhaul applications, we provide

wireline and wireless carriers with the tools to migrate their networks to support mobile data applications and enable

Ethernet-based backhaul. In submarine networks, we enhance existing submarine network fiber assets, increasing

bandwidth capacity and enabling higher-availability services and differentiated customer-focused offerings.

Packet-Optical Transport

Our Packet-Optical Transport portfolio includes industry leading, high-capacity transport platforms such as our ActivFlex

6500 Packet-Optical Platform, which features coherent, 40G and 100G optical transport. Our Packet-Optical Transport

platforms include flexible, scalable wavelength division multiplexing (WDM) solutions that enable cost-effective and

efficient transport of voice, video and data related to a variety of services for core networks as well as regional and metro

networks. We offer scalable Packet-Optical Transport platforms, including several chassis sizes and a comprehensive set

Ciena Corporation 10-K

of line cards, that can be utilized from the customer premises, where space and power are critical, to the metropolitan/

regional core, where the need for high capacity and carrier-class performance are essential. By automating optical infra-

structures, our Packet-Optical Transport products support the efficient delivery of a wide variety of consumer-oriented

network services, as well as key managed service and enterprise applications.

Our Packet-Optical Transport family of products focuses on high-capacity optical transport and includes reconfigurable

optical add-drop multiplexer (ROADM) capability. In addition to our CN 4200® FlexSelect®Advanced Services Platform

(now “ActivSpan 4200”) and our Corestream® Agility Optical Transport System, our Packet-Optical Transport portfolio

includes the following products acquired from the MEN Business:

• Optical Multiservice Edge 6500 (now “ActivFlex 6500 Packet Optical Platform”)

• Optical Multiservice Edge 6110 (now “ActivFlex 6110 Multiservice Optical Platform”)

• Optical Metro 5200 (now “ActivSpan 5200”)

• Common Photonic Layer (now “ActivSpan CPL”)

• Optical Multiservice Edge 1000 series (OME 1000)

• Optical Metro 3500 (OM 3500)

Our Packet-Optical Transport solutions also include legacy SONET/SDH products and legacy data networking prod-

ucts, as well as certain enterprise-oriented transport solutions that support storage and LAN extension, interconnec-

tion of data centers, and virtual private networks.

Packet-Optical Switching

Our Packet-Optical Switching family of products provides TDM switching and packet switching capability. Our princi-

pal Packet-Optical Switching product is our CoreDirector® Multiservice Optical Switch. CoreDirector is a multiservice,

multi-protocol switching system that consolidates the functionality of an add/drop multiplexer, digital cross-connect

and packet aggregator, into a single, high-capacity intelligent switching system. CoreDirector’s mesh capability enables

more efficient and more reliable networks. In addition to its application in core networks, CoreDirector may also be

used in metro networks for aggregation and forwarding of multiple services, including Ethernet/TDM Private Line,

Triple Play and IP services. We are in the early stages of a technology transition within our Packet-Optical Switching

platform, from our CoreDirector platform toward our ActivFlex 5400 family of Reconfigurable Switching Systems. These

multi-terabit OTN and packet switching systems with integrated transport functionality can be flexibly configured to

implement a broad range of network elements, including a scalable optical cross-connect, feature-rich Carrier Ethernet

switch, or a fully converged packet-optical transport and switching system. These new platforms provide the capabili-

ties and reliability of CoreDirector, while providing service providers the ability to scale to higher capacities and transi-

tion to packet-based networks.

Carrier Ethernet Service Delivery

Our Carrier Ethernet Service Delivery products have applications from the edge of metro and core networks to the

customer premises. These products allow customers to utilize the automation and capacity created by our Packet-

Optical Transport products in core and metro networks and deliver new, revenue-generating services to consumers and

enterprises. Our Carrier Ethernet Service Delivery offering primarily consists of our ActivEdge service delivery switching

products, ActivEdge service aggregation platforms and legacy broadband access products for residential services.

Our ActivEdge service delivery and aggregation switches provide True Carrier Ethernet, a more reliable and feature

rich type of Ethernet that can support a wider variety of services. These products support the access and aggregation

tiers of communications networks, and are typically deployed in metro and access networks. Service delivery products

are often used at customer premises locations while aggregation platforms are used to combine services to improve

network resource utilization. Employing sophisticated carrier Ethernet switching technology, these products deliver

quality of service capabilities, virtual local area networking and switching functions, and carrier-grade operations,

administration, and maintenance features. In 2010, we introduced several additions to our service delivery and aggre-

gation offering intended to increase capacity for higher bandwidth user connections and a broader set of aggregation

Ciena Corporation 10-K

and switching capabilities, such as enterprise locations, backhaul from wireless cell sites, multi-tenant unit buildings

and outside plant cabinets. Initial deployment of these products have principally been in support of wireless backhaul

deployments, including, in large part, 4G WiMax, and business data services.

Our principal product for consumer broadband is our CNX-5 Broadband DSL System. This broadband access platform allows

service providers to transition legacy voice networks to support next-generation services such as Internet-based (IP) tele-

phony, video services and DSL, and enable cost-effective migration to higher bandwidth Ethernet network infrastructures.

Unified Software and Service Management Tools

Our Packet-Optical Transport, Packet-Optical Switching and Carrier Ethernet Service Delivery products include a

shared suite of embedded operating system software and network management software tools that serve to unify

our product portfolio and provide the underlying automation and management features. Our embedded software is

a robust, service aware framework that improves network utilization and availability, while delivering enhanced per-

formance monitoring and reliability. By increasing network automation, minimizing network downtime and monitoring

network performance and service metrics, our embedded software and network management software tools enable

customers to improve cost effectiveness, while increasing the performance and functionality of their network opera-

tions. To consolidate our software offerings, we have introduced the Ciena One software suite. This suite will be the

framework for harmonizing the embedded software and the network management software from the pre-acquisition

Ciena portfolio and the MEN portfolio.

ON-Center® Network & Service Management Suite, our pre-acquisition Ciena integrated network and service manage-

ment software, is designed to simplify network management and operation across our portfolio. ON-Center can track

individual services across multiple product suites, facilitating planned network maintenance, outage detection and

identification of customers or services affected by network troubles. The MEN Acquisition added network and service

management products, such as OMEA and Preside, which are specific to the products of the MEN Business and are

included in our combined product portfolio.

Consulting and Support Services

To complement our product portfolio, we offer a broad range of consulting and support services that help our custom-

ers design, deploy and operationalize their communications services. We provide these services through our internal

resources as well as through qualified, third party service partners. Our services and support portfolio includes the fol-

lowing offerings:

• Network analysis, planning and design;

• Network optimization and tuning;

• Project management, including staging, site preparation and installation activities;

• Deployment services, including turnkey installation and turn-up and test services; and

• Maintenance and support services, including:

• helpdesk, technical assistance and training,

•

spares and logistics management,

• engineering dispatch and on-site professional services,

• equipment repair and replacement, and

•

software maintenance and updates.

We believe that our broad service set of service offerings is an important component of our network specialist

approach and a significant differentiator with customers. We believe that our services offering enables a solutions-

oriented approach to network challenges that builds value in a customer relationship that extends beyond our product

and software offering. We believe that customers will continue to place significant value on these types of strategic

engagements and assess vendors on their capability to partner with them effectively in these areas.

Ciena Corporation 10-K

Product Development

Our industry is subject to rapid technological developments, evolving standards and protocols, and shifts in customer

demand. To remain competitive, we must continually enhance existing product platforms by adding new features

and functionality and introducing new product platforms that address multiservice traffic growth, enable new service

offerings and facilitate the transition to converged optical Ethernet networking. Within our global products group, we

maintain a team of skilled engineers with extensive experience in the areas of photonics, packet and circuit switching,

network system design, embedded operating system and network management software. Through our acquisition of

the MEN Business, we attained leading 40G and 100G transport technologies and added significant engineering talent

and considerable investment scale to our research and development activities. Our current development investments

are focused upon:

• Extending our Packet-Optical Transport leadership in 40G and 100G long haul transport through development of

our coherent transmission technology;

• Enhancing our data-optimized, Packet-Optical Switching solutions and the evolution from our CoreDirector family

to our ActivFlex 5400 family of Reconfigurable Switching Solutions;

• Expanding our Carrier Ethernet Service Delivery portfolio, including high-capacity Ethernet metro aggregation

switches for mobile backhaul and business Ethernet services; and

•

Interoperability and creating a common network management software platform across our expanded product

portfolio and enabling service level management across network layers.

Product development initiatives also include significant design and development work intended to enable cost reduc-

tions relating to the manufacture of our products.

Our product development investments are driven by market demand and technological innovation, involving close col-

laboration among our product development, marketing and global field organizations, and input from customers. In

some cases, we work with third parties pursuant to technology licenses, OEM arrangements and other strategic tech-

nology relationships or investments, to develop new components or products, modify existing platforms or offer com-

plementary technology to our customers. In addition, we participate in industry and standards organizations, where

appropriate, and incorporate information from these affiliations throughout the product development process.

We regularly review our existing product offerings and prospective development projects to determine their fit within

our portfolio and broader corporate strategy. We assess the market demand, technology evolution, prospective return

on investment and growth opportunities, as well as the costs and resources necessary to develop and support these

products. In recent years, our strategy has been to pursue technology and product convergence that allows us to con-

solidate multiple technologies and functionalities on a single platform, or to control and manage multiple elements

throughout the network from a uniform management system, ultimately creating more robust and cost-effective network

tools. We have also shifted our strategic development approach from delivering point products to comprehensive net-

working equipment, software and service solutions that address the current and future business needs of our customers.

Our research and development expense was $175.0 million, $190.3 million and $327.6 million, for fiscal 2008, 2009 and

2010, respectively. The increased expense in 2010 was driven primarily by the MEN Acquisition, including the related

additions to our product portfolio, expanded development initiatives and increased engineering headcount and over-

head. For more information regarding our research and development expense, see “Management’s Discussion and

Analysis of Financial Condition and Results of Operations” in Item 7 of Part II of this report.

sales and marketing

We sell our communications networking products and services through our direct sales resources as well as through

channel relationships. In addition to securing new customers, our sales strategy has focused on building long-term rela-

tionships with existing customers that allow us to leverage our incumbency by extending existing platforms and cross-

selling additional products that help customers address multiservice traffic growth and facilitate new service offerings.

Ciena Corporation 10-K

Within our global field operations team, we maintain a direct sales presence that is organized geographically around the

following markets: (i) U.S. and Canada; (ii) Caribbean and Latin America; (iii) Europe, Middle East and Africa; and (iv) Asia-

Pacific. These regions include sales personnel that focus on one or more of the following customer segments: communi-

cations service providers including wireless providers, cable and multiservice operators, enterprise customers and gov-

ernment, research and education. Within each geographic area, we maintain regional, country and/or customer-specific

teams, including account salespersons, systems engineers and strategic marketing, services and commercial manage-

ment personnel, who ensure we operate closely with and provide a high level of support to our customers.

We also maintain a global channel program that works with resellers, systems integrators, service providers, and other

third party distributors to market and sell our products and services. Our third party channel sales and other distri-

bution arrangements enable us to leverage our direct sales resources and reach additional geographic regions and

customer segments. These relationships also enable us to sell our products as a complement to a broader offering of

other vendors or integrators, or in support of a service provider’s carrier managed service offering. Our use of channel

partners has been a key component in our sales to government, research and education and enterprise customers. We

believe our channel strategy affords us expanded market opportunities and reduces the financial risk of entering new

markets and pursuing new customer segments.

