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)

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended October 31, 2010

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from                      to

Ciena Corporation

(Exact name of registrant as specified in its charter)

Delaware		23-2725311
(State or other jurisdiction of		(I.R.S. Employer
Incorporation or organization)		Identification No.)
1201 Winterson Road, Linthicum, MD		21090-2205
(Address of principal executive offices)		(Zip Code)

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

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

Title of Each Class		Name of Each Exchange on Which Registered
Common Stock, $0.01 par value		The NASDAQ Stock Market

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 þ NO o

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 o NO þ

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 þ NO o

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 þ NO o

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. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer   o (Do not check if a smaller reporting company)		Smaller reporting company o

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

The aggregate market value of the Registrant’s Common Stock held by non-affiliates of the Registrant was approximately $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
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED OCTOBER 31, 2010

TABLE OF CONTENTS

		Page
PART I
Item 1. Business			3
Item 1A. Risk Factors			16
Item 1B. Unresolved Staff Comments			27
Item 2. Properties			27
Item 3. Legal Proceedings			28
Item 4. Removed and Reserved			29
PART II
Item 5. Market for Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities			29
Item 6. Selected Consolidated Financial Data			30
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			31
Item 7A. Quantitative and Qualitative Disclosures about Market Risk			55
Item 8. Financial Statements and Supplementary Data			57
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			92
Item 9A. Controls and Procedures			93
Item 9B. Other Information			95
PART III
Item 10. Directors, Executive Officers and Corporate Governance			95
Item 11. Executive Compensation			95
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			95
Item 13. Certain Relationships and Related Transactions, and Director Independence			95
Item 14. Principal Accountant Fees and Services			95
PART IV
Item 15. Exhibits and Financial Statement Schedules			96
Signatures			97
Index to Exhibits			98
EX-10.11
EX-10.23
EX-10.24
EX-12.1
EX-21.1
EX-23.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

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 uncertainties. 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 reengineering. 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 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 headcount. We expect our increased scale will enable additional operating leverage and optimize our research and development 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 additional 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 segments, total assets, revenue, measures of profit and loss, and financial information about geographic areas and customers 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 enterprise 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 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 network traffic. This multiservice traffic growth requires the transition to higher capacity networks with increased transmission 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 software. 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.
	•		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 communications 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 conditions, 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 communications at increasing speeds to differentiate from competitors and grow their business. At the same time, they are increasingly 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 network 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 supporting 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 additional 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 customers select our solutions, we also intend to win new service provider customers in existing markets and expand our market 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, 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 portfolio of professional services that meets the business needs of our customers, we bring strategic value to customer relationships 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 understanding and addressing their network infrastructure needs, the competitive landscape, and the evolving and challenging 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 opportunities, 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 customers 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 telecommunications 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, converged 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 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 connectivity 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 continuity, 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 advantage 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 supercomputing 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 education communities with optimized networks that minimize cost and complexity, through initiatives that support intelligent 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 supports 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, wavelengths 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 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 infrastructures, 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 products, as well as certain enterprise-oriented transport solutions that support storage and LAN extension, interconnection 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 principal 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 capabilities and reliability of CoreDirector, while providing service providers the ability to scale to higher capacities and transition 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 aggregation offering intended to increase capacity for higher bandwidth user connections and a broader set of aggregation 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) telephony, 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 performance 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 operations. 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 management 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 customers 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 following 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:

	o		helpdesk, technical assistance and training,
	o		spares and logistics management,
	o		engineering dispatch and on-site professional services,
	o		equipment repair and replacement, and
	o		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.

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 reductions relating to the manufacture of our products.

     Our product development investments are driven by market demand and technological innovation, involving close collaboration 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 technology relationships or investments, to develop new components or products, modify existing platforms or offer complementary 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 consolidate 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 networking 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 overhead. 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 relationships 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.

     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: communications service providers including wireless providers, cable and multiservice operators, enterprise customers and government, 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 management 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 distribution 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 interaction, 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 assembly, 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 dedicating significant resources to manufacturing-related plant and equipment. The integration of manufacturing, operations and supply chain activities resulting from our acquisition of the MEN Business, while complex and potentially disruptive, 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 specifications, 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 components 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 components that are proprietary in nature and only available from one or a small number of suppliers. In addition, some of 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 components 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 customers 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 products 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, respectively. 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 comparable 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 considered 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;
	•		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 extensive 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 competition 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 internally 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 unauthorized 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.

     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 networking 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 businesses (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 business in compliance with such laws relating to the materials and content of our products and product takeback and recycling. 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 material 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		Age				Position
Patrick H. Nettles, Ph.D.			67			Executive Chairman of the Board of Directors
Gary B. Smith			50			President, Chief Executive Officer and Director
Stephen B. Alexander			51			Senior Vice President, Chief Technology Officer
Michael G. Aquino			54			Senior Vice President, Global Field Operations
James A. Frodsham			44			Senior Vice President, Chief Strategy Officer
Philippe Morin			45			Senior Vice President, Global Products Group
James E. Moylan, Jr.			59			Senior Vice President, Finance and Chief Financial Officer
Andrew C. Petrik			47			Vice President and Controller
David M. Rothenstein			42			Senior Vice President, General Counsel and Secretary
Stephen P. Bradley, Ph.D. (2)(3)			69			Director
Harvey B. Cash (1)(3)			72			Director
Bruce L. Claflin (1)(2)			59			Director
Lawton W. Fitt (2)			57			Director
Judith M. O’Brien (1)(3)			60			Director
Michael J. Rowny (2)			60			Director
Patrick T. Gallagher (2)			55			Director

 

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

     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 relationships 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 President and Chief Financial Officer of PRG-Shultz International, Inc., a publicly held recovery audit and business services 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 directors 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 capital 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.

     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 positions 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 realize than we expect. Actual operating, technological, strategic and sales synergies, if achieved at all, may be less significant 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 additional 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 technology 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 continue 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 obsolescence 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 disruptions 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 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 material 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 continuity 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 compliance, 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 purchasers. These transition services are costly and we could incur approximately $94.0 million per year, if all of the transition services are used for a full year. Relying upon the transition services provider to perform critical operations and services 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 support 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.

The MEN Acquisition may expose us to significant unanticipated liabilities that could adversely affect our business 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 independently enter new international markets where Nortel previously conducted business, could also expose us to tax liabilities 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 common stock.

     A number of factors, including lower than anticipated revenue and gross margin of the MEN Business, or fewer operating 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 affiliate of Nortel to accurately and effectively compile and report our financial results. The additional scale of our operations, together with the complexity of the integration effort, including changes to or implementation of critical information 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 conditions 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 customers 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 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 prospective 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 capital 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 providers. 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 equipment 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 vendors 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 reductions 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 cautious 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;
	•		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 management 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 competition 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.

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 components. 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 standards 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 manufacturing, 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 countries 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 experienced product shipment delays associated with political turmoil in Thailand, including a blockade of its main international airport. Significant disruptions in these countries affecting supply and manufacturing capacity, or other difficulties 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 evolution 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 commencing 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 adoption 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 decision 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 competitive 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 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 customers. 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 protracted contract negotiations and may require us to assume terms or conditions that negatively affect our pricing, 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 service 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 certification, 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 conditions 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 subsystems that we require in sufficient quantity and quality on reasonable terms. The loss of a source of supply, or lack of sufficient 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 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 experience 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 relationships 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 position and business.

     Our products are based on complex technology, and we can experience unanticipated delays in developing, manufacturing 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 development 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 competitive 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 similar 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 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 service 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 unauthorized 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 business. 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 personnel, 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;
	•		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 safeguard 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 components 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 operations 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.

