The optical equipment consolidation predicted by many is continuing, as key optical players reposition themselves for Software Defined Networking (SDN) and growth in the data center. This week's big deal in which Ciena (NYSE: CIEN) announced it is buying Cyan (Nasdaq: CYNI) for $400 million reflects the growing urgency to build technology for more open networks.

Cyan, whose stock has been under a lot of pressure, caught a nice 30% premium on the deal, but the price, in the triple-digit millions, is not overly burdensome for Ciena. Ciena shares initially jumped about 1%, as the deal was reasonably well received, but they have fallen since Monday in general market weakness.

First the financials: Ciena is paying Cyan shareholders a combination of stock (89%) and cash (11%). Ciena will issue shares to pay for the transaction, which is expected to close during Ciena's fourth fiscal quarter ending October 31, 2015. Most Wall Street analysts do not expect it to have a large impact on Ciena's earnings this year, but it does have the potential to boost earnings (be "accretive" in Street parlance) next year.

The deal is interesting because it has too aspects: Ciena's trying to conslidate market share in optical, as well as move into SDN software with Cyan's Blue Planet SDN orchestration tool. Blue Planet is one of the more sophisticated SDN management tools on the market, providing the ability to provision optical and Ethernet circuits across multi-vendor platforms.

There are two direct comparisons among the recent flurry of deals: Infinera's purchase of Transmode at $350 million was a comparable optical transaction; and Cisco's 2014 purchase of Tail-f for $175 million was Cisco's SDN play. Ciena/Cyan is almost a combination of the Transmode and Tail-f deals, because it involves an optical platform in addition to Blue Planet. Transmode, while profitable, has smaller revenues than Cyan (at around $107 million compared with Cyan's $140 million), and Cyan's Blue Planet product is both more mature and more widely adopted than Tail-f -- so $400 million to kill two birds with one stone seems reasonable.

The deal reflects increased demand for SDN management and orchestration technology. Blue Planet was Cyan's most attractive offering. Even though Cyan has struggled to monetize this software asset, it does have a foothold in CenturyLink's network as a trial, and Ciena probably sees the potential to push Blue Planet deeper into the service provider market.

Another aspect of this is that Ciena and Cyan are both going after the data center interconnect (DCI) market, another aspect that may have been appealing to Ciena. Cyan earlier this year launched the N-Series, a 100 Gbit/s optical lineup with an "open" architecture -- it runs on standard hardware rather than a proprietary platform -- which is targeted at DCI.

Market reaction was mixed on the deal, as some Wall Street analysts did not see the value of spending $400 million on a company lacking earnings (Cyan is expected to lose money this year). However, this is not about near-term revenue. It is a strategic deal that will give Ciena more software tools to compete as network operators move to an SDN architecture that requires more multi-vendor interoperabilty. Ciena now has more ammunition to make an SDN/optical play.

In addition to the SDN factor, the deal has the potential to boost Ciena's optical revenue, even though there is some product overlap. Cyan is due to have $140 million in sales in 2015, according to Wall Street consensus estimates -- that's up 40% year-over-year.

In the world of multibillion-dollar acquisitions, this looks like a relatively low-risk bet by Ciena on SDN technology and data center optical. For Cyan, which was not profitable and had to go out and raise $50 million in a bond offering late last year, the 30% premium over the depressed stock price was too good to turn down. With $400 million waved in front of them, Cyan shareholders really had no choice.