To support our sales efforts, we engage in marketing activities intended to position and promote both our brand and

our product, software and service offerings. Our marketing team supports sales efforts through direct customer inter-

action, industry events, public relations, social media, general business publications, tradeshows, our website and other

marketing channels for our customers and channel partners.

manufacturing, operations and supply Chain management

Our operations personnel manage our relationships with our third party manufacturers and manage our supply chain.

In addition, this team also addresses component procurement and sourcing, product testing and quality, and logistics

relating to our sales, maintenance and professional services, and distribution efforts.

We utilize a global sourcing strategy that emphasizes procurement of materials in lower cost regions. We rely upon third

party manufacturers, with facilities in Canada, China, Mexico, Thailand and the United States, to perform nearly all of

the manufacturing of our products. This activity can include design and prototype development, full production, final

assembly, testing and shipment. We utilize a direct order fulfillment model for certain products, which allows us to rely

on our third party manufacturers to perform final system integration and testing prior to shipment of products directly

from their facilities to our customers. For certain product lines, we continue to perform a portion of the module assem-

bly, final system integration and testing internally. We believe that our sourcing and manufacturing strategy allows us to

conserve capital, lower costs of product sales, adjust quickly to changes in market demand, and operate without dedi-

cating significant resources to manufacturing-related plant and equipment. The integration of manufacturing, opera-

tions and supply chain activities resulting from our acquisition of the MEN Business, while complex and potentially dis-

ruptive, presents longer-term opportunities to further reduce the cost to manufacture our products, including through

higher purchasing volumes and consolidation of manufacturers, suppliers, warehousing and distribution centers and

service logistics partners.

Our manufacturers procure components necessary for assembly and manufacture of our products based on our speci-

fications, approved vendor lists, bill of materials and testing and quality standards. Our manufacturers’ activity is based

on rolling forecasts that we provide to them to estimate demand for our products. This build-to-forecast purchase

model exposes us to the risk that our customers will not order those products for which we have forecast sales, or will

purchase less than we have forecast. As a result, we may incur carrying charges or obsolete material charges for compo-

nents purchased by our manufacturers. We work closely with our manufacturers to manage material, quality, cost and

delivery times, and we continually evaluate their services to ensure performance on a reliable and cost-effective basis.

Shortages in product components have occurred in the past and remain possible. Our products include some com-

ponents that are proprietary in nature and only available from one or a small number of suppliers. In addition, some of

Ciena Corporation 10-K

our application-specific integrated circuits (ASICs) are manufactured by sole or limited sources that are responsible for

production. Significant time would be required to establish relationships with alternate suppliers or providers of critical

components. We do not have long-term contracts with any supplier or manufacturer that guarantees supply of compo-

nents or manufacturing services. If component supplies become limited, production at a manufacturer is disrupted, or if

we experience difficulty in our relationship with a key supplier or manufacturer, we may encounter manufacturing delays

that could adversely affect our business.

backlog

Generally, we make sales pursuant to purchase orders issued under framework agreements that govern the general

commercial terms and conditions of the sale of our products and services. These agreements do not obligate custom-

ers to purchase any minimum or guaranteed order quantities. At any given time, we have orders for products that have

not been shipped and for services that have not yet been performed. We also have accepted orders relating to prod-

ucts that have been delivered and services that have been performed that are awaiting customer acceptance under the

applicable purchase terms. We consider both of these situations in our calculation of backlog. Generally, our customers

may cancel or change their orders with limited advance notice, or they may decide not to accept these products and

services. As a result, backlog should not be viewed as an accurate indicator of future revenue in any particular period. In

particular, the completion of the MEN Acquisition during fiscal 2010 makes the period to period comparisons below less

meaningful. As of October 31, 2009 and 2010, our backlog was approximately $291.0 million and $591.0 million, respec-

tively. Backlog includes product and service orders from commercial and government customers combined. Backlog at

October 31, 2010 includes approximately $56.0 million primarily related to orders for maintenance and support services

that we do not reasonably expect to be filled within the next fiscal year. Our presentation of backlog may not be com-

parable with figures presented by other companies in our industry.

seasonality

Like other companies in our industry, we have experienced quarterly fluctuations in customer activity due to seasonal

considerations. As a result, we have experienced reductions in customer order volume for product sales toward the end

of calendar year and again early in the calendar year as annual capital budgets of some of our customers are finalized.

Conversely, we may experience increased services order flow late in the calendar year as maintenance service terms are

renewed. We have also experienced reductions in order volume, particularly in Europe, during the late summer months.

As a result of these seasonal effects, we have experienced reduced order activity during our fiscal first quarter, which

ends on January 31 of each year, and our fiscal third quarter, which ends on July 31 of each year. These seasonal effects

do not apply consistently and do not always correlate to our financial results. Accordingly, they should not be consid-

ered a reliable indicator of our future revenue or results of operations.

Competition

Competition among communications networking solution vendors is intense. In addition to the effect of broader

market conditions, the level of competition we experience has intensified, in part, due to our increased market share,

technology leadership and global presence resulting from the MEN Acquisition. Competition has also intensified as we

and our competitors more aggressively seek to secure market share, particularly in connection with new network build

opportunities, and displace incumbent vendors at large carrier customers.

The markets for our products and services are characterized by rapidly advancing and converging technologies.

Competition in these markets is based on any one or a combination of the following factors:

• product functionality, speed, capacity and performance;

• price;

•

incumbency and existing business relationships;

• product development plans and the ability of products and services to meet customers’ immediate and future

network requirements;

• capacity, flexibility, speed and scalability of products;

Ciena Corporation 10-K

• manufacturing and lead-time capability; and

•

installation, services and support capability.

Competition for sales of communications networking solutions is dominated by a small number of very large, multi-

national companies. Our competitors have included Alcatel-Lucent, Cisco, Ericsson, Fujitsu, Huawei, Nokia Siemens

Networks and Tellabs. Many of these competitors have substantially greater financial, operational and marketing

resources than Ciena and have significantly broader product offerings. Many of our competitors also have more exten-

sive customer bases and well-established relationships with large service providers. In recent years, mergers among

some of our larger competitors have intensified these advantages. Our industry has also experienced increased compe-

tition from larger, low-cost producers in China, who are attempting to penetrate U.S. markets.

We also compete with several smaller, but established, companies that offer one or more products that compete

directly or indirectly with our offerings or whose products address specific niches within the markets and customer

segments we address. These competitors include ADVA and Infinera. In addition, there are a variety of earlier-stage

companies with products targeted at specific segments of the communications networking market. These competitors

often employ aggressive competitive and business tactics as they seek to gain entry to certain customers or markets.

Due to these practices and the narrower focus of their development efforts, these competitors may be able to develop

and introduce products more quickly, or offer commercial terms that are more attractive to customers.

Increased competition could result in pricing pressure, reduced demand, lower gross margins, and loss of market share

that could harm our business and results of operations.

Patents, Trademarks and other Intellectual Property Rights

The success of our business and technology leadership are significantly dependent upon our proprietary and inter-

nally developed technology. We rely upon patents, copyrights, trademarks, and trade secret laws to establish and

maintain proprietary rights in our technology. We regularly file applications for patents and trademarks and have a

significant number of patents and trademarks in the United States and other countries where we do business. As of

December 1, 2010, we had received 1,244 U.S. patents and had pending 305 U.S. patent applications. We also have

over 400 non-U.S. patents.

We also rely on non-disclosure agreements and other contracts and policies regarding confidentiality, with employees,

contractors and customers to establish proprietary rights and protect trade secrets and confidential information. Our

practice is to require employees and consultants to execute non-disclosure and proprietary rights agreements upon

commencement of employment or consulting arrangements with us. These agreements acknowledge our ownership

of intellectual property developed by the individual during the course of his or her work with us. The agreements also

require that these persons maintain the confidentiality of all proprietary information disclosed to them.

Enforcing proprietary rights, especially patents, can be costly and uncertain. Moreover, monitoring unauthorized use of

our technology is difficult, and we cannot be certain that the steps that we are taking will detect or prevent unauthor-

ized use. In recent years, we have filed suit to enforce our intellectual property rights and have been subject to several

claims related to patent infringement. Third party infringement assertions could cause us to incur substantial costs.

If we are not successful in defending these claims, we could be required to enter into a license agreement requiring

ongoing royalty payments, we may be required to redesign our products, or we may be prohibited from selling any

infringing technology.

Our operating system, element and network management software and other products incorporate software and

components under licenses from third parties. We may be required to license additional technology from third parties

in order to develop new products or product enhancements. Failure to obtain or maintain such licenses or other rights

could affect our development efforts, require us to re-engineer our products or obtain alternate technologies, which

could harm our business, financial condition and operating results.

Ciena Corporation 10-K

Among the patent and other third party intellectual property licenses to which we are a party, in connection with the

MEN Acquisition, we obtained a non-exclusive license to use patents and other intellectual property controlled or

exclusively owned by Nortel in connection with our manufacture, sale and support of a broad range of optical network-

ing and Carrier Ethernet products and services and natural evolutions of such products and services. This license also

provides us with an exclusive license to use a narrower set of patents and other intellectual property owned by Nortel

in connection with Ciena’s manufacture, sale and support of optical networking and Carrier Ethernet products and

services within a narrower field of use and subject to certain limitations. As part of this license, we granted Nortel a non-

exclusive license to use the patents and other intellectual property (except trademarks) that we acquired as part of the

MEN Business in connection with the manufacture and sale of products and services in the fields of Nortel’s other busi-

nesses (including those businesses sold and to be sold to other parties) and natural evolutions of such fields.

environmental matters

Our business and operations are subject to environmental laws in various jurisdictions around the world, including

the Waste Electrical and Electronic Equipment (WEEE) and Restriction of the Use of Certain Hazardous Substances in

Electrical and Electronic Equipment (RoHS) regulations adopted by the European Union. We seek to operate our busi-

ness in compliance with such laws relating to the materials and content of our products and product takeback and recy-

cling. Environmental regulation is increasing, particularly outside of the United States, and we expect that our domestic

and international operations may be subject to additional environmental compliance requirements, which could expose

us to additional costs. To date, our compliance costs relating to environmental regulations have not resulted in a mate-

rial cost or effect on our business, results of operations or financial condition.

employees

As of October 31, 2010, we had 4,201 employees. We have not experienced any work stoppages and we consider the

relationships with our employees to be good. Competition to attract and retain highly skilled technical, engineering

and other personnel with experience in our industry is intense. We believe that our future success depends in critical

part on our continued ability to recruit, motivate and retain such qualified personnel. None of our employees is bound

by an employment agreement.

Directors and executive officers

The table below sets forth certain information concerning our directors and executive officers:

Name

Patrick H. Nettles, Ph.D.

Gary B. Smith

Stephen B. Alexander

Michael G. Aquino

James A. Frodsham

Philippe Morin

James E. Moylan, Jr.