We may be exposed to unanticipated risks and additional obligations in connection with our resale of complementary 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 supply 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 negatively 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 measures to protect ourselves may not be sufficient, and it is possible that we may have to write down or write off doubtful 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 industry is intense and our employees have been the subject of targeted hiring by our competitors. We may experience difficulty 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.

     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 systems 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 operation 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 transfer of business support services being performed under the transition services agreement will require significant modifications 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 associated 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. 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 equipment, restrictions on importation, trade protection measures and domestic preference requirements of certain countries could limit our access to these markets and harm our sales. For example, India’s government has recently implemented 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 operations 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 management’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 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 additional 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 financial 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 compete; 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 technology 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 principal 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 information regarding the lease associated with this facility. We also have engineering and/or service facilities located in San 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 information 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, subject 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 termination 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 receipt of the early termination fee following 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 counterclaims on April 17, 2009. On April 27, 2009, Ciena and certain other defendants filed an application for inter partes reexamination 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 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 plaintiffs, 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 defendants. 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 agreement. 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 settlement. 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 opinion 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

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.

		High				Low
Fiscal Year 2009
First Quarter ended January 31		$	9.79			$	5.07
Second Quarter ended April 30		$	12.28			$	4.98
Third Quarter ended July 31		$	12.51			$	8.45
Fourth Quarter ended October 31		$	16.64			$	11.08
Fiscal Year 2010
First Quarter ended January 31		$	14.02			$	10.67
Second Quarter ended April 30		$	18.59			$	12.76
Third Quarter ended July 31		$	19.24			$	12.29
Fourth Quarter ended October 31		$	15.69			$	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.

     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.

     (c) 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.

		Year Ended October 31,
		(in thousands)
		2006				2007				2008				2009				2010
Cash and cash equivalents		$	220,164			$	892,061			$	550,669			$	485,705			$	688,687
Short-term investments		$	628,393			$	822,185			$	366,336			$	563,183			$	—
Long-term investments		$	351,407			$	33,946			$	156,171			$	8,031			$	—
Total assets		$	1,839,713			$	2,416,273			$	2,024,594			$	1,504,383			$	2,118,093
Short-term convertible notes payable		$	—			$	542,262			$	—			$	—			$	—
Long-term convertible notes payable		$	842,262			$	800,000			$	798,000			$	798,000			$	1,442,705
Total liabilities		$	1,086,087			$	1,566,119			$	1,025,645			$	1,048,545			$	1,958,800
Stockholders’ equity		$	753,626			$	850,154			$	998,949			$	455,838			$	159,293

Statement of Operations Data:

		Year Ended October 31,
		(in thousands, except per share data)
		2006				2007				2008				2009				2010
Revenue		$	564,056			$	779,769			$	902,448			$	652,629			$	1,236,636
Cost of goods sold			306,275				417,500				451,521				367,799				739,135
Gross profit			257,781				362,269				450,927				284,830				497,501
Operating expenses:
Research and development			111,069				127,296				175,023				190,319				327,626
Selling and marketing			104,434				118,015				152,018				134,527				193,515
General and administrative			44,445				50,248				68,639				47,509				102,692
Acquisition and integration costs			—				—				—				—				101,379
Amortization of intangible assets			25,181				25,350				32,264				24,826				99,401
Restructuring (recoveries) costs			15,671				(2,435	)			1,110				11,207				8,514
Goodwill impairment			—				—				—				455,673				—
Gain on lease settlement			(11,648	)			(4,871	)			—				—				—
Change in fair value of contingent consideration			—				—				—				—				(13,807	)
Total operating expenses			289,152				313,603				429,054				864,061				819,320
Income (loss) from operations			(31,371	)			48,666				21,873				(579,231	)			(321,819	)
Interest and other income, net			50,245				76,483				36,762				9,487				3,917
Interest expense			(24,165	)			(26,996	)			(12,927	)			(7,406	)			(18,619	)
Realized loss due to impairment of marketable debt investments			—				(13,013	)			(5,101	)			—				—
Loss on cost method investments			—				—				—				(5,328	)			—
Gain on extinguishment of debt			7,052				—				932				—				4,948
Gain on equity investments, net			215				592				—				—				—
Income (loss) before income taxes			1,976				85,732				41,539				(582,478	)			(331,573	)
Provision (benefit) for income taxes			1,381				2,944				2,645				(1,324	)			1,941
Net income (loss)		$	595			$	82,788			$	38,894			$	(581,154	)		$	(333,514	)
Basic net income (loss) per common share		$	0.01			$	0.97			$	0.44			$	(6.37	)		$	(3.58	)
Diluted net income (loss) per potential common share		$	0.01			$	0.87			$	0.42			$	(6.37	)		$	(3.58	)
Weighted average basic common shares outstanding			83,840				85,525				89,146				91,167				93,103
Weighted average dilutive potential common shares outstanding			85,011				99,604				110,605				91,167				93,103

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 following discussion and analysis should be read in conjunction with our “Selected Consolidated Financial Data” and consolidated 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 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”). In accordance with the agreements for the acquisition, the $773.8 million aggregate purchase price was subsequently adjusted downward by $80.6 million based upon the amount of net working capital transferred to us at closing. See “Issuance of Convertible Notes during fiscal 2010” below for information relating to our election to pay the aggregate purchase price in cash. As a result, we paid $693.2 million in cash for the purchase of the MEN Business.

     In connection with the acquisition, we entered into an agreement with Nortel to lease the “Lab 10” building on Nortel’s Carling Campus in Ottawa, Canada (the “Carling lease”) for a term of ten years. The lease agreement contained a provision that allowed Nortel to reduce the term of the lease, and in exchange, we would receive a payment of up to $33.5 million. This amount was placed into escrow by Nortel in accordance with the acquisition agreements. The fair value of this contingent refund right was determined by Ciena to be $16.4 million and was recorded as a reduction to the consideration paid, resulting in a purchase price of $676.8 million. See Item 2 of Part I of this report for more information regarding the terms of the Carling lease and Nortel’s recent announcement regarding the exercise of its early termination feature under the Carling lease, which resulted in a non-cash, unrealized gain of $13.8 million during the fourth quarter of fiscal 2010.

     Rationale for MEN Acquisition

     The MEN Business that we acquired is a leading provider of next-generation, communications network equipment, 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 re-engineering. 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 hardware and software solutions, we also acquired the network implementation and support service resources related to the MEN Business.

     We believe that the MEN Acquisition 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 will accelerate the execution of our corporate and research and development strategies set forth in Item 1 “Business” in Part I of this annual report. We believe that the additional 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 network equipment vendors. As a result of the MEN Acquisition, we added approximately 2,000 employees, including significant additional engineering talent, which nearly doubled our headcount. We expect that the resulting increased scale to our business will enable additional operating leverage and provide an opportunity to optimize our research and development investment toward next-generation technologies and product platforms.

     Integration Activities and Costs

     We continue to make progress on integration-related activities in connection with the MEN Acquisition. We have completed our organizational structure, sales coverage plans, and decisions regarding the rationalization of our combined product portfolio. As described in “Restructuring Activities” below, we have also realized initial operating synergies from the MEN Acquisition. Significant and complex additional integration efforts remain, including the rationalization of our supply chain, third party manufacturers and facilities, the execution of our combined product and software development plan, and our reduced reliance upon and winding down of transition services currently being provided by an affiliate of Nortel.

