BlueStone Capital Partners Announces Investment Opinion on Ciena Corporation.

Business Editors

NOTE TO EDITORS: The following is an investment opinion issued

by BlueStone Capital Partners

BlueStone Capital Partners, L.P. Initiates Coverage On Ciena

Corporation With a 3-2 Rating

NEW YORK--(BUSINESS WIRE)--Oct. 4, 2000

Senior Analyst Susan Kalla from BlueStone Partners, L.P. initiates coverage on Ciena Corporation (CIEN; NASDAQ- $114.88) with a 3-2 (Underperform - Market Perform) rating, an Intermediate Price Target of $103 and a Long-Term Target Price of $125.

Analyst's Summary

We are initiating coverage of Ciena Corporation with a 3-2 (Underperform-Market Perform) rating and an intermediate price target of $103, based on a price/earnings multiple of 120, which is three times the expected long-term earnings growth of 40%. Our intermediate price target of $103 assumes that Ciena holds its current price-to-earnings growth (PEG) multiple of 3 and compounds in line with earnings. Our price target is based on 3 times our earnings growth rate of 40 times our 2002 earnings estimate of $0.86.

Ciena stock price has increased by about 8 times during the past 12 months, which dampens our enthusiasm over the intermediate term. We believe that Ciena's rise is counter to the weakening fundamentals of the fiber optics equipment sector. The Ciena stock, in our opinion, does not adequately reflect the dwindling cash reserves of Ciena's largest carrier customers and inherent liquidity risks that these customers may face that could cause them to delay network spending to conserve cash. In our view, the second-tier carriers are in the midst of an industry-wide shakeout, which could reduce the number of industry participants over the next year. Ciena has several second-tier carriers as customers. We expect actual capital expenditures for the second-tier carriers after they merge to be less than current expectations for spending (pre-merger). Cost savings in capital expenditures are being cited as a major catalyst for the consolidations, along with economies of scale.

Concerning competition, we believe the fiber optics industry could become increasingly competitive over the next 1-2 years since as many as 30-40 new optical equipment suppliers funded by venture capitalists could roll out new products. Many fiber optic start-ups are in the second and third rounds of funding. Many have raised over $100 million each in private equity to develop all-optical switches and transport equipment. Some telecom research organizations, as Telecordia (formerly Bellcore) and the Sarnoff Center, are deeply entrenched with the management of incumbent telephone companies and are sponsoring fiber optic spin-offs. The chief technology officers at these spin-offs have long-standing relationships with engineering staff in the service providers. The spin-offs could become viable competitors for telco upgrades. The incumbent phone companies are ramping up fiber upgrades slowly, but could constitute a major segment of the optical market over the long term. We expect the incumbent exchange carriers to account for more than half of the metropolitan fiber demand over the next three years. We believe that the new fiber start-ups could siphon off market share from CIENA. Also, additional competition could erode prices, putting downward pressure gross margin the optical industry in general and CIENA in particular.

BlueStone Capital is a full service investment banking and brokerage firm focused on identifying investment opportunities in the emerging growth sector. BlueStone Capital assists clients in maximizing their growth by providing sophisticated investment strategies that are designed to achieve clients' strategic, operating and financial goals. Member NASD, SIPC, and ISMA.