Andrew C. Petrik

David M. Rothenstein

Stephen P. Bradley, Ph.D.(2)(3)

Harvey B. Cash(1)(3)

Bruce L. Claflin(1)(2)

Lawton W. Fitt(2)

Judith M. O’Brien(1)(3)

Michael J. Rowny(2)

Patrick T. Gallagher(2)

age

PositioN

Executive Chairman of the Board of Directors

President, Chief Executive Officer and Director

Senior Vice President, Chief Technology Officer

Senior Vice President, Global Field Operations

Senior Vice President, Chief Strategy Officer

Senior Vice President, Global Products Group

Senior Vice President, Finance and Chief Financial Officer

Vice President and Controller

Senior Vice President, General Counsel and Secretary

Director

(1) Member of the Compensation Committee
(2) Member of the Audit Committee
(3) Member of the Governance and Nominations Committee

Ciena Corporation 10-K

Our Directors hold staggered terms of office, expiring as follows: Ms. O’Brien and Messrs. Cash and Smith in 2011;

Messrs. Bradley, Claflin and Gallagher in 2012; and Ms. Fitt, Dr. Nettles and Mr. Rowny in 2013.

paTrICk h. neTTleS, ph.d. has served as a Director of Ciena since April 1994 and as Executive Chairman of the

Board of Directors since May 2001. From October 2000 to May 2001, Dr. Nettles was Chairman of the Board and Chief

Executive Officer of Ciena, and he was President and Chief Executive Officer from April 1994 to October 2000. Dr.

Nettles serves as a Trustee for the California Institute of Technology and serves on the board of directors of Axcelis

Technologies, Inc. and The Progressive Corporation. Dr. Nettles also serves on the board of directors of Optiwind Corp,

a privately held company.

gary b. SMITh joined Ciena in 1997 and has served as President and Chief Executive Officer since May 2001. Mr. Smith

has served on Ciena’s Board of Directors since October 2000. Prior to his current role, his positions with Ciena included

Chief Operating Officer, and Senior Vice President, Worldwide Sales. Mr. Smith previously served as Vice President of

Sales and Marketing for INTELSAT and Cray Communications, Inc. Mr. Smith also serves on the board of directors for

CommVault Systems, Inc. Mr. Smith is a member of the President’s National Security Telecommunications Advisory

Committee, the Global Information Infrastructure Commission and the Center for Corporate Innovation (CCI).

STephen b. alexander joined Ciena in 1994 and has served as Chief Technology Officer since September 1998 and

as a Senior Vice President since January 2000. Mr. Alexander has previously served as General Manager of Products &

Technology and General Manager of Transport and Switching and Data Networking.

MIChael g. aquIno joined Ciena in June 2002 and has served as Ciena’s Senior Vice President, Global Field

Operations since October 2008. Mr. Aquino served as Senior Vice President of Worldwide Sales from April 2006 to

October 2008. Mr. Aquino previously held positions as Ciena’s Vice President of Americas, with responsibility for sales

activities in the region, and Vice President of Government Solutions, where he focused on supporting Ciena’s relation-

ships with the U.S. and Canadian government.

JaMeS frodShaM joined Ciena in May 2004 and has served as Senior Vice President and Chief Strategy Officer

since March 2010 with responsibility for our strategic planning and corporate development activities. In August 2010,

Mr. Frodsham also assumed responsibility for our ongoing integration of the MEN Business. Mr. Frodsham previously

served as Senior Vice President, General Manager of Ciena’s former Broadband Access Group from October 2004

to October 2005 and Metro and Enterprise Solutions Group from May 2004 to October 2004. From August 2000 to

January 2003, Mr. Frodsham served as chief operating officer of Innovance Networks, an optical networking company.

On December 23, 2003, Innovance filed a Notice of Intent to make a proposal pursuant to Part III of the Bankruptcy and

Insolvency Act (Canada). Prior to that, Mr. Frodsham was employed for more than ten years in senior level positions

with Nortel Networks in product development and marketing strategy, lastly as Vice President, Product Line Marketing,

Optical Networking Group, from December 1998 to June 2000. Mr. Frodsham serves on the board of directors of

Innovance Networks.

phIlIppe MorIn joined Ciena in March 2010 in connection with Ciena’s acquisition of Nortel’s MEN Business and

has served as Senior Vice President, Global Products Group since that time. In this capacity, Mr. Morin oversees our

engineering, supply chain, product line management, quality/customer advocacy, product marketing and solutions

organizations on a global basis. Mr. Morin previously served as President of Nortel’s MEN Business from May 2006 until

Ciena’s completion of the MEN Acquisition in March 2010. In January 2009, Nortel Networks Corporation and certain

of its subsidiaries filed voluntary petitions in the United States under Chapter 11 of the U.S. Bankruptcy Code. From

January 2003 to May 2006, Mr. Morin held the position of Nortel’s General Manager of Optical Networks. Mr. Morin

previously held other positions at Nortel in manufacturing, marketing, sales and product management both in North

America and Europe.

JaMeS e. Moylan, Jr. has served as Senior Vice President, Finance and Chief Financial Officer since December 2007.

From June 2006 to December 2007, Mr. Moylan served as Executive Vice President and Chief Financial Officer of Swett

& Crawford, a wholesale insurance broker. From March 2004 to February 2006, Mr. Moylan served as Executive Vice

Ciena Corporation 10-K

President and Chief Financial Officer of PRG-Shultz International, Inc., a publicly held recovery audit and business ser-

vices firm. From June 2002 to April 2003, Mr. Moylan served as Executive Vice President in charge of Composite Panels

Distribution and Administration for Georgia-Pacific Corporation’s building products business. From November 1999 to

May 2002, Mr. Moylan served as Senior Vice President and Chief Financial Officer of SCI Systems, Inc., an electronics

contract manufacturing company.

andrew C. peTrIk joined Ciena in 1996 and has served as Vice President, Controller since August 1997 and served as

Treasurer from August 1997 to October 2008.

daVId M. roThenSTeIn joined Ciena in January 2001 and has served as Senior Vice President, General Counsel and

Secretary since November 2008. Mr. Rothenstein served as Vice President and Associate General Counsel from July

2004 to October 2008 and previously as Assistant General Counsel.

STephen p. bradley, ph.d. has served as a Director of Ciena since April 1998. Professor Bradley is the Baker Foundation

Professor and William Ziegler Professor of Business Administration Emeritus at the Harvard Business School. A member

of the Harvard faculty since 1968, Professor Bradley is also Chairman of Harvard’s Executive Program in Competition

and Strategy: Building and Sustaining Competitive Advantage. Professor Bradley serves on the board of directors of

Transatlantic Reinsurance Holdings and the Risk Management Foundation of the Harvard Medical Institutions.

harVey b. CaSh has served as a Director of Ciena since April 1994. Mr. Cash is a general partner of InterWest

Partners, a venture capital firm in Menlo Park, California, which he joined in 1985. Mr. Cash serves on the board of direc-

tors of First Acceptance Corp., Silicon Laboratories, Inc. and Argonaut Group, Inc.

bruCe l. ClaflIn has served as a Director of Ciena since August 2006. Mr. Claflin served as President and Chief

Executive Officer of 3Com Corporation from January 2001 until his retirement in February 2006. Mr. Claflin joined 3Com

as President and Chief Operating Officer in August 1998. Prior to 3Com, Mr. Claflin served as Senior Vice President and

General Manager, Sales and Marketing, for Digital Equipment Corporation. Mr. Claflin also worked for 22 years at IBM,

where he held various sales, marketing and management positions, including general manager of IBM PC Company’s

worldwide research and development, product and brand management, as well as president of IBM PC Company

Americas. Mr. Claflin also serves on the board of directors of Advanced Micro Devices (AMD) where he is currently

Chairman of the Board.

lawTon w. fITT has served as a Director of Ciena since November 2000. From October 2002 to March 2005, Ms. Fitt

served as Director of the Royal Academy of Arts in London. From 1979 to October 2002, Ms. Fitt was an investment

banker with Goldman Sachs & Co., where she was a partner from 1994 to October 2002, and a managing director from

1996 to October 2002. In addition to her service as a director of non-profit organizations, Ms. Fitt serves on the board of

directors of Thomson Reuters and The Progressive Corporation,

JudITh M. o’brIen has served as a Director of Ciena since July 2000. Since November 2006, Ms. O’Brien has served

as Executive Vice President and General Counsel of Obopay, Inc., a provider of mobile payment services. From

February 2001 until October 2006, Ms. O’Brien served as a Managing Director at Incubic Venture Fund, a venture capi-

tal firm. Ms. O’Brien was a lawyer with Wilson Sonsini Goodrich & Rosati, where, from February 1984 to February 2001,

she was a partner specializing in corporate finance, mergers and acquisitions and general corporate matters.

MIChael J. rowny has served as a Director of Ciena since August 2004. Mr. Rowny has been Chairman of Rowny

Capital, a private equity firm, since 1999. From 1994 to 1999, and previously from 1983 to 1986, Mr. Rowny was with

MCI Communications in positions including President and Chief Executive Officer of MCI’s International Ventures,

Alliances and Correspondent group, acting Chief Financial Officer, Senior Vice President of Finance, and Treasurer.

Mr. Rowny’s career in business and government has also included positions as Chairman and Chief Executive Officer of

the Ransohoff Company, Chief Executive Officer of Hermitage Holding Company, Executive Vice President and Chief

Financial Officer of ICF Kaiser International, Inc., Vice President of the Bendix Corporation, and Deputy Staff Director of

the White House. Mr. Rowny also serves on the board of directors of Neustar, Inc.

Ciena Corporation 10-K

paTrICk T. gallagher has served as a Director of Ciena since May 2009. Mr. Gallagher currently serves as Chairman

of Ubiquisys Ltd., a leading developer and supplier of femtocells for the global 3G mobile wireless market. From

January 2008 until February 2009, Mr. Gallagher was Chairman of Macro 4 plc, a global software solutions company, and

from May 2006 until March 2008, served as Vice Chairman of Golden Telecom Inc., a leading facilities-based provider of

integrated communications in Russia and the CIS. From 2003 until 2006, Mr. Gallagher was Executive Vice Chairman and

served as Chief Executive Officer of FLAG Telecom Group and, prior to that role, held various senior management posi-

tions at British Telecom. Mr. Gallagher also serves on the board of directors of Harmonic Inc. and Sollers JSC.

ITem 1a. RIsK FaCToRs

Risks relating to our acquisition of the men business

During the second quarter of fiscal 2010, we completed our acquisition of the MEN Business. Business combinations of

the scale and complexity of this transaction involve a high degree of risk. You should consider the following risk factors

before investing in our securities.

We may fail to realize the anticipated benefits and operating synergies expected from the MEN Acquisition,

which could adversely affect our operating results and the market price of our common stock.

The success of the MEN Acquisition will depend, in significant part, on our ability to successfully integrate the acquired

business, grow the combined business’s revenue and realize the anticipated strategic benefits and operating synergies

from the combination. We believe that the addition of the MEN Business will accelerate the execution of our corporate

and product development strategy, enable us to compete with larger equipment providers and provide opportunities

to optimize our product development investment. Achieving these goals requires growth of the revenue of the MEN

Business and realization of the targeted sales synergies from our combined customer bases and solutions offerings.

This growth and the anticipated benefits of the transaction may not be realized fully or at all, or may take longer to real-

ize than we expect. Actual operating, technological, strategic and sales synergies, if achieved at all, may be less signifi-

cant than we expect or may take longer to achieve than anticipated. If we are not able to achieve these objectives and

realize the anticipated benefits and operating synergies of the MEN Acquisition within a reasonable time, our results of

operations and the value of Ciena’s common stock may be adversely affected.

The MEN Acquisition will result in significant integration costs and any material delays or unanticipated addi-

tional expense may harm our business and results of operations.