     Given the relative size of the MEN Business and the structure of the MEN Acquisition as an asset carve-out from Nortel, the integration of the MEN Business has been costly and complex. 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 technology equipment. We have also incurred inventory obsolescence charges and may incur additional expenses related to, among other things, facilities restructuring. We anticipate that we will incur approximately $58.0 million in additional integration costs during fiscal 2011. Any material delays or difficulties in integrating the MEN Business or additional, unanticipated expense may harm our business and results of operations.

     In addition to the integration costs above, we incurred significant transition services expense during fiscal 2010, and expect to continue to incur significant expense into the second quarter of fiscal 2011. Transition service costs are reflected as a component of operating expense, principally general and administrative expense, and cost of goods sold. We are currently relying upon an affiliate of Nortel to perform certain critical operational and business support functions during an interim integration period that will continue until we can perform these services ourselves or locate another provider. These support services include key finance and accounting functions, supply chain and logistics management, maintenance and product support services, order management and fulfillment, trade compliance, and information technology services. These services are estimated to cost approximately $94.0 million per year, were we to utilize all of the transition services for a full year. The actual transition service expense will depend upon the scope of the services that Ciena utilizes and the time within which we are able to complete the planned transfer of these services to internal resources or other providers. We have also incurred and expect to continue to incur additional costs as we build up internal resources, including headcount, facilities and information systems, or engage alternate third party providers, while we simultaneously rely upon and transition away from these transition support services. The wind down and transfer of critical transition services, which we expect to complete in the second quarter of fiscal 2011, is a complex undertaking that presents a number of operational risks that could adversely affect our business and results of operations.

     Effect of MEN Acquisition upon Results of Operations and Financial Condition

     Due to the relative scale of its operations, the MEN Acquisition has materially affected our operations, financial results and liquidity. Our revenue and operating expense have increased materially compared to periods prior to the MEN Acquisition. As a result of the MEN Acquisition, we recorded $492.4 million in other intangible assets that will be amortized over their useful lives and increase our operating expense. See “Critical Accounting Policies and Estimates- Long-lived Assets” below for information relating to these items. Under acquisition accounting rules, we revalued the acquired finished goods inventory of the MEN Business to fair value upon closing. This revaluation increased marketable inventory carrying value by approximately $62.3 million, of which $48.0 million was recognized in cost of goods sold during fiscal 2010, adversely affecting our gross margin. See Note 2 of the Consolidated Financial Statements found under Item 8 of Part II of this report. As expected, our liquidity and cash and investment balance were significantly affected by our use of cash to fund the purchase price of the MEN Acquisition and resulting acquisition and integration expense, transition service expense and investments to support working capital related to the increased scale of our business. In addition, our private placements of convertible notes during fiscal 2010 resulted in additional indebtedness. See “Liquidity and Capital Resources” below and Note 15 of the Consolidated Financial Statements found under Item 8 of Part II of this report for more information regarding our convertible notes. These and other effects on our financial statements described below and elsewhere in this report may make period to period comparisons difficult.

     Restructuring Activities

     Since the MEN Acquisition, we have undertaken a number of restructuring activities. These actions are intended to reduce operating expense and better align our workforce and operating costs with market opportunities and product development and business strategies following the completion of our MEN Acquisition. In April 2010, we took action to effect a headcount reduction of approximately 70 employees, with reductions principally affecting our global product group and global field organization outside of the EMEA region. This action resulted in a restructuring charge of $2.1 million in fiscal 2010. In May 2010, we announced our reorganization of portions of our business and operations in the EMEA region. This action resulted in a restructuring charge of $7.1 million related to the reduction in head count of approximately 82 employees principally in our global field and supply chain organizations. As we look to manage operating expense and complete integration activities for the combined operations, we will continue to assess the allocation of our headcount and other resources toward key growth opportunities for our business and evaluate additional cost reduction measures.

Issuance of Convertible Notes during fiscal 2010

     On March 15, 2010, we completed a private placement of $375.0 million in aggregate principal amount of 4.0% convertible senior notes due March 15, 2015. The net proceeds from the offering were $364.3 million after deducting the placement agents’ fees and other fees and expenses. We used $243.8 million of the net proceeds to replace the contractual obligation to issue convertible notes to Nortel as part of the purchase price for the MEN Acquisition. The remaining proceeds were used to reduce the cash on hand required to fund the aggregate purchase price of the MEN Acquisition. On October 18, 2010, we completed a private placement $350.0 million in aggregate principal amount of 3.75% convertible senior notes due October 15, 2018. The net proceeds from the offering were approximately $340.4 million after deducting the placement agents’ fees and other fees and expenses. We used approximately $76.1 million of the net proceeds of the offering to repurchase in privately negotiated transactions approximately $81.8 million in aggregate principal amount of our 0.25% convertible senior notes due May 1, 2013. We intend to use the remainder of the net proceeds for general corporate purposes, which may include the repayment at maturity or further repurchase, from time to time, of a portion of our outstanding 0.25% convertible senior notes due May 1, 2013. See Note 15 of the Consolidated Financial Statements found under Item 8 of Part II of this report for more information regarding our outstanding convertible notes.

Global Market Conditions and Competitive Landscape

     We continue to experience cautious customer behavior with respect to spending as a result of the sustained period of economic weakness and macroeconomic uncertainty. Broad economic weakness has previously resulted in periods of decreased demand for our products and services that have adversely affected our results of operations. We remain uncertain as to how long current macroeconomic and industry conditions will persist, the pace of recovery, and the magnitude of the effect of these market conditions on our business and results of operations.

     At the same time we are experiencing challenging macroeconomic conditions, we have encountered an increasingly competitive marketplace. Competition has intensified, in part, due to our increased market share, technology leadership and global presence resulting from the MEN Acquisition. Following the MEN Acquisition, we have experienced increased customer activity and been afforded increased consideration and opportunities to participate in competition for network builds and upgrades, including in emerging geographies and new markets or applications for our products. Securing these opportunities often requires that we agree to aggressive or less favorable commercial terms and conditions, including financial commitments, that may require collateralized standby letters of credit resulting in an increase in our restricted cash. 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 equipment vendors at large carrier customers. We expect this level of competition to continue and, as larger Chinese equipment vendors seek to gain entry into the U.S. market, potentially increase.

     Despite challenging and competitive market conditions, we believe that a number of important underlying drivers represent significant long-term opportunities and growing demand for converged optical Ethernet networking solutions in our target markets. We believe that market trends including the proliferation of mobile web applications, prevalence of video applications and shift of enterprise applications to the cloud or virtualized environments are emblematic of increased use and dependence by consumers and enterprises upon a growing variety of broadband applications and services. These services will continue to add network traffic and consume available bandwidth, requiring our customers to invest in high-capacity, next-generation network infrastructures that are more efficient and robust, and better able to handle multiservice traffic and increased transmission rates. See “Strategy” set forth in Item 1 “Business” above in this report for information regarding our strategy and plan to capitalize on these market dynamics.

Financial Results

     Revenue for the fourth quarter was $417.6 million, which represented a sequential increase of 7.2% from $389.7 million in the third quarter of fiscal 2010. Fourth quarter revenue reflects $255.6 million in revenue from the MEN Business and $162.0 million related to Ciena’s pre-acquisition portfolio. Additional revenue-related details reflecting sequential changes from the third quarter of fiscal 2010 include:

•

Product revenue for the fourth quarter of fiscal 2010 increased by $29.0 million, reflecting a $33.0 million increase in sales of products from the MEN Business and a $4.0 million decrease in sales of Ciena’s pre-acquisition products. Packet-Optical Transport revenue increased by $40.3 million, reflecting a $31.2 million increase in sales of products from the MEN Business and a $9.1 million increase in Ciena’s pre-acquisition Packet-Optical Transport products. Product revenue also reflects an increase of $5.9 million in software sales. These increases were partially offset by a $13.4 million decrease in sales of Packet-Optical Switching products and a $3.8 million decrease in sales of Carrier Ethernet Service Delivery products.

