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Cisco+Cerent = Gains for Advanced Fibre and Ciena, trouble for Tellabs

Advanced Fibre Communications' (Nasdaq: AFCI) investment in Cerent is finally paying off, Ciena is looking attractive, and Tellabs (Nasdaq: TLAB) is feeling threatened following Cisco's shopping spree Thursday.

Cisco Systems Inc.'s (Nasdaq: CSCO) purchase of Cerent Corp. ruffled all three stocks, while big competitor Lucent wavered down 3/8 to 67 7/8. Cisco got resounding approval, rising 1 1/4 to 69 7/8 following the news. The world's largest maker of computer networking equipment, also agreed to buy Monterey Networks Inc. along with Cerent, for a combined $7.36 billion in stock.

Cisco officials said the Cerent product is competitive in its niche and "competes effectively" with products from Tellabs and Nortel. Officials said they expect the Cirent acquisition to deliver "significant marketshare."

AFCI blasted off 15 percent, up 2 3/16 to 16 13/16 Thursday morning.

"AFCI took an investment in Cerent, over a year ago, but it's stake wasn't fully reflected in the stock until today," said George Notter, an analyst with Dain Rauscher Wells. AFCI has a 5.5. percent ownership stake in Cerent, putting its draw from the $6.9 billion Cisco deal at around $380 million. AFCI bought into Cerent for its SONET, or Synchronous Optical NETwork, technology - used in fibre optic rings, it is a critical technology that defines how information is packaged. AFCI has been attracting bottom feeders since it lowered first quarter earnings expectations.

Speculation that Ciena could be an acquisition target is driving its rise, said Notter. Ciena has WDM, or Wavelength Division Multiplexing, technology, which Cisco now needs. Ciena shares were up 7 percent, up 2 1/4 to 36 9/16. Ciena has been coasting since it edged above estimates for its third quarter.

Cisco is also now more of a threat to Tellabs, which provides data, voice and video transport and network access systems. Shares in Tellabs, which almost merged with Ciena last September, sunk 6 percent, down 3 7/8 to 63 7/8. The company rode reverberations from its better-than-expected earnings in the second quarter.