The complexity and magnitude of the integration effort associated with the MEN Acquisition are significant and require

that Ciena fund significant capital and operating expense to support the integration of the combined operations. As

of October 31, 2010, we have incurred $101.4 million in transaction, consulting and third party service fees, $8.5 million

in severance expense, and an additional $12.4 million, primarily related to purchases of capitalized information technol-

ogy equipment. We anticipate that we may incur approximately $58.0 million in additional integration costs during fiscal

2011. We have incurred and expect to continue to incur additional operating expense as we build up internal resources,

including headcount, facilities and information systems, or engage third party providers, while we simultaneously con-

tinue to rely upon and transition away from critical transition support services provided by an affiliate of Nortel during

a transition period. In addition to these transition costs, we have incurred and expect to continue to incur increased

expense relating to, among other things, restructuring and increased amortization of intangibles and inventory obso-

lescence charges. Any material delays, difficulties or unanticipated additional expense associated with integration

activities may harm our business and results of operations.

The integration of the MEN Business is a complex undertaking, involving a number of operational risks, and dis-

ruptions or delays could significantly harm our business and results of operations.

Because of the structure of the MEN Acquisition as an asset carve out from Nortel, in a number of areas we did not

acquire back-office systems and processes that support the operation of the business. The MEN Acquisition therefore

Ciena Corporation 10-K

requires that we build new organizations, grow Ciena’s existing infrastructure, or retain third party services to ensure

business continuity and to support and scale our business. As noted below, we are currently relying upon an affiliate

of Nortel to provide critical business support services for a transition period and will ultimately have to transfer these

activities to internal or other third party resources. As a result, integrating the operations of the MEN Business will be

extremely complex and we could encounter material disruptions, delays or unanticipated costs. Successful integration

involves numerous risks, including:

• assimilating product offerings and sales and marketing operations;

• coordinating and implementing a combined research and development strategy;

•

retaining and attracting customers following a period of significant uncertainty associated with the acquired

business;

• diversion of management attention from business and operational matters;

•

identifying and retaining key personnel;

• maintaining and transitioning relationships with key vendors, including component providers, manufacturers and

service providers;

•

integrating accounting, information technology, enterprise management and administrative systems which may

be difficult or costly;

• making significant cash expenditures that may be required to retain personnel or eliminate unnecessary resources;

• managing tax costs or liabilities for acquired or acquiring corporate entities;

• coordinating a broader and more geographically dispersed organization;

• maintaining uniform standards, procedures and policies to ensure efficient and compliant administration of the

organization; and

• making any necessary modifications to internal control to comply with the Sarbanes-Oxley Act of 2002 and

related rules and regulations.

Disruptions or delays associated with these and other risks encountered in the integration process could have a mate-

rial adverse effect on our business and results of operations.

We are relying on an affiliate of Nortel for the performance of certain critical business support services during a

transition period following the closing of the MEN Acquisition and there can be no assurance that such services

will be performed timely and effectively.

We currently rely upon an affiliate of Nortel for certain key business support services related to the operation and con-

tinuity of the MEN Business. These services will be transferred to and taken over by our organization over time as we

build up the capability and to do so. These services include key finance and accounting functions, supply chain and

logistics management, maintenance and product support services, order management and fulfillment, trade compli-

ance, and information technology services. Ciena’s administration and oversight of these transition services is complex,

requires significant resources and presents issues related to the segregation of duties and information among the pur-

chasers. These transition services are costly and we could incur approximately $94.0 million per year, if all of the transi-

tion services are used for a full year. Relying upon the transition services provider to perform critical operations and ser-

vices raises a number of significant business and operational risks. The transition service provider also performs services

on behalf of other purchasers of the businesses that Nortel has recently divested. There is no assurance the provider

will serve as an effective support partner for all of the Nortel purchasers and we face risks associated with the provider’s

ability to retain experienced and knowledgeable personnel, particularly as Ciena and other purchasers wind down sup-

port services. Ciena expects to exit critical transition services during the second quarter of fiscal 2011. The wind down

and transfer to Ciena or other third parties of these critical services is a complex undertaking and may be disruptive to

our business and operations. Significant disruption in business support services, the transfer of these activities to Ciena

or unanticipated costs related to such services could adversely affect our business and results of operations.

Ciena Corporation 10-K

The MEN Acquisition may expose us to significant unanticipated liabilities that could adversely affect our busi-

ness and results of operations.

Our purchase of the MEN Business may expose us to significant unanticipated liabilities relating to the operation of

the Nortel business. These liabilities could include employment, retirement or severance-related obligations under

applicable law or other benefits arrangements, legal claims, warranty or similar liabilities to customers, and claims by

or amounts owed to vendors, including as a result of any contracts assigned to Ciena. We may also incur liabilities or

claims associated with our acquisition or licensing of Nortel’s technology and intellectual property including claims of

infringement. Particularly in international jurisdictions, our acquisition of the MEN Business, or our decision to indepen-

dently enter new international markets where Nortel previously conducted business, could also expose us to tax liabili-

ties and other amounts owed by Nortel. The incurrence of such unforeseen or unanticipated liabilities, should they be

significant, could have a material adverse affect on our business, results of operations and financial condition.

The MEN Acquisition may cause dilution to our earnings per share, which may harm the market price of our com-

mon stock.

A number of factors, including lower than anticipated revenue and gross margin of the MEN Business, or fewer oper-

ating synergies of the combined operations, could cause dilution to our earnings per share or decrease or delay any

accretive effect of the MEN Acquisition. We could also encounter unanticipated or additional integration-related costs

or fail to realize all of the benefits of the MEN Acquisition that underlie our financial model and expectations for future

growth and profitability. These and other factors could cause dilution to our earnings per share or decrease or delay the

expected financial benefits of the MEN Acquisition and cause a decrease in the price of our common stock.

The complexity of the integration and transition associated with the MEN Acquisition, together with Ciena’s

increased scale and global presence, may affect our internal control over financial reporting and our ability to

effectively and timely report our financial results.

We currently rely upon a combination of Ciena information systems and critical transition services provided by an affili-

ate of Nortel to accurately and effectively compile and report our financial results. The additional scale of our opera-

tions, together with the complexity of the integration effort, including changes to or implementation of critical infor-

mation technology systems and reliance upon third party transition services, may adversely affect our ability to report

our financial results on a timely basis. In addition, we have had to train new employees and third party providers, and

assume operations in jurisdictions where we have not previously had operations. We expect that the MEN Acquisition

may necessitate significant modifications to our internal control systems, processes and information systems, both on

a transition basis, and over the longer-term as we fully integrate the combined company. Due to the complexity of the

MEN Acquisition, we cannot be certain that changes to our internal control over financial reporting during fiscal 2011

will be effective for any period, or on an ongoing basis. If we are unable to accurately and timely report our financial

results, or are unable to assert that our internal controls over financial reporting are effective, our business and market

perception of our financial condition may be harmed and the trading price of our stock may be adversely affected.

Risks related to our business and operations

Investing in our securities involves a high degree of risk. In addition to the other information contained in this report,

you should consider the following risk factors before investing in our securities.

Our business and operating results could be adversely affected by unfavorable macroeconomic and market condi-

tions and reductions in the level of capital expenditure by our largest customers in response to these conditions.

Broad macroeconomic weakness has previously resulted in sustained periods of decreased demand for our products

and services that have adversely affected our operating results. In response to these conditions, many of our custom-

ers significantly reduced their network infrastructure expenditures as they sought to conserve capital, reduce debt or

address uncertainties or changes in their own business models brought on by broader market challenges. We continue

to experience cautious spending among our customers as a result of the recent period of economic weakness and

Ciena Corporation 10-K

remain uncertain as to how long these macroeconomic and industry conditions will continue, the pace of recovery,

and the magnitude of the effect of these market conditions on our business and results of operations. Continued or

increased challenging economic and market conditions could result in:

• difficulty forecasting, budgeting and planning due to limited visibility into the spending plans of current or pro-

spective customers;

•

increased competition for fewer network projects and sales opportunities;

increased pricing pressure that may adversely affect revenue and gross margin;

• higher overhead costs as a percentage of revenue;

•

increased risk of charges relating to excess and obsolete inventories and the write off of other intangible assets; and

• customer financial difficulty and increased difficulty in collecting accounts receivable.

Our business and operating results could be materially affected by periods of unfavorable macroeconomic and market

conditions, globally or specific to a particular region where we operate, and any resulting reductions in the level of capi-

tal expenditure by our customers.

A small number of communications service providers account for a significant portion of our revenue. The loss of

any of these customers, or a significant reduction in their spending, would have a material adverse effect on our

business and results of operations.

A significant portion of our revenue is concentrated among a relatively small number of communications service provid-

ers. One customer, AT&T, accounted for greater than 10% of revenue representing approximately 21.6% of fiscal 2010

revenue. Consequently, our financial results are closely correlated with the spending of a relatively small number of

service providers and are significantly affected by market or industry changes that affect their businesses. The terms of

our frame contracts generally do not obligate these customers to purchase any minimum or specific amounts of equip-

ment or services. Because their spending may be unpredictable and sporadic, our revenue and operating results can

fluctuate on a quarterly basis. Reliance upon a relatively small number of customers increases our exposure to changes

in their network and purchasing strategies. Some of our customers are pursuing efforts to outsource the management

and operation of their networks, or have indicated a procurement strategy to reduce or rationalize the number of ven-

dors from which they purchase equipment. These strategies may present challenges to our business and could benefit

our larger competitors. Our concentration in revenue has increased in recent years, in part, as a result of consolidations

among a number of our largest customers. Consolidations may increase the likelihood of temporary or indefinite reduc-

tions in customer spending or changes in network strategy that could harm our business and operating results. The loss

of one or more large service provider customers, or a significant reduction in their spending, as a result of the factors

above or otherwise, would have a material adverse effect on our business, financial condition and results of operations.

Our revenue and operating results can fluctuate unpredictably from quarter to quarter.

Our revenue and results of operations can fluctuate unpredictably from quarter to quarter. Our budgeted expense

levels depend in part on our expectations of long-term future revenue and gross margin, and substantial reductions

in expense are difficult and can take time to implement. Uncertainty or lack of visibility into customer spending, and

changes in economic or market conditions, can make it difficult to prepare reliable estimates of future revenue and

corresponding expense levels. Consequently, our level of operating expense or inventory may be high relative to our

revenue, which could harm our ability to achieve or maintain profitability. Given market conditions and the effect of cau-

tious spending in recent quarters, lower levels of backlog orders and an increase in the percentage of quarterly revenue

relating to orders placed in that quarter could result in more variability and less predictability in our quarterly results.

Additional factors that contribute to fluctuations in our revenue and operating results include:

• broader economic and market conditions affecting us and our customers;

• changes in capital spending by large communications service providers;

•

the timing and size of orders, including our ability to recognize revenue under customer contracts;

Ciena Corporation 10-K

•

the transition from selling legacy to next-generation technology platforms;

• availability and cost of critical components;

• variations in the mix between higher and lower margin products and services; and

•

the level of pricing pressure we encounter, particularly for our Packet-Optical Transport.

Many factors affecting our results of operations are beyond our control, particularly in the case of large service provider

orders and multi-vendor or multi-technology network infrastructure builds where the achievement of certain thresholds

for acceptance is subject to the readiness and performance of the customer or other providers, and changes in customer

requirements or installation plans. As a consequence, our results for a particular quarter may be difficult to predict, and

our prior results are not necessarily indicative of results likely in future periods. The factors above may cause our revenue

and operating results to fluctuate unpredictably from quarter to quarter. These fluctuations may cause our operating

results to be below the expectations of securities analysts or investors, which may cause our stock price to decline.

We face intense competition that could hurt our sales and results of operations.

The markets in which we compete for sales of networking equipment, software and services are extremely competitive.