	•		Service revenue for the fourth quarter of fiscal 2010 decreased by $1.1 million, reflecting a $1.9 million decrease in sales of Ciena’s pre-acquisition service offerings and a $0.8 million increase in service revenue from the MEN Business.
	•		Revenue from the United States for the fourth quarter of fiscal 2010 was $210.1 million, a decrease from $229.7 million in the third quarter of fiscal 2010. This decline reflects a decrease of $30.3 million in sales of Ciena’s pre-acquisition portfolio and a $10.7 million increase in sales of products and services from the MEN Business.
	•		International revenue for the fourth quarter of fiscal 2010 was $207.6 million, an increase from $159.9 million in the third quarter of fiscal 2010. This increase reflects an increase of $32.2 million in sales of products and services from the MEN Business and $15.5 million in sales of Ciena’s pre-acquisition portfolio.
	•		As a percentage of revenue, international revenue was 49.7% during the fourth quarter of fiscal 2010, an increase from 41.0% in the third quarter of fiscal 2010.
	•		For the fourth quarter of fiscal 2010, one customer accounted for greater than 10% of revenue, representing 15.2% of total revenue. This compares to two customers that accounted for 33.7% of revenue in the aggregate in the third quarter of fiscal 2010.

     Revenue for fiscal 2010 was $1,236.6 million as compared to $652.6 million in fiscal 2009. Fiscal 2010 revenue consisted of $530.9 million from the MEN Business and $705.7 million in sales from Ciena’s pre-acquisition portfolio. Fiscal 2010 revenue reflects increases of $406.5 million in Packet-Optical Transport, $127.2 million in Software and Services, and $104.0 million in Carrier Ethernet Service Delivery. These increases were partially offset by a $53.6 million decrease in Packet-Optical Switching. See “Results of Operations- Fiscal 2009 compared to Fiscal 2010” below for additional information regarding annual results.

     Gross margin for the fourth quarter of fiscal 2010 was 40.3%, an increase from 37.0% in the third quarter of fiscal 2010. Gross margin for the fourth quarter fiscal 2010 benefited from increased software sales. Gross margin for the third quarter was adversely affected by higher costs associated with the revaluation of acquired inventory from the MEN Acquisition described above. Gross margin for fiscal 2010 was 40.2%, as compared to 43.6% in fiscal 2009. Product gross margin was 40.9% in fiscal 2010, a decrease from 45.9% in fiscal 2009. Gross margin for fiscal 2010 reflects the adverse effect of the valuation of inventory, which resulted in a $48.0 million increase in cost of goods sold during fiscal 2010. Lower gross margin during fiscal 2010 also reflects less favorable product and geographic mix. Specifically, fiscal 2010 gross margin was adversely affected by a $53.6 million decrease in sales of Packet-Optical Switching products and geographic mix, including a higher concentration of international revenue as a percentage of total revenue.

     Operating expense was $249.6 million for the fourth quarter of fiscal 2010, a slight increase from $243.6 million in the third quarter of fiscal 2010. Fourth quarter operating expense includes increased costs associated with variable sales compensation, the acceleration of certain research and development initiatives, and the build-up of internal resources in preparation for an exit from key transition services. These increased costs were partially offset by the non-cash, unrealized gain of $13.8 million related to our contingent refund right associated with the Carling lease described above. Operating expense for our third and fourth quarters of fiscal 2010 include $17.0 million and $18.1 million, respectively, in acquisition and integration-related costs associated with the MEN Acquisition. Operating expense for fiscal 2010 was $819.3 million, compared to $864.1 million in fiscal 2009. Operating expense for fiscal 2009 reflects a goodwill impairment charge of $455.7 million. Excluding the effect of this charge, the significant increase in operating expense during fiscal 2010 reflects the expanded scale of our business from the MEN Acquisition. Operating expense for fiscal 2010 also includes $101.4 million in acquisition and integration-related costs and a $74.6 million increase in amortization of intangible assets, as compared to fiscal 2009, as a result of the MEN Acquisition.

     Our loss from operations was $81.2 million in the fourth quarter of fiscal 2010 and $99.6 million in the third quarter of fiscal 2010. Our loss from operations for fiscal 2010 was $321.8 million. This compares to a loss from operations of $579.2 million in fiscal 2009. Our net loss was $80.3 million, or $0.86 per share, in the fourth quarter of fiscal 2010, and $109.9 million, or $1.18 per share, in the third quarter of fiscal 2010. Our net loss for fiscal 2010 was $333.5 million, or $3.58 per share. This compares to a net loss of $581.2 million, or $6.37 per share, in fiscal 2009. Net loss and operating loss for fiscal 2009 reflect the effect of a goodwill impairment charge during the second quarter of fiscal 2009 described above.

     We used $25.8 million in cash from operations during the fourth quarter of fiscal 2010. Changes in working capital provided $2.0 million and net losses (adjusted for non-cash charges) used $27.8 million. Cash used from operations includes payments of $12.7 million related to acquisition and integration-related expense and restructuring costs, of which $9.9 million was reflected in changes in working capital and $22.6 million was reflected in net losses (adjusted for non-cash charges). This compares with the use of $130.0 million in cash from operations during the third quarter of fiscal 2010, consisting of $108.9 million for changes in working capital and $21.1 million from net losses (adjusted for non-cash charges). Cash used from operations in the third quarter includes payments of $28.0 million related to acquisition and integration-related expense and restructuring, of which $8.8 million was reflected in changes in working capital and $19.2 million was reflected in net losses (adjusted for non-cash charges).

     We used $229.0 million in cash from operations during fiscal 2010, consisting of $112.2 million for changes in working capital and $116.8 million from net losses (adjusted for non-cash charges). Cash used from operations includes payments of $91.7 million related to acquisition and integration-related expense and restructuring costs, of which $18.2 million was reflected in changes in working capital and $109.9 million was reflected in net losses (adjusted for non-cash charges). This compares with cash generated from operations of $7.4 million in fiscal 2009, consisting of $3.8 million in cash from net income (adjusted for non-cash charges) and cash of $3.6 million from changes in working capital.

     At October 31, 2010, we had $688.7 million in cash and cash equivalents. This compares to $470.2 million in cash and cash equivalents and $0.2 million of short-term investments as of July 31, 2010.

     As of October 31, 2010, headcount was 4,201, a decrease from 4,214 at July 31, 2010, and an increase from 2,163 and 2,203 at October 31, 2009 and 2008, respectively.

Results of Operations

     Our results of operations for the periods in fiscal 2010 reflect the operations of the MEN Business beginning on the March 19, 2010 acquisition date. We reorganized our internal organizational structure and the management of our business upon the MEN Acquisition, and as described in Note 20 of the Consolidated Financial Statements found under Item 8 of Part II of this report, present our results of operations based upon the following operating segments:

	•		Packet-Optical Transport — includes optical transport solutions that increase network capacity and enable more rapid delivery of a broader mix of high-bandwidth services. These products are used by network operators to facilitate the cost effective and efficient transport of voice, video and data traffic in core networks, as well as regional, metro and access networks. Our principal products in this segment include the ActivFlex 6500 Packet-Optical Platform (ActivFlex 6500); ActivFlex 6110 Multiservice Optical Platform (ActivFlex 6110); ActivSpan 5200 (ActivSpan 5200); ActivSpan Common Photonic Layer (CPL); Optical Multiservice Edge 1000 series (OME 1000); and Optical Metro 3500 (OM 3500) from the MEN Business. This segment includes sales of our ActivSpan 4200® FlexSelect®Advanced Services Platform (ActivSpan 4200) and our Corestream® Agility Optical Transport System (Corestream) from Ciena’s pre-acquisition portfolio. This segment also includes sales from legacy SONET/SDH products and legacy data networking products, as well as certain enterprise-oriented transport solutions that support storage and LAN extension, interconnection of data centers, and virtual private networks. This segment also includes operating system software and enhanced software features embedded in each of these products. Revenue from this segment is included in product revenue on the Consolidated Statement of Operations.
	•		Packet-Optical Switching — includes optical switching platforms that enable automated optical infrastructures for the delivery of a wide variety of enterprise and consumer-oriented network services. Our principal products in this segment include our CoreDirector® Multiservice Optical Switch, CoreDirector FS; and our ActivFlex 5400 family of Reconfigurable Switching Systems. These products include multiservice, multi-protocol switching systems that consolidate the functionality of an add/drop multiplexer, digital cross-connect and packet switch into a single, high-capacity intelligent switching system. These products address both the core and metro segments of communications networks and support key managed service services, Ethernet/TDM Private Line, Triple Play and IP services. This segment also includes sales of operating system software and enhanced software features embedded in each of these products. Revenue from this segment is included in product revenue on the Consolidated Statement of Operations.
	•		Carrier Ethernet Service Delivery - includes the ActivEdge 3900 family of service delivery switches and service aggregation switches, as well as the ActivEdge 5100 family. These products support the access and aggregation tiers of communications networks and have principally been deployed to support wireless backhaul infrastructures and business data services. 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. This segment includes the metro Ethernet routing switch (MERS) product line from the MEN Business and our legacy broadband products, including our CNX-5 Broadband DSL System (CNX-5), that transitions legacy voice networks to support Internet-based (IP) telephony, video services and DSL. This segment also includes sales of operating system software and enhanced software features embedded in each of these products. Revenue from this segment is included in product revenue on the Consolidated Statement of Operations.
	•		Software and Services - includes our integrated network and service management software designed to automate and simplify network management and operation, while increasing network performance and functionality. These software solutions can track individual services across multiple product suites, facilitating planned network maintenance, outage detection and identification of customers or services affected by network troubles. This segment also includes a broad range of consulting and support services, including installation and deployment, maintenance support, consulting, network design and training activities. Except for revenue from the software portion of this segment, which is included in product revenue, revenue from this segment is included in services revenue on the Consolidated Statement of Operations.

Fiscal 2009 compared to Fiscal 2010

Revenue

     The table below (in thousands, except percentage data) sets forth the changes in our operating segment revenue for the periods indicated:

		Fiscal Year
																		Increase
		2009				%*				2010				%*				(decrease)				%**
Revenue:
Packet Optical Transport		$	299,088				45.8			$	705,551				57.0			$	406,463				135.9
Packet Optical Switching			165,705				25.4				112,058				9.1				(53,647	)			(32.4	)
Carrier Ethernet Service Delivery			75,125				11.5				179,083				14.5				103,958				138.4
Software and Services			112,711				17.3				239,944				19.4				127,233				112.9
Consolidated revenue		$	652,629				100.0			$	1,236,636				100.0			$	584,007				89.5

 

*		Denotes % of total revenue
**		Denotes % change from 2009 to 2010

	•		Packet-Optical Transport revenue for fiscal 2010 reflects the addition of $409.6 million in revenue from the MEN Business. The addition of MEN Business revenue reflects $208.0 million of sales relating to ActivFlex 6500, largely driven by service provider demand for high-capacity, coherent transport, in support of 40G and 100G network infrastructures. Packet-Optical Transport revenue also benefited from the addition of sales from the MEN Business of $115.8 million of ActivSpan 5200, $39.1 million of CPL, $16.2 million of OM 3500, $15.5 million of legacy and other transport products and $15.0 million of ActivFlex 6110. Packet-Optical Transport revenue benefited from a $13.2 million increase in ActivSpan 4200 revenue during fiscal 2010, largely driven by metro network builds and latency sensitive applications. These increases were offset by an $11.5 million decrease in Corestream sales and a $4.8 million decrease in sales of legacy and other Packet-Optical Transport products.
	•		Packet-Optical Switching revenue decreased reflecting a $53.6 million decline in CoreDirector revenue. Packet-Optical Switching revenue principally reflects our CoreDirector platform, which has a concentrated customer base. As a result, revenue can fluctuate considerably depending upon individual customer purchasing decisions. We believe Packet-Optical Switching product revenue was also adversely affected in fiscal 2010 by deferred customer purchasing decisions and the effect of carrier sales cycles as we effect a platform transition from CoreDirector to our next-generation, high-capacity ActivFlex 5400 family of Reconfigurable Switching Systems.
	•		Carrier Ethernet Service Delivery revenue increased significantly, reflecting an $86.5 million increase in sales of our ActivEdge 3900 service-delivery switches and ActivEdge 5100 service aggregation switches in support of wireless backhaul deployments. Quarterly revenue for these products remains subject to fluctuation due to customer concentration and customer buying cycles. Carrier Ethernet Service Delivery revenue also benefitted from the addition of $9.6 million in sales of our MERS product from the MEN Business and an $8.2 million increase in CNX-5 sales in support of residential DSL.
	•		Software and Services revenue increased primarily due to the addition of $86.6 million in maintenance support revenue and $20.8 million in installation and deployment services from the MEN Business. Segment revenue also benefited from a $14.9 million increase in maintenance support revenue from Ciena’s pre-acquisition portfolio and a $4.9 million increase in software revenue.

     Revenue from sales to customers outside of the United States is reflected as International in the geographic distribution of revenue below. The table below (in thousands, except percentage data) sets forth the changes in geographic distribution of revenue for the periods indicated:

		Fiscal Year
																		Increase
		2009				%*				2010				%*				(decrease)				%**
United States		$	419,405				64.3			$	744,232				60.2			$	324,827				77.4
International			233,224				35.7				492,404				39.8				259,180				111.1
Total		$	652,629				100.0			$	1,236,636				100.0			$	584,007				89.5

 

*		Denotes % of total revenue
**		Denotes % change from 2009 to 2010

	•		United States revenue increased primarily due to a $189.8 million increase in sales of Packet-Optical Transport products, principally as a result of the MEN Acquisition, a $94.1 million increase in sales of Carrier Ethernet Service Delivery products, and a $72.5 million increase in services revenue. These increases offset a $34.3 million decrease in Packet-Optical Switching revenue.
	•		International revenue increased primarily due to a $216.7 million increase in Packet-Optical Transport revenue, principally as a result of the MEN Acquisition, a $49.8 million increase in services revenue and a $9.9 million increase in sales of Carrier Ethernet Service Delivery products. These increases offset a $19.4 million decrease in Packet-Optical Switching revenue.