Competition is particularly intense in attracting large carrier customers and securing new market opportunities with

existing carrier customers. In an effort to secure new or long-term customers and capture market share, in the past we

have and in the future we may agree to pricing or other terms that result in negative gross margins on a particular order

or group of orders. The level of competition and pricing pressure that we face increases substantially during periods of

macroeconomic weakness, constrained spending or fewer network projects. As a result of these market conditions, we

have experienced significant competition and increased pricing pressure, particularly for our Packet-Optical Transport

products, as we and other vendors have sought to retain or grow market share.

Competition in our markets, generally, is based on any one or a combination of the following factors: price, product

features, functionality and performance, service offering, manufacturing capability and lead-times, incumbency and

existing business relationships, scalability and the flexibility of products to meet the immediate and future network

requirements of customers. A small number of very large companies have historically dominated our industry. These

competitors have substantially greater financial and marketing resources, greater manufacturing capacity, broader

product offerings and more established relationships with service providers and other potential customers than we do.

Because of their scale and resources, they may be perceived to be better positioned to offer network operating or man-

agement service for large carrier customers. We expect that the acquired products and technologies, increased market

share and global presence resulting from the MEN Acquisition will only intensify the level of competition that we face,

particularly from larger vendors. We also compete with a number of smaller companies that provide significant compe-

tition for a specific product, application, customer segment or geographic market. Due to the narrower focus of their

efforts, these competitors may achieve commercial availability of their products more quickly or may be more attractive

to customers.

Increased competition in our markets has resulted in aggressive business tactics, including:

• significant price competition, particularly for our Packet-Optical Transport platforms;

• customer financing assistance;

• early announcements of competing products and extensive marketing efforts;

• competitors offering equity ownership positions to customers;

• competitors offering to repurchase our equipment from existing customers;

• marketing and advertising assistance; and

•

intellectual property assertions and disputes.

The tactics described above can be particularly effective in an increasingly concentrated base of potential customers

such as communications service providers. If competitive pressures increase or we fail to compete successfully in our

markets, our sales and profitability would suffer.

Ciena Corporation 10-K

Our reliance upon third party manufacturers exposes us to risks that could negatively affect our business

and operations.

We rely upon third party contract manufacturers to perform the majority of the manufacturing of our products and compo-

nents. We do not have contracts in place with some of our manufacturers, do not have guaranteed supply of components

or manufacturing capacity and in some cases are utilizing temporary or transitional commercial arrangements intended to

facilitate the integration of the MEN Business. Our reliance upon third party manufacturers could expose us to increased

risks related to lead times, continued supply, on-time delivery, quality assurance and compliance with environmental stan-

dards and other regulations. Reliance upon third parties manufacturers exposes us to risks related to their operations,

financial position, business continuity and continued viability, which may be adversely affected by broader macroeconomic

conditions and difficulties in the credit markets. In an effort to drive cost reductions, we anticipate rationalizing our supply

chain and third party contract manufacturers as part of the integration of the MEN Business into Ciena’s operations. There

can be no assurance that these efforts, including any consolidation or reallocation the third party sourcing and manufactur-

ing, will not ultimately result in additional costs or disruptions in our operations and business.

We may also experience difficulties as a result of geopolitical events, military actions or health pandemics in the coun-

tries where our products or critical components are manufactured. Our product manufacturing principally takes place

in Mexico, Canada, Thailand and China. Thailand is undergoing a period of instability and we have in the past experi-

enced product shipment delays associated with political turmoil in Thailand, including a blockade of its main interna-

tional airport. Significant disruptions in these countries affecting supply and manufacturing capacity, or other difficul-

ties with our contract manufacturers would negatively affect our business and results of operations.

Investment of research and development resources in technologies for which there is not a matching market

opportunity, or failure to sufficiently or timely invest in technologies for which there is market demand, would

adversely affect our revenue and profitability.

The market for communications networking equipment is characterized by rapidly evolving technologies and changes

in market demand. We continually invest in research and development to sustain or enhance our existing products and

develop or acquire new products technologies. Our current development efforts are focused upon the platform evolu-

tion of our CoreDirector Multiservice Optical Switch family to our ActivFlex 5400 family of Reconfigurable Switching

Systems, the expansion of our ActivEdge service delivery and aggregation switches, and our 40G and 100G coherent

technologies and capabilities for our Packet-Optical Transport platforms. There is often a lengthy period between com-

mencing these development initiatives and bringing a new or improved product to market. During this time, technology

preferences, customer demand and the market for our products may move in directions we had not anticipated. There

is no guarantee that new products or enhancements will achieve market acceptance or that the timing of market adop-

tion will be as predicted. There is a significant possibility, therefore, that some of our development decisions, including

significant expenditures on acquisitions, research and development costs, or investments in technologies, will not turn

out as anticipated, and that our investment in some projects will be unprofitable. There is also a possibility that we may

miss a market opportunity because we failed to invest, or invested too late, in a technology, product or enhancement.

Changes in market demand or investment priorities may also cause us to discontinue existing or planned development

for new products or features, which can have a disruptive effect on our relationships with customers. These product

development risks can be compounded in the context of a significant acquisition such as the MEN Business and deci-

sion making regarding our product portfolio and the significant development work required to integrate the combined

product and software offerings. If we fail to make the right investments or fail to make them at the right time, our com-

petitive position may suffer and our revenue and profitability could be harmed.

Product performance problems could damage our business reputation and negatively affect our results of operations.

The development and production of highly technical and complex communications network equipment is complicated.

Some of our products can be fully tested only when deployed in communications networks or when carrying traffic

with other equipment. As a result, product performance problems are often more acute for initial deployments of new

Ciena Corporation 10-K

products and product enhancements. Our products have contained and may contain undetected hardware or software

errors or defects. These defects have resulted in warranty claims and additional costs to remediate. Unanticipated

problems can relate to the design, manufacturing, installation or integration of our products. Performance problems

and product malfunctions can also relate to defects in components, software or manufacturing services supplied by

third parties. Product performance, reliability and quality problems can negatively affect our business, including:

•

increased costs to remediate software or hardware defects or replace products;

• payment of liquidated damages or similar claims for performance failures or delays;

•

increased inventory obsolescence;

increased warranty expense or estimates resulting from higher failure rates, additional field service obligations or

other rework costs related to defects;

• delays in recognizing revenue or collecting accounts receivable; and

• declining sales to existing customers and order cancellations.

Product performance problems could also damage our business reputation and harm our prospects with potential cus-

tomers. These consequences of product defects or quality problems, including any significant costs to remediate, could

negatively affect our business and results of operations.

Network equipment sales to large communications service providers often involve lengthy sales cycles and pro-

tracted contract negotiations and may require us to assume terms or conditions that negatively affect our pric-

ing, payment terms and the timing of revenue recognition.

Our future success will depend in large part on our ability to maintain and expand our sales to large communications ser-

vice providers. These sales typically involve lengthy sales cycles, protracted and sometimes difficult contract negotiations,

and sales to service providers often involve extensive product testing, and demonstration laboratory or network certifica-

tion, including network-specific or region-specific processes. We are sometimes required to agree to contract terms or

conditions that negatively affect pricing, payment terms and the timing of revenue recognition in order to consummate

a sale. During periods of macroeconomic or market weakness, these customers may request extended payment terms,

vendor or third-party financing and other alternative purchase structures. These terms may, in turn, negatively affect our

revenue and results of operations and increase our risk and susceptibility to quarterly fluctuations in our results. Service

providers may ultimately insist upon terms and conditions that we deem too onerous or not in our best interest. Moreover,

our purchase agreements generally do not require that a customer guarantee any minimum purchase level and customers

often have the right to modify, delay, reduce or cancel previous orders. As a result, we may incur substantial expense and

devote time and resources to potential relationships that never materialize or result in lower than anticipated sales.

Difficulties with third party component suppliers, including sole and limited source suppliers, could increase our

costs and harm our business and customer relationships.

We depend on third party suppliers for our product components and subsystems, as well as for equipment used to

manufacture and test our products. Our products include key optical and electronic components for which reliable, high-

volume supply is often available only from sole or limited sources. Increases in market demand or periods of economic

weakness have previously resulted in shortages in availability for important components. Unfavorable economic condi-

tions can affect our suppliers’ liquidity level and ability to continue to invest in their business and to stock components

in sufficient quantity. We have experienced increased lead times and a higher incidence of component discontinuation.

These difficulties with suppliers could result in lost revenue, additional product costs and deployment delays that could

harm our business and customer relationships. We do not have any guarantee of supply from these third parties, and in

many cases relating to the MEN Business, are relying upon temporary or transitional commercial arrangements intended

to facilitate the integration. As a result, there is no assurance that we will be able to secure the components or subsys-

tems that we require in sufficient quantity and quality on reasonable terms. The loss of a source of supply, or lack of suf-

ficient availability of key components, could require that we locate an alternate source or redesign our products, each of

which could increase our costs and negatively affect our product gross margin and results of operations. Our business

Ciena Corporation 10-K

and results of operations would be negatively affected if we were to experience any significant disruption of difficulties

with key suppliers affecting the price, quality, availability or timely delivery of required components.

We may not be successful in selling our products into new markets and developing and managing new

sales channels.

We expanded our geographic presence significantly as a result of the MEN Acquisition, and we continue to take steps

to sell our products into new geographic markets outside of our traditional markets and to a broader customer base,

including other large communications service providers, enterprises, wireless operators, cable operators, submarine

network operators, content providers, and federal, state and local governments. In many cases, we have less experi-

ence in these markets and customers have less familiarity with our company. To succeed in some of these markets we

believe we must develop and manage new sales channels and distribution arrangements. We expect these relation-

ships to be an important part of our business internationally as well as for sales to federal, state and local governments.

Failure to manage additional sales channels effectively would limit our ability to succeed in these new markets and

could adversely affect our ability to expand our customer base and grow our business.

We may experience delays in the development of our products that may negatively affect our competitive posi-

tion and business.

Our products are based on complex technology, and we can experience unanticipated delays in developing, manufac-

turing or deploying them. Each step in the development life cycle of our products presents serious risks of failure, rework

or delay, any one of which could affect the cost-effective and timely development of our products. The development of

our products, including the integration of the products acquired from the MEN Business into our portfolio and the devel-

opment of an integrated software tool to manage the combined portfolio, present significant complexity. In addition,

intellectual property disputes, failure of critical design elements, and other execution risks may delay or even prevent the

release of these products. Delays in product development may affect our reputation with customers and the timing and

level of demand for our products. If we do not develop and successfully introduce products in a timely manner, our com-

petitive position may suffer and our business, financial condition and results of operations would be harmed.

We may be required to write off significant amounts of inventory as a result of our inventory purchase practices,

the convergence of our product lines or unfavorable macroeconomic or industry conditions.

To avoid delays and meet customer demand for shorter delivery terms, we place orders with our contract manufacturers

and suppliers to manufacture components and complete assemblies based in part on forecasts of customer demand. As a

result, our inventory purchases expose us to the risk that our customers either will not order the products we have forecasted

or will purchase fewer products than forecasted. Unfavorable market or industry conditions can limit visibility into customer

spending plans and compound the difficulty of forecasting inventory at appropriate levels. Moreover, our customer purchase

agreements generally do not guarantee any minimum purchase level, and customers often have the right to modify, reduce

or cancel purchase quantities. As a result, we may purchase inventory in anticipation of sales that do not occur. Historically,

our inventory write-offs have resulted from the circumstances above. As features and functionalities converge across our

product lines, and we introduce new products, however, we face an additional risk that customers may forego purchases of

one product we have inventoried in favor of another product with similar functionality. If we are required to write off or write

down a significant amount of inventory, our results of operations for the period would be materially adversely affected.