     While our concentration in revenue has lessened somewhat as a result of the MEN Acquisition, a sizable portion of our revenue continues to come from sales to a small number of service providers, particularly within our Packet-Optical Switching and Carrier-Ethernet Service Delivery businesses. As a result, our results are significantly affected by spending levels and the business challenges encountered by our largest customers. Moreover, our contracts do not have terms that obligate these customers to purchase any minimum or specific amounts of equipment or services. Our concentration of revenue can be adversely affected by consolidation activity among our large customers. In addition, some of our customers are pursuing efforts to outsource the management and operation of their networks, or have indicated a procurement strategy to reduce the number of vendors from which they purchase equipment. In April 2010, we were selected as a domain network equipment supplier by AT&T for its optical transport network and metro and core transport domains. Being named as a vendor in multiple technology domains under this program affords us an opportunity to forge a more collaborative technology relationship across these product platforms. Sales to AT&T were $128.2 million or 19.6% of our revenue in fiscal 2009 and $267.4 million or 21.6% of our revenue in fiscal 2010. We did not have any other customers accounting for greater than 10% of revenue in fiscal 2009 or 2010.

Cost of Goods Sold and Gross Profit

     Product cost of goods sold consists primarily of amounts paid to third-party contract manufacturers, component costs, employee-related costs and overhead, shipping and logistics costs associated with manufacturing-related operations, warranty and other contractual obligations, royalties, license fees, amortization of intangible assets, cost of excess and obsolete inventory and, when applicable, estimated losses on committed customer contracts.

     Services cost of goods sold consists primarily of direct and third-party costs, including employee-related costs, associated with our provision of services including installation, deployment, maintenance support, consulting and training activities, and, when applicable, estimated losses on committed customer contracts.

     Gross profit as a percentage of revenue, or “gross margin,” continues to be susceptible to quarterly fluctuation due to a number of factors. Gross margin can vary significantly depending upon the mix and concentration of products, the mix of lower margin common equipment, geographic mix and the mix of customers and services in a given fiscal quarter. Gross margin can also be affected by our introduction of new products, charges for excess and obsolete inventory, changes in warranty costs and sales volume. Gross margin can also be adversely affected by the competitive environment and level of pricing pressure we encounter. The combination of uncertain market conditions, recent constraints on customer capital expenditures and increased competition has resulted in a heightened customer focus on pricing and return on network investment, as customers address network traffic growth and strive to increase revenue and profit. Our exposure to pricing pressure has been most severe in metro and core applications for our Packet-Optical Transport platforms, which we expect will comprise a greater percentage of our overall revenue as a result of the MEN Acquisition. As a result, and in an effort to retain or secure customers, enter new markets or capture market share, in the past we have and in the future we may agree to pricing or other unfavorable commercial terms that result in lower or negative gross margins on a particular order or group of orders. These arrangements would adversely affect our gross margins and results of operations. We expect that gross margins will also be subject to fluctuation based on our level of success in driving cost reductions and rationalizing our supply chain and third party contract manufacturers as part of the MEN Acquisition integration activities.

     Service gross margin can be affected by the mix of customers and services, particularly the mix between deployment and maintenance services, geographic mix and the timing and extent of any investments in internal resources to support this business.

     The tables below (in thousands, except percentage data) set forth the changes in revenue, cost of goods sold and gross profit for the periods indicated:

		Fiscal Year
																		Increase
		2009				%*				2010				%*				(decrease)				%**
Total revenue		$	652,629				100.0			$	1,236,636				100.0			$	584,007				89.5
Total cost of goods sold			367,799				56.4				739,135				59.8				371,336				101.0
Gross profit		$	284,830				43.6			$	497,501				40.2			$	212,671				74.7

		Fiscal Year
																		Increase
		2009				%*				2010				%*				(decrease)				%**
Product revenue		$	547,522				100.0			$	1,009,239				100.0			$	461,717				84.3
Product cost of goods sold			296,170				54.1				596,704				59.1				300,534				101.5
Product gross profit		$	251,352				45.9			$	412,535				40.9			$	161,183				64.1

		Fiscal Year
																		Increase
		2009				%*				2010				%*				(decrease)				%**
Service revenue		$	105,107				100.0			$	227,397				100.0			$	122,290				116.3
Service cost of goods sold			71,629				68.1				142,431				62.6				70,802				98.8
Service gross profit		$	33,478				31.9			$	84,966				37.4			$	51,488				153.8

	•		Gross profit as a percentage of revenue decreased due to lower product gross margins described below, partially offset by improved service gross margin.
	•		Gross profit on products as a percentage of product revenue decreased due to a number of items relating to the MEN Acquisition that increased costs of goods sold during fiscal 2010. These items include the revaluation of inventory described in “Overview” above, excess purchase commitment losses on Ciena’s pre-acquisition inventory relating to product rationalization decisions, and increased amortization of intangible assets. Fiscal 2010 gross profit was also adversely affected by a lower concentration of Packet-Optical Switching revenue. These additional costs were offset by lower warranty and excess and obsolete inventory charges as compared to fiscal 2009. Gross margin for fiscal 2009 was negatively affected by a $5.8 million charge related to two committed customer sales contracts that resulted in a negative gross margin on the initial phases of the customers’ deployment.
	•		Gross profit on services as a percentage of services revenue increased due to higher concentration of maintenance support and professional services as a percentage of revenue, and improved operational efficiencies.

Operating Expense

     Research and development expense primarily consists of salaries and related employee expense (including share-based compensation expense), prototype costs relating to design, development, testing of our products, depreciation expense and third-party consulting costs.

     Sales and marketing expense primarily consists of salaries, commissions and related employee expense (including share-based compensation expense), and sales and marketing support expense, including travel, demonstration units, trade show expense, and third-party consulting costs.

     General and administrative expense primarily consists of salaries and related employee expense (including share-based compensation expense), and costs for third-party consulting and other services.

     Amortization of intangible assets primarily reflects purchased technology and customer relationships from our acquisitions.

     Excluding the effect of the goodwill impairment charges in fiscal 2009, increased operating expense for fiscal 2010 principally reflects the increased scale of our business resulting from the MEN Acquisition on March 19, 2010. The table below (in thousands, except percentage data) sets forth the changes in operating expense for the periods indicated:

		Fiscal Year
																		Increase
		2009				%*				2010				%*				(decrease)				%**
Research and development		$	190,319				29.2			$	327,626				26.5			$	137,307				72.1
Selling and marketing			134,527				20.6				193,515				15.6				58,988				43.8
General and administrative			47,509				7.3				102,692				8.3				55,183				116.2
Acquisition and integration costs			—				0.0				101,379				8.2				101,379				100.0
Amortization of intangible assets			24,826				3.8				99,401				8.0				74,575				300.4
Restructuring costs			11,207				1.7				8,514				0.7				(2,693	)			(24.0	)
Goodwill impairment			455,673				69.8				—				0.0				(455,673	)			(100.0	)
Change in fair value of contingent consideration			—				0.0				(13,807	)			-1.1				(13,807	)			100.0
Total operating expenses		$	864,061				132.4			$	819,320				66.2			$	(44,741	)			(5.2	)