Restructuring activities could disrupt our business and affect our results of operations.

We have previously taken steps, including reductions in force, office closures, and internal reorganizations to reduce

the size and cost of our operations and to better match our resources with market opportunities. We may take simi-

lar steps in the future, particularly as we seek to realize operating synergies and cost reductions associated with the

MEN Acquisition. These changes could be disruptive to our business and may result in significant expense including

accounting charges for inventory and technology-related write-offs, workforce reduction costs and charges relating to

Ciena Corporation 10-K

consolidation of excess facilities. Substantial expense or charges resulting from restructuring activities could adversely

affect our results of operations in the period in which we take such a charge.

Our failure to manage effectively our relationships with third party service partners could adversely impact our

financial results and relationship with customers.

We rely on a number of third party service partners, both domestic and international, to complement our global ser-

vice and support resources. We rely upon these partners for certain maintenance and support functions, as well as the

installation of our equipment in some large network builds. In order to ensure the proper installation and maintenance

of our products, we must identify, train and certify qualified service partners. Certification can be costly and time-

consuming, and our partners often provide similar services for other companies, including our competitors. We may not

be able to manage effectively our relationships with our service partners and cannot be certain that they will be able to

deliver services in the manner or time required. If our service partners are unsuccessful in delivering services:

• we may suffer delays in recognizing revenue;

• our services revenue and gross margin may be adversely affected; and

• our relationship with customers could suffer.

Difficulties with service partners could cause us to transition a larger share of deployment and other services from third

parties to internal resources, thereby increasing our services overhead costs and negatively affecting our services gross

margin and results of operations.

Our intellectual property rights may be difficult and costly to enforce.

We generally rely on a combination of patents, copyrights, trademarks and trade secret laws to establish and maintain

proprietary rights in our products and technology. Although we have been issued numerous patents and other patent

applications are currently pending, there can be no assurance that any of these patents or other proprietary rights will

not be challenged, invalidated or circumvented or that our rights will provide us with any competitive advantage. In

addition, there can be no assurance that patents will be issued from pending applications or that claims allowed on any

patents will be sufficiently broad to protect our technology. Further, the laws of some foreign countries may not protect

our proprietary rights to the same extent as do the laws of the United States.

We are subject to the risk that third parties may attempt to use our intellectual property without authorization. Protecting

against the unauthorized use of our products, technology and other proprietary rights is difficult, time-consuming and

expensive, and we cannot be certain that the steps that we are taking will prevent or minimize the risks of such unauthor-

ized use. Litigation may be necessary to enforce or defend our intellectual property rights or to determine the validity

or scope of the proprietary rights of others. Such litigation could result in substantial cost and diversion of management

time and resources, and there can be no assurance that we will obtain a successful result. Any inability to protect and

enforce our intellectual property rights, despite our efforts, could harm our ability to compete effectively.

We may incur significant costs in response to claims by others that we infringe their intellectual property rights.

From time to time third parties may assert claims or initiate litigation or other proceedings related to patent, copyright,

trademark and other intellectual property rights to technologies and related standards that are relevant to our busi-

ness. These assertions have increased over time due to our growth, the increased number of products and competitors

in the communications network equipment industry and the corresponding overlaps, and the general increase in the

rate of patent claims assertions, particularly in the United States. Asserted claims, litigation or other proceedings can

include claims against us or our manufacturers, suppliers or customers, alleging infringement of third party proprietary

rights with respect our existing or future products and technology or components of those products. Regardless of the

merit of these claims, they can be time-consuming, divert the time and attention of our technical and management per-

sonnel, and result in costly litigation. These claims, if successful, can require us to:

• pay substantial damages or royalties;

• comply with an injunction or other court order that could prevent us from offering certain of our products;

Ciena Corporation 10-K

• seek a license for the use of certain intellectual property, which may not be available on commercially reasonable

terms or at all;

• develop non-infringing technology, which could require significant effort and expense and ultimately may not be

successful; and

•

indemnify our customers pursuant to contractual obligations and pay damages on their behalf.

Any of these events could adversely affect our business, results of operations and financial condition.

Our exposure to risks associated with the use of intellectual property may be increased as a result of acquisitions, as we

have a lower level of visibility into the development process with respect to such technology or the steps taken to safe-

guard against the risks of infringing the rights of third parties.

Our international operations could expose us to additional risks and expense and adversely affect our results

of operations.

We market, sell and service our products globally and rely upon a global supply chain for sourcing of important compo-

nents and manufacturing of our products. International operations are subject to inherent risks, including:

• effects of changes in currency exchange rates;

• greater difficulty in collecting accounts receivable and longer collection periods;

• difficulties and costs of staffing and managing foreign operations;

•

the impact of economic conditions in countries outside the United States;

less protection for intellectual property rights in some countries;

• adverse tax and customs consequences, particularly as related to transfer-pricing issues;

• social, political and economic instability;

• higher incidence of corruption;

•

trade protection measures, export compliance, domestic preference procurement requirements, qualification to

transact business and additional regulatory requirements; and

• natural disasters, epidemics and acts of war or terrorism.

We expect that we may enter new markets and withdraw from or reduce operations in others. In some countries, our

success will depend in part on our ability to form relationships with local partners. Our inability to identify appropriate

partners or reach mutually satisfactory arrangements could adversely affect our business and operations. Our global

operations may result in increased risk and expense to our business and could give rise to unanticipated liabilities or

difficulties that could adversely affect our operations and financial results.

Our use and reliance upon development resources in India may expose us to unanticipated costs or liabilities.

We have a significant development center in India and, in recent years, have increased headcount and development

activity at this facility. There is no assurance that our reliance upon development resources in India will enable us to

achieve meaningful cost reductions or greater resource efficiency. Further, our development efforts and other opera-

tions in India involve significant risks, including:

• difficulty hiring and retaining appropriate engineering resources due to intense competition for such resources

and resulting wage inflation;

• exposure to misappropriation of intellectual property and proprietary information;

• heightened exposure to changes in the economic, regulatory, security and political conditions of India; and

• fluctuations in currency exchange rates and tax compliance in India.

Difficulties resulting from the factors above and other risks related to our operations in India could expose us to

increased expense, impair our development efforts, harm our competitive position and damage our reputation.

Ciena Corporation 10-K

We may be exposed to unanticipated risks and additional obligations in connection with our resale of comple-

mentary products or technology of other companies.

We have entered into agreements with strategic partners that permit us to distribute their products or technology. We

may rely upon these relationships to add complementary products or technologies, diversify our product portfolio, or

address a particular customer or geographic market. We may enter into additional original equipment manufacturer

(OEM), resale or similar strategic arrangements in the future, including in support of our selection as a domain sup-

ply partner with AT&T. We may incur unanticipated costs or difficulties relating to our resale of third party products.

Our third party relationships could expose us to risks associated with the business and viability of such partners, as

well as delays in their development, manufacturing or delivery of products or technology. We may also be required by

customers to assume warranty, indemnity, service and other commercial obligations greater than the commitments, if

any, made to us by our technology partners. Some of our strategic partners are relatively small companies with limited

financial resources. If they are unable to satisfy their obligations to us or our customers, we may have to expend our own

resources to satisfy these obligations. Exposure to these risks could harm our reputation with key customers and nega-

tively affect our business and our results of operations.

Our exposure to the credit risks of our customers and resellers may make it difficult to collect receivables and

could adversely affect our revenue and operating results.

In the course of our sales to customers, we may have difficulty collecting receivables and could be exposed to risks

associated with uncollectible accounts. We may be exposed to similar risks relating to third party resellers and other

sales channel partners. Lack of liquidity in the capital markets or a sustained period of unfavorable economic conditions

may increase our exposure to credit risks. Our attempts to monitor these situations carefully and take appropriate mea-

sures to protect ourselves may not be sufficient, and it is possible that we may have to write down or write off doubt-

ful accounts. Such write-downs or write-offs could negatively affect our operating results for the period in which they

occur, and, if large, could have a material adverse effect on our revenue and operating results.

If we are unable to attract and retain qualified personnel, we may be unable to manage our business effectively.

Competition to attract and retain highly skilled technical, engineering and other personnel with experience in our indus-

try is intense and our employees have been the subject of targeted hiring by our competitors. We may experience diffi-

culty retaining and motivating existing employees and attracting qualified personnel to fill key positions. Because we rely

upon equity awards as a significant component of compensation, particularly for our executive team, a lack of positive

performance in our stock price, reduced grant levels, or changes to our compensation program may adversely affect our

ability to attract and retain key employees. It may be difficult to replace members of our management team or other key

personnel, and the loss of such individuals could be disruptive to our business. In addition, none of our executive officers

is bound by an employment agreement for any specific term. If we are unable to attract and retain qualified personnel,

we may be unable to manage our business effectively and our operations and results of operations could suffer.

We may be adversely affected by fluctuations in currency exchange rates.

As a global concern, we face exposure to adverse movements in foreign currency exchange rates. Historically, our sales

have primarily been denominated in U.S. dollars. As a result of our increased global presence, a larger percentage of

our revenue is now non-U.S. dollar denominated and therefore subject to foreign currency fluctuation. In addition, we

face exposure to currency exchange rates as a result of our non-U.S. dollar denominated operating expense in Europe,

Asia, Latin America and Canada. We have previously hedged against currency exposure associated with anticipated

foreign currency cash flows and may do so in the future. There can be no assurance that these hedging instruments

will be effective and losses associated with these instruments and the adverse effect of foreign currency exchange rate

fluctuation may negatively affect our results of operations.

Our products incorporate software and other technology under license from third parties and our business

would be adversely affected if this technology was no longer available to us on commercially reasonable terms.

Ciena Corporation 10-K

We integrate third-party software and other technology into our embedded operating system, network management

system tools and other products. Licenses for this technology may not be available or continue to be available to us on

commercially reasonable terms. Third party licensors may insist on unreasonable financial or other terms in connection

with our use of such technology. Difficulties with third party technology licensors could result in termination of such

licenses, which may result in significant costs and require us to obtain or develop a substitute technology. Difficulty

obtaining and maintaining third-party technology licenses may disrupt development of our products and increase our

costs, which could harm our business.

Our business is dependent upon the proper functioning of our internal business processes and information sys-

tems and modifications may disrupt our business, processes and internal controls.

The successful operation of various internal business processes and information systems is critical to the efficient oper-

ation of our business. If these systems fail or are interrupted, our operations may be adversely affected and operating

results could be harmed. Our business processes and information systems need to be sufficiently scalable to support

the integration of the MEN Business and future growth of our business. The integration of the MEN Business and trans-

fer of business support services being performed under the transition services agreement will require significant modi-

fications relating to our internal business processes and information systems. Significant changes to our processes and

systems expose us to a number of operational risks. These changes may be costly and disruptive, and could impose

substantial demands on management time. These changes may also require the modification of a number of internal

control procedures and significant training of employees. Any material disruption, malfunction or similar problems with

our business processes or information systems, or the transition to new processes and systems, could have a negative

effect on the operation of our business and our results of operations.

Strategic acquisitions and investments may expose us to increased costs and unexpected liabilities.

We may acquire or make investments in other technology companies, or enter into other strategic relationships, to

expand the markets we address, diversify our customer base or acquire or accelerate the development of technology or

products. To do so, we may use cash, issue equity that would dilute our current stockholders’ ownership, or incur debt

or assume indebtedness. These transactions involve numerous risks, including:

• significant integration costs;

• disruption due to the integration and rationalization of operations, products, technologies and personnel;

• diversion of management’s attention;

• difficulty completing projects of the acquired company and costs related to in-process projects;

•

the loss of key employees;

ineffective internal controls over financial reporting;

• dependence on unfamiliar suppliers or manufacturers;

• exposure to unanticipated liabilities, including intellectual property infringement claims; and

• adverse tax or accounting effects including amortization expense related to intangible assets and charges associ-

ated with impairment of goodwill.

As a result of these and other risks, our acquisitions, investments or strategic transactions may not reap the intended

benefits and may ultimately have a negative impact on our business, results of operation and financial condition.

Changes in government regulation affecting the communications industry and the businesses of our customers

could harm our prospects and operating results.

The Federal Communications Commission, or FCC, has jurisdiction over the U.S. communications industry and similar

agencies have jurisdiction over the communication industries in other countries. Many of our largest customers are subject

to the rules and regulations of these agencies. Changes in regulatory requirements in the United States or other countries

could inhibit service providers from investing in their communications network infrastructures or introducing new services.

Ciena Corporation 10-K

These changes could adversely affect the sale of our products and services. Changes in regulatory tariff requirements

or other regulations relating to pricing or terms of carriage on communications networks could slow the development or

expansion of network infrastructures and adversely affect our business, operating results, and financial condition.

Governmental regulations affecting the use, import or export of products could negatively affect our revenue.

The United States and various foreign governments have imposed controls, license requirements and other restrictions

on the usage, import or export of some of the technologies that we sell. Governmental regulation of usage, import or

export of our products, or our failure to obtain required approvals for our products, could harm our international and

domestic sales and adversely affect our revenue and costs of sales. Failure to comply with such regulations could result

in enforcement actions, fines or penalties and restrictions on export privileges. In addition, costly tariffs on our equip-

ment, restrictions on importation, trade protection measures and domestic preference requirements of certain coun-

tries could limit our access to these markets and harm our sales. For example, India’s government has recently imple-

mented certain rules applicable to non-Indian network equipment vendors and is considering further restrictions that

may inhibit sales of certain communications equipment, including equipment manufactured in China, where certain of

our products are assembled. These and other regulations could adversely affect the sale or use of our products and

could adversely affect our business and revenue.

Governmental regulations related to the environment and potential climate change, could adversely affect our

business and operating results.

Our operations are regulated under various federal, state, local and international laws relating to the environment

and potential climate change. We could incur fines, costs related to damage to property or personal injury, and costs

related to investigation or remediation activities, if we were to violate or become liable under these laws or regulations.

Our product design efforts, and the manufacturing of our products, are also subject to evolving requirements relating

to the presence of certain materials or substances in our equipment, including regulations that make producers for such

products financially responsible for the collection, treatment and recycling of certain products. For example, our opera-

tions and financial results may be negatively affected by environmental regulations, such as the Waste Electrical and

Electronic Equipment (WEEE) and Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic

Equipment (RoHS) that have been adopted by the European Union. Compliance with these and similar environmental

regulations may increase our cost of designing, manufacturing, selling and removing our products. These regulations

may also make it difficult to obtain supply of compliant components or require us to write off non-compliant inventory,

which could have an adverse effect our business and operating results.

We may be required to write down long-lived assets and these impairment charges would adversely affect our

operating results.

As of October 31, 2010, our balance sheet includes $600.4 million in long-lived assets, which includes $426.4 million of

intangible assets. Valuation of our long-lived assets requires us to make assumptions about future sales prices and sales

volumes for our products. These assumptions are used to forecast future, undiscounted cash flows. Given the significant

uncertainty and instability of macroeconomic conditions in recent periods, forecasting future business is difficult and

subject to modification. If actual market conditions differ or our forecasts change, we may be required to reassess long-

lived assets and could record an impairment charge. Any impairment charge relating to long-lived assets would have

the effect of decreasing our earnings or increasing our losses in such period. If we are required to take a substantial

impairment charge, our operating results could be materially adversely affected in such period.

Failure to maintain effective internal controls over financial reporting could have a material adverse effect on

our business, operating results and stock price.

Section 404 of the Sarbanes-Oxley Act of 2002 requires that we include in our annual report a report containing man-

agement’s assessment of the effectiveness of our internal controls over financial reporting as of the end of our fiscal

year and a statement as to whether or not such internal controls are effective. Compliance with these requirements has

Ciena Corporation 10-K

resulted in, and is likely to continue to result in, significant costs and the commitment of time and operational resources.

Changes in our business, including the MEN Acquisition, will necessitate modifications to our internal control systems,

processes and information systems. Our increased global operations and expansion into new regions could pose addi-

tional challenges to our internal control systems. We cannot be certain that our current design for internal control over

financial reporting, or any additional changes to be made during fiscal 2011, will be sufficient to enable management to

determine that our internal controls are effective for any period, or on an ongoing basis. If we are unable to assert that

our internal controls over financial reporting are effective, our business may be harmed. Market perception of our finan-

cial condition and the trading price of our stock may be adversely affected, and customer perception of our business

may suffer.

Outstanding indebtedness under our convertible notes may adversely affect our business.

At October 31, 2010, indebtedness on our outstanding convertible notes totaled approximately $1.4 billion in aggregate

principal. Our indebtedness could have important negative consequences, including:

•

increasing our vulnerability to adverse economic and industry conditions;

limiting our ability to obtain additional financing, particularly in light of unfavorable conditions in the credit markets;

reducing the availability of cash resources for other purposes, including capital expenditures;

limiting our flexibility in planning for, or reacting to, changes in our business and the markets in which we com-

pete; and

• placing us at a possible competitive disadvantage to competitors that have better access to capital resources.

We may also add additional indebtedness such as equipment loans, working capital lines of credit and other long-

term debt.

Our stock price is volatile.

Our common stock price has experienced substantial volatility in the past and may remain volatile in the future.

Volatility in our stock price can arise as a result of a number of the factors discussed in this “Risk Factors” section.

During fiscal 2010, our closing stock price ranged from a high of $19.24 per share to a low of $10.67 per share. The stock

market has experienced extreme price and volume fluctuations that have affected the market price of many technol-

ogy companies, with such volatility often unrelated to the operating performance of these companies. Divergence

between our actual or anticipated financial results and published expectations of analysts can cause significant swings

in our stock price. Our stock price can also be affected by announcements that we, our competitors, or our customers

may make, particularly announcements related to acquisitions or other significant transactions. Our common stock is

included in a number of market indices and any change in the composition of these indices to exclude our company

would adversely affect our stock price. On December 18, 2009, we were removed from the S&P 500, a widely-followed

index. These factors, as well as conditions affecting the general economy or financial markets, may materially adversely

affect the market price of our common stock in the future.

ITem 1b. unResolVeD sTaFF CommenTs
Not applicable.

ITem 2. PRoPeRTIes
oVerVIew. As of October 31, 2010, all of our properties are leased and we do not own any real property. We lease

eighty-five facilities related to the ongoing operations of our four business segments and related functions. Our princi-

pal executive offices are located in Linthicum, Maryland. We lease six buildings located at various sites near Linthicum,

Maryland, including an engineering facility, two supply chain and logistics facilities, and three administrative and sales

facilities. Our largest engineering facility is located at Nortel’s Carling campus in Ottawa, Canada. See below for infor-

mation regarding the lease associated with this facility. We also have engineering and/or service facilities located in San

Ciena Corporation 10-K

Jose, California; Alpharetta, Georgia; Spokane, Washington; Kanata, Canada; and Gurgaon, India. We maintain a sales

and service facility in London, England and a supply chain logistics facility in Newtonabbey, Northern Ireland. In addition,

we lease various smaller offices in the United States, Mexico, South America, Europe and Asia to support our sales and

services operations. We believe the facilities we are now using are adequate and suitable for our business requirements.

reSTruCTurIng. We lease a number of properties that we no longer occupy. As part of our restructuring costs, we

provide for the estimated cost of the future net lease expense for these facilities. The cost is based on the fair value of

future minimum lease payments under contractual obligations offset by the fair value of the estimated future sublease

payments that we may receive. As of October 31, 2010, our accrued restructuring liability related to these properties

was $6.4 million. If actual market conditions relating to the use of these facilities are less favorable than those projected

by management, additional restructuring costs associated with these facilities may be required. For additional informa-

tion regarding our lease obligations, see Note 22 to the Consolidated Financial Statements in Item 8 of Part II of this

annual report.

CarlIng leaSe. Upon the completion of the MEN Acquisition, Ciena Canada Inc., a subsidiary of Ciena, entered into

a lease agreement with Nortel Networks Technology Corp. (“Landlord”) relating to the “Lab 10” building on Nortel’s

Carling Campus in Ottawa, Canada (the “Carling lease”). This facility consists of a rentable area of 265,000 square feet

for which we incur lease expense of approximately $7.2 million CAD per year, consisting of both base rent and fixed

additional operating expense, the latter of which will increase 2% per year. The Carling lease has a ten-year term, sub-

ject to early termination provisions that may be exercised by Landlord if the property is purchased by a third party who

requires vacant possession of the premises occupied by us prior to the end of the term. Landlord’s exercise of these

early termination rights is subject to Landlord’s payment of an early termination fee of up to $33.5 million USD.

On October 19, 2010, Nortel issued a press release announcing its entry into an agreement with Public Works and

Government Services Canada (PWGSC) for the sale of the Carling Campus. Nortel indicated that it targets a closing for

this sale transaction at the end of calendar 2010. Nortel’s press release further indicated, with respect to the Carling

lease, that “Nortel is directed by PWGSC under the sale agreement to exercise, on closing, Nortel’s early termina-

tion rights under the lease, shortening the lease from 10 years to 5 years.” Pursuant to the terms of the Carling lease,

should Nortel exercise its early termination rights as indicated in its press release, Ciena would be entitled to receive,

within three business days of Nortel’s delivery of an early termination notice, payment of an early termination fee in the

amount of $33.5 million USD. Such fee would be paid from the escrowed portion of the purchase price paid by Ciena

for the MEN Business. See Note 23 to the Consolidated Financial Statements in Item 8 of Part II of this annual report for

additional information relating to the sale of the Carling Campus and Ciena’s receipts of the early termination fee fol-

lowing the completion of fiscal 2010.

ITem 3. legal PRoCeeDIngs
On May 29, 2008, Graywire, LLC filed a complaint in the United States District Court for the Northern District of Georgia

against Ciena and four other defendants, alleging, among other things, that certain of the parties’ products infringe

U.S. Patent 6,542,673 (the “‘673 Patent”), relating to an identifier system and components for optical assemblies. The

complaint, which seeks injunctive relief and damages, was served upon Ciena on January 20, 2009. Ciena filed an

answer to the complaint and counterclaims against Graywire on March 26, 2009, and an amended answer and counter-

claims on April 17, 2009. On April 27, 2009, Ciena and certain other defendants filed an application for inter partes reex-

amination of the ‘673 Patent with the U.S. Patent and Trademark Office (the “PTO”). On the same date, Ciena and the

other defendants filed a motion to stay the case pending reexamination of all of the patents-in-suit. On July 17, 2009,

the district court granted the defendants’ motion to stay the case. On July 23, 2009, the PTO granted the defendants’

application for reexamination with respect to certain claims of the ‘673 Patent. We believe that we have valid defenses

to the lawsuit and intend to defend it vigorously in the event the stay of the case is lifted.