	•		Research and development expense was adversely affected by $13.9 million in foreign exchange rates, primarily due to the weakening of the U.S. dollar in relation to the Canadian dollar. The $137.3 million increase primarily reflects increases of $65.6 million in employee compensation and related costs, $34.6 million in professional services and fees, $17.4 million in facilities and information systems, $12.2 million in depreciation expense and $4.9 million in prototype expense related to the development initiatives described above.
	•		Selling and marketing expense benefited by $1.6 million in foreign exchange rates primarily due to the strengthening of the U.S. dollar in relation to the Euro. The $59.0 million increase primarily reflects increases of $41.8 million in employee compensation and related costs, $6.4 million in travel-related expenditures, $4.3 million in facilities and information systems and $2.8 million in professional services and fees.
	•		General and administrative expense increased by $21.9 million in consulting service expense, $17.7 million in facilities and information systems expense and $11.7 million in employee compensation and related costs.
	•		Acquisition and integration costs are related to the MEN Acquisition. As of October 31, 2010, we have incurred $101.4 million in transaction, consulting and third party service fees. We expect to incur approximately $58.0 million in additional expense relating to acquisition and integration activities in fiscal 2011, a significant portion of which will be recognized as operating expense.
	•		Amortization of intangible assets increased due to the acquisition of additional intangible assets as a result of the MEN Acquisition. See Note 2 to our Consolidated Financial Statements in Item 8 of Part II of this report.
	•		Restructuring costs for fiscal 2010 primarily reflect the headcount reductions and restructuring activities described in the “Overview — Restructuring Activities” above.
	•		Goodwill impairment costs reflect the impairment of goodwill and resulting charge incurred in fiscal 2009 as described in Note 4 to our Consolidated Financial Statements in Item 8 of Part II of this report.
	•		Change in fair value of contingent consideration is related to the contingent refund right we received relating to the Carling lease entered into as part of the MEN Acquisition. As a result of a change in circumstances and outcome probabilities during the fourth quarter of fiscal 2010, we recorded a $13.8 million change in fair value. See Notes 2 and 23 to our Consolidated Financial Statements in Item 8 of Part II for additional information relating to the early termination of the Carling lease.

Other items

     The table below (in thousands, except percentage data) sets forth the changes in other items for the periods indicated:

		Fiscal Year
																		Increase
		2009				%*				2010				%*				(decrease)				%**
Interest and other income, net		$	9,487				1.5			$	3,917				0.3			$	(5,570	)			(58.7	)
Interest expense		$	7,406				1.1			$	18,619				1.5			$	11,213				151.4
Loss on cost method investments		$	5,328				0.8			$	—				0.0			$	(5,328	)			(100.0	)
Gain on extinguishment of debt		$	—				0.0			$	4,948				0.4			$	4,948				100.0
Provision (benefit) for income taxes		$	(1,324	)			(0.2	)		$	1,941				0.2			$	3,265				(246.6	)

	•		Interest and other income, net decreased as a result of a $9.5 million decrease in interest income due to lower interest rates and lower invested balances. Decreased interest and other income, net also reflects a $2.0 million charge relating to the termination of an indemnification asset upon the expiration of the statute of limitations applicable to one of the uncertain tax contingencies acquired as part of the MEN Acquisition. These items were partially offset by a $3.8 million gain due to the positive effect of foreign exchange rates on assets and liabilities denominated in currency other than the relevant functional currency, and a $2.5 million non-cash gain related to the change in fair value of the redemption feature associated with our 4.0% convertible senior notes due March 15, 2015. See Notes 7 and 15 to the Consolidated Financial Statements found under Item 8 of Part II of this report for more information regarding the issuance of these convertible notes and the fair value of the redemption feature contained therein.
	•		Interest expense increased due to our private placements during fiscal 2010 of $375.0 million in aggregate principal amount of 4.0% convertible senior notes due March 15, 2015 and $350.0 million in aggregate principal amount of 3.75% convertible senior notes due October 15, 2018. See Note 15 to the Consolidated Financial Statements found under Item 8 of Part II of this report.
	•		Loss on cost method investments during fiscal 2009 was due to the decline in value of our investments in two privately held technology companies that were determined to be other-than-temporary.
	•		Gain on extinguishment of debt for fiscal 2010 resulted from our repurchase of $81.8 million in aggregate principal amount of our outstanding 0.25% convertible notes in privately negotiated transactions for $76.1 million. We recorded a gain on the extinguishment of debt in the amount of $4.9 million, which consists of the $5.7 million gain from the repurchase of the notes, less $0.8 million of associated debt issuance costs.
	•		Provision (benefit) for income taxes increased primarily due to a decrease in refundable federal tax credits.

Fiscal 2008 compared to Fiscal 2009

Revenue

     Revenue for fiscal 2009 reflects the weakness, volatility and uncertainty presented by the global market conditions that we encountered during the year. Our fiscal 2009 revenue reflects cautious spending, primarily among our largest service provider customers, as they sought to conserve capital, reduce debt or address uncertainties or changes in their own business models brought on by broader market challenges.

     The table below (in thousands, except percentage data) sets forth the changes in our operating segment revenue for the periods indicated:

		Fiscal Year
																		Increase
		2008				%*				2009				%*				(decrease)				%**
Revenue:
Packet Optical Transport		$	447,542				49.6			$	299,088				45.8			$	(148,454	)			(33.2	)
Packet Optical Switching			270,458				30.0				165,705				25.4				(104,753	)			(38.7	)
Carrier Ethernet Service Delivery			60,499				6.7				75,125				11.5				14,626				24.2
Software and Services			123,949				13.7				112,711				17.3				(11,238	)			(9.1	)
Consolidated revenue		$	902,448				100.0			$	652,629				100.0			$	(249,819	)			(27.7	)

	•		Packet-Optical Transport revenue decreased primarily due to decreases of $108.1 million in Corestream and $40.9 million in legacy transport and data networking systems. These declines were primarily due to unfavorable market conditions as described above. In spite of these market conditions, revenue from our ActivSpan 4200 was unchanged during fiscal 2009.
	•		Packet-Optical Switching revenue decreased reflecting a decline in CoreDirector revenue. We believe the decline in CoreDirector revenue was due to unfavorable market conditions and constrained spending. Revenue for this segment is subject to significant fluctuations due to its highly concentrated customer base.
	•		Carrier Ethernet Service Delivery revenue increased due to a $33.8 million increase in sales of our ActivEdge 3900 service-delivery switches and ActivEdge 5100 service aggregation switches in support of wireless backhaul deployments. This increase was partially offset by a $19.2 million decrease in CNX-5 sales.
	•		Software and Services revenue decreased primarily due to a $10.9 million decrease in deployment services due to lower sales volume and installation activity.

     Revenue from sales to customers outside of the United States is reflected as International in the geographic distribution of revenue below. The table below (in thousands, except percentage data) sets forth the changes in geographic distribution of revenue for the periods indicated:

		Fiscal Year
																		Increase
		2008				%*				2009				%*				(decrease)				%**
United States		$	590,868				65.5			$	419,405				64.3			$	(171,463	)			(29.0	)
International			311,580				34.5				233,224				35.7				(78,356	)			(25.1	)
Total		$	902,448				100.0			$	652,629				100.0			$	(249,819	)			(27.7	)

	•		United States revenue decreased primarily due to a $90.0 million decrease in sales of Packet-Optical Transport products, principally as a result of lower Corestream sales, an $87.0 million decrease in sales of Packet-Optical Switching products and a $4.7 million decrease in sales of software and services. These decreases were partially offset by a $10.2 million increase in sales of Carrier Ethernet Service Delivery products.
	•		International revenue decreased primarily due to a $58.5 million decrease in sales of Packet-Optical Transport products, a $17.8 million decrease in sales of Packet-Optical Switching products and a $6.5 million decrease in sales of software and services. These decreases were partially offset by a $4.4 million increase in sales of Carrier Ethernet Service Delivery products.