As a result of our June 2002 merger with ONI Systems Corp., we became a defendant in a securities class action lawsuit

filed in the United States District Court for the Southern District of New York in August 2001. The complaint named

Ciena Corporation 10-K

ONI, certain former ONI officers, and certain underwriters of ONI’s initial public offering (IPO) as defendants, and

alleges, among other things, that the underwriter defendants violated the securities laws by failing to disclose alleged

compensation arrangements (such as undisclosed commissions or stock stabilization practices) in ONI’s registration

statement and by engaging in manipulative practices to artificially inflate ONI’s stock price after the IPO. The complaint

also alleges that ONI and the named former officers violated the securities laws by failing to disclose the underwriters’

alleged compensation arrangements and manipulative practices. No specific amount of damages has been claimed.

Similar complaints have been filed against more than 300 other issuers that have had initial public offerings since 1998,

and all of these actions have been included in a single coordinated proceeding. The former ONI officers have been

dismissed from the action without prejudice. In July 2004, following mediated settlement negotiations, the plain-

tiffs, the issuer defendants (including Ciena), and their insurers entered into a settlement agreement. The settlement

agreement did not require Ciena to pay any amount toward the settlement or to make any other payments. While the

partial settlement was pending approval, the plaintiffs continued to litigate their cases against the underwriter defen-

dants. In October 2004, the district court certified a class with respect to the Section 10(b) claims in six “focus cases”

selected out of all of the consolidated cases, which cases did not include Ciena, and which decision was appealed

by the underwriter defendants to the U.S. Court of Appeals for the Second Circuit. On February 15, 2005, the district

court granted the motion for preliminary approval of the settlement agreement, subject to certain modifications, and

on August 31, 2005, the district court issued a preliminary order approving the revised stipulated settlement agree-

ment. On December 5, 2006, the U.S. Court of Appeals for the Second Circuit vacated the district court’s grant of class

certification in the six focus cases. On April 6, 2007, the Second Circuit denied plaintiffs’ petition for rehearing. In light

of the Second Circuit’s decision, the parties agreed that the settlement could not be approved. On June 25, 2007, the

district court approved a stipulation filed by the plaintiffs and the issuer defendants terminating the proposed settle-

ment. On August 14, 2007, the plaintiffs filed second amended complaints against the defendants in the six focus cases.

On September 27, 2007, the plaintiffs filed a motion for class certification based on their amended complaints and

allegations. On March 26, 2008, the district court denied motions to dismiss the second amended complaints filed by

the defendants in the six focus cases, except as to Section 11 claims raised by those plaintiffs who sold their securities

for a price in excess of the initial offering price and those who purchased outside the previously certified class period.

Briefing on the plaintiffs’ motion for class certification in the focus cases was completed in May 2008. That motion was

withdrawn without prejudice on October 10, 2008. On April 2, 2009, a stipulation and agreement of settlement between

the plaintiffs, issuer defendants and underwriter defendants was submitted to the Court for preliminary approval. The

Court granted the plaintiffs’ motion for preliminary approval and preliminarily certified the settlement classes on June 10,

2009. The settlement fairness hearing was held on September 10, 2009. On October 6, 2009, the Court entered an opin-

ion granting final approval to the settlement and directing that the Clerk of the Court close these actions. Notices of

appeal of the opinion granting final approval have been filed. Due to the inherent uncertainties of litigation and because

the settlement remains subject to appeal, the ultimate outcome of the matter is uncertain.

In addition to the matters described above, we are subject to various legal proceedings, claims and litigation arising in

the ordinary course of business. We do not expect that the ultimate costs to resolve these matters will have a material

effect on our results of operations, financial position or cash flows.

ITem 4. RemoVeD anD ReseRVeD

Ciena Corporation 10-K

PaRT II

ITem 5. maRKeT FoR RegIsTRanT’s Common sToCK, RelaTeD

sToCKholDeR maTTeRs anD IssueR PuRChases oF
equITy seCuRITIes

(a) Our common stock is traded on the NASDAQ Global Select Market under the symbol “CIEN.” The following table

sets forth the high and low sales prices of our common stock, as reported on the NASDAQ Global Select Market,

for the fiscal periods indicated.

Fiscal Year 2009

First Quarter ended January 31

Second Quarter ended April 30

Third Quarter ended July 31

Fourth Quarter ended October 31

Fiscal Year 2010

First Quarter ended January 31

Second Quarter ended April 30

Third Quarter ended July 31

Fourth Quarter ended October 31

HigH

$ 9.79

$12.28

$12.51

$16.64

$14.02

$18.59

$19.24

$15.69

Low

$ 5.07

$ 4.98

$ 8.45

$11.08

$10.67

$12.76

$12.29

$12.02

As of December 15, 2010, there were approximately 952 holders of record of our common stock and 94,146,715 shares

of common stock outstanding. We have never paid cash dividends on our capital stock. We intend to retain earnings for

use in our business and we do not anticipate paying any cash dividends in the foreseeable future.

The following graph shows a comparison of cumulative total returns for an investment in our common stock, the

NASDAQ Telecommunications Index and the NASDAQ Composite Index from October 31, 2005 to October 31, 2010.

The NASDAQ Telecommunications Index contains securities of NASDAQ-listed companies classified according to the

Industry Classification Benchmark as Telecommunications and Telecommunications Equipment. They include providers

of fixed-line and mobile telephone services, and makers and distributors of high-technology communication products.

This graph is not deemed to be “filed” with the SEC or subject to the liabilities of Section 18 of the Securities Exchange

Act of 1934, and the graph shall not be deemed to be incorporated by reference into any prior or subsequent filing by

us under the Securities Act of 1933 or the Exchange Act.

S
R
A
L
L
O
D

S
U

300

250

200

150

100

OCT 05

APR 06

OCT 06

APR 07

OCT 07

APR 08

OCT 08

APR 09

OCT 09

APR 10

OCT 10

CIENA

NASDAQ TELECOMMUNICATIONS INDEX

NASDAQ COMPOSITE INDEX

Ciena Corporation 10-K

Assumes $100 invested in Ciena Corporation, the NASDAQ Telecommunications Index and the NASDAQ Composite

Index on October 31, 2005 with all dividends reinvested at month-end.

(b) Not applicable.

ITem 6. seleCTeD ConsolIDaTeD FInanCIal DaTa
The following selected consolidated financial data should be read in conjunction with Item 7, “Management’s Discussion

and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and the notes

thereto included in Item 8, “Financial Statements and Supplementary Data.” We have a 52 or 53 week fiscal year, which

ends on the Saturday nearest to the last day of October in each year. For purposes of financial statement presentation,

each fiscal year is described as having ended on October 31. Fiscal 2006, 2008, 2009 and 2010 consisted of 52 weeks and

fiscal 2007 consisted of 53 weeks.

balance sheet Data:

(in ThOusAnDs)

Cash and cash equivalents

Short-term investments

Long-term investments

Total assets

2006

$ 220,164

$ 628,393

$ 351,407

$1,839,713

Short-term convertible notes payable

—

Long-term convertible notes payable

Total liabilities

Stockholders’ equity

$ 842,262

$1,086,087

$ 753,626

Year eNded october 31,

2007

2008

$ 892,061

$ 822,185

33,946

$2,416,273

$ 542,262

$ 800,000

$1,566,119

$ 850,154

$ 550,669

$ 366,336

$ 156,171

$2,024,594

—

$ 798,000

$1,025,645

$ 998,949

2009

$ 485,705

$ 563,183

8,031

$1,504,383

—

$ 798,000

$1,048,545

$ 455,838

2010

$ 688,687

—

$2,118,093

—

$1,442,705

$1,958,800

$ 159,293

Ciena Corporation 10-K

statement of operations Data:

(in ThOusAnDs, exCepT peR shARe DATA)

2006

2007

2008

2009

2010

Year eNded october 31,

$564,056

$779,769

$902,448

$ 652,629

$1,236,636

Revenue

Cost of goods sold

Gross profit

Operating expenses:

Research and development

Selling and marketing

General and administrative

Acquisition and integration costs

Amortization of intangible assets

Restructuring (recoveries) costs

Goodwill impairment

Gain on lease settlement

Change in fair value of
contingent consideration

Total operating expenses

Income (loss) from operations

Interest and other income, net

Interest expense

Realized loss due to impairment of
marketable debt investments

Loss on cost method investments

Gain on extinguishment of debt

Gain on equity investments, net

Income (loss) before income taxes

Provision (benefit) for income taxes

306,275

257,781

111,069

104,434

44,445

—

25,181

15,671

—

(11,648)

—

289,152

(31,371)

50,245

(24,165)

—

7,052

215

1,976

1,381

417,500

362,269

127,296

118,015

50,248

—

25,350

(2,435)

—

(4,871)

—

451,521

450,927

175,023

152,018

68,639

—

32,264

1,110

—

313,603

429,054

48,666

76,483

(26,996)

21,873

36,762

(12,927)

(13,013)

(5,101)

—

592

85,732

2,944

$ 82,788

0.97

—

932

—

41,539

2,645

$ 38,894

0.44

367,799

284,830

190,319

134,527

47,509

—

24,826

11,207

455,673

—

864,061

(579,231)

9,487

(7,406)

—

(5,328)

—

(582,478)

(1,324)

739,135

497,501

327,626

193,515

102,692

101,379

99,401

8,514

—

(13,807)

819,320

(321,819)

3,917

(18,619)

—

4,948

—

(331,573)

1,941

$(581,154)

$ (333,514)

(6.37)

(3.58)

Net income (loss)

595

Basic net income (loss) per common share

0.01

Diluted net income (loss) per potential
common share

Weighted average basic common
shares outstanding

Weighted average dilutive potential
common shares outstanding

0.01

0.87

0.42

(6.37)

(3.58)

83,840

85,525

89,146

91,167

93,103

85,011

99,604

110,605

91,167

93,103

Ciena Corporation 10-K

ITem 7. managemenT’s DIsCussIon anD analysIs oF FInanCIal

ConDITIon anD ResulTs oF oPeRaTIons

This report contains statements that discuss future events or expectations, projections of results of operations or financial

condition, changes in the markets for our products and services, or other “forward-looking” information. Our “forward-

looking” information is based on various factors and was derived using numerous assumptions. in some cases, you can

identify these “forward-looking statements” by words like “may,” “will,” “should,” “expects,” “plans,” “anticipates,”

“believes,” “estimates,” “predicts,” “intends,” “potential” or “continue” or the negative of those words and other

comparable words. You should be aware that these statements only reflect our current predictions and beliefs. These

statements are subject to known and unknown risks, uncertainties and other factors, and actual events or results may

differ materially. important factors that could cause our actual results to be materially different from the forward-looking

statements are disclosed throughout this report, particularly under the heading “Risk Factors” in item 1A of part i of this

annual report. You should review these risk factors for a more complete understanding of the risks associated with an

investment in our securities. We undertake no obligation to revise or update any forward-looking statements. The fol-

lowing discussion and analysis should be read in conjunction with our “selected Consolidated Financial Data” and con-

solidated financial statements and notes thereto included elsewhere in this annual report.

overview

We are a provider of communications networking equipment, software and services that support the transport, switching,

aggregation and management of voice, video and data traffic. Our Packet-Optical Transport, Packet-Optical Switching

and Carrier Ethernet Service Delivery products are used, individually or as part of an integrated solution, in networks oper-

ated by communications service providers, cable operators, governments and enterprises around the globe.