     Certain customers each accounted for at least 10% of our revenue for the periods indicated (in thousands, except percentage data) as follows:

		Fiscal Year
		2008				%*				2009				%*
AT&T		$	227,737				25.2			$	128,233				19.6
BT			113,981				12.6				n/a				—
Total		$	341,718				37.8			$	128,233				19.6

Gross Profit and Cost of Good Sold

     The tables below (in thousands, except percentage data) set forth the changes in revenue, cost of goods sold and gross profit for the periods indicated:

		Fiscal Year
																		Increase
		2008				%*				2009				%*				(decrease)				%**
Total revenue		$	902,448				100.0			$	652,629				100.0			$	(249,819	)			(27.7	)
Total cost of goods sold			451,521				50.0				367,799				56.4			$	(83,722	)			(18.5	)
Gross profit		$	450,927				50.0			$	284,830				43.6			$	(166,097	)			(36.8	)

		Fiscal Year
																		Increase
		2008				%*				2009				%*				(decrease)				%**
Product revenue		$	791,415				100.0			$	547,522				100.0			$	(243,893	)			(30.8	)
Product cost of goods sold			371,238				46.9				296,170				54.1				(75,068	)			(20.2	)
Product gross profit		$	420,177				53.1			$	251,352				45.9			$	(168,825	)			(40.2	)

		Fiscal Year
																		Increase
		2008				%*				2009				%*				(decrease)				%**
Service revenue		$	111,033				100.0			$	105,107				100.0			$	(5,926	)			(5.3	)
Service cost of goods sold			80,283				72.3				71,629				68.1				(8,654	)			(10.8	)
Service gross profit		$	30,750				27.7			$	33,478				31.9			$	2,728				8.9

	•		Gross profit as a percentage of revenue decreased due to lower product gross margins described below, partially offset by improved service gross margin.
	•		Gross profit on products as a percentage of product revenue decreased due to less favorable product and geographic mix, including fewer sales of Packet-Optical Switching products as a percentage of total revenue, increased charges related to losses on committed customer sales contracts and higher charges relating to warranty. Gross profit as a percentage of revenue for fiscal 2008 reflects a $5.3 million increase in product cost of goods sold related to the revaluation of the acquired inventory from our acquisition of World Wide Packets. See Note 2 to the Consolidated Financial Statements in Item 8 of Part II of this report.
	•		Gross profit on services as a percentage of services revenue increased due to higher sales of maintenance contracts as a percentage of services revenue. Services gross margin remains heavily dependent upon the mix of services in a given period and may fluctuate from quarter to quarter.

Operating expense

     The table below (in thousands, except percentage data) sets forth the changes in operating expense for the periods indicated:

		Fiscal Year
																		Increase
		2008				%*				2009				%*				(decrease)				%**
Research and development		$	175,023				19.4			$	190,319				29.2			$	15,296				8.7
Selling and marketing			152,018				16.8				134,527				20.6				(17,491	)			(11.5	)
General and administrative			68,639				7.6				47,509				7.3				(21,130	)			(30.8	)
Amortization of intangible assets			32,264				3.6				24,826				3.8				(7,438	)			(23.1	)
Restructuring costs			1,110				0.1				11,207				1.7				10,097				909.6
Goodwill Impairment			—				—				455,673				69.8				455,673				100.0
Total operating expenses		$	429,054				47.5			$	864,061				132.4			$	435,007				101.4

	•		Research and development expense benefited by $5.3 million in favorable foreign exchange rates primarily due to the comparative strength of the U.S. dollar in relation to the previous year. The resulting $15.3 million net increase principally reflects an increase in prototype expense of $15.4 million. Other increases include $5.4 million in facilities and information systems expense, $2.8 million in depreciation expense, and higher employee compensation cost of $0.6 million, including a $2.6 million increase in share-based compensation expense. These increases were partially offset by decreases of $4.8 million in consulting services expense, $2.7 million in technology related expenses and $0.8 million in travel expense.
	•		Selling and marketing expense benefited by $2.8 million in favorable foreign exchange rates primarily due to the comparative strength of the U.S. dollar in relation to the previous year. The resulting $17.5 million net change reflects decreases of $7.8 million in employee compensation cost, $3.0 million in travel-related costs, $2.9 million in marketing program costs and $2.4 million in consulting services expense. These decreases were partially offset by a $1.2 million increase in facilities and information systems expense.
	•		General and administrative expense benefited by $0.5 million in favorable foreign exchange rates primarily due to the comparative strength of the U.S. dollar in relation to the previous year. The resulting $21.1 million net change reflects decreases of $6.1 million in employee compensation cost, $4.1 million in consulting services expense, $1.7 million in facilities and information systems expense, and $0.7 million in technology-related expense. Expense for fiscal 2008 included $7.7 million associated with the settlement of patent litigation.
	•		Amortization of intangible assets decreased due to certain intangible assets reaching the end of their useful life and becoming fully amortized during fiscal 2009.
	•		Restructuring costs during fiscal 2009 were primarily related to a headcount reduction of approximately 200 employees, the closure of our Acton, Massachusetts research and development facility and revisions of estimates related to previously restructured facilities. Restructuring costs for fiscal 2008 principally reflects costs associated with a workforce reduction of 56 employees during the fourth quarter.
	•		Goodwill impairment reflects an impairment charge of $455.7 million in the second quarter of fiscal 2009. Based on a combination of factors, including the macroeconomic conditions described above and a sustained decline in our common stock price and market capitalization below our net book value, we conducted an interim impairment assessment of goodwill during the second quarter of fiscal 2009. The conclusion of this assessment was the write-off of all goodwill remaining on our balance sheet.

Other items

     The table below (in thousands, except percentage data) sets forth the changes in other items for the periods indicated:

		Fiscal Year
																		Increase
		2008				%*				2009				%*				(decrease)				%**
Interest and other income, net		$	36,762				4.1			$	9,487				1.5			$	(27,275	)			(74.2	)
Interest expense		$	12,927				1.4			$	7,406				1.1			$	(5,521	)			(42.7	)
Realized loss due to impairment of marketable debt investments		$	5,101				0.6			$	—				—			$	(5,101	)			(100.0	)
Loss on cost method investments		$	—				—			$	5,328				0.8			$	5,328				100.0
Gain on extinguishment of debt		$	932				0.1			$	—				—			$	(932	)			(100.0	)
Provision (benefit) for income taxes		$	2,645				0.3			$	(1,324	)			(0.2	)		$	(3,969	)			(150.1	)

	•		Interest and other income, net decreased due to lower average cash and investment balances and lower interest rates. Lower cash balances primarily relate to the repayment at maturity of the $542.3 million principal outstanding on our 3.75% convertible notes during the first quarter of fiscal 2008 and our use of $210.0 million in cash consideration and related expenses associated with our acquisition of WWP in the second quarter of fiscal 2008.
	•		Interest expense decreased primarily due to the repayment of 3.75% convertible notes at maturity at the end of the first quarter of fiscal 2008.
	•		Realized loss due to impairment of marketable debt investments for fiscal 2008 reflects a loss related to commercial paper investments in two structured investment vehicles (SIVs) that entered into receivership during the fourth quarter of fiscal 2007 and failed to make payment at maturity. These SIVs completed their restructuring activities during fiscal 2008 and, as of the end of fiscal 2009, we no longer held these investments.
	•		Loss on cost method investments during fiscal 2009 was due to the decline in value of our investments in two privately held technology companies that were determined to be other-than-temporary.
	•		Gain on extinguishment of debt reflects our repurchase of $2.0 million in principal amount of our outstanding 0.25% convertible senior notes due May 1, 2013 in an open market transaction. We used $1.0 million of our cash to effect this repurchase, which resulted in a gain of approximately $0.9 million.
	•		Provision (benefit) for income taxes decreased primarily due to refundable federal tax credits made available by recent economic stimulus tax law changes. Availability of refundable credits expired on December 31, 2009.