I think what is really concerning for me in the attitude of our friend ninja, is that sailboat and I (and others) dislike Infinera. Nothing could be further from the truth.
My own personal view is that Infinera is a high risk, high reward type opportunity. It requires flawless execution to continue. Why? In essence, INFN is a single product company. So any mistakes along the path are deadly. On top of that, INFN has assumed double the R&D risk of others. Not only is it doing systems work but it is doing component work. In fact, the only way its systems make sense if it has best in class components.
None of this is wrong, but presents challenges to investors and customers. Which is why it needs to get bigger really to attract those Tier 1 opportunities in bulk. Can it win one? Sure. Wonder what it will do if it does.
On top of that the risk is not 100% under Infinera control. I had an optical part that was sole sourced to Infineon when they moved their factory from Germany to Czechoslovakia. We bought parts for the move, but the factory did not yield at all for months after the move. They put all their customers on allocation and we had to scramble to get other sources up and going. Not just man mande (like that one) but natural disasters can impact suppliers and customers. Larger organizations have the bulk to withstand that challenge. Imagine what might happen if say Level 3 got bought and put capex on hold for a quarter.
actually, market cap takes into consideration all things including debt, revenue, chance for future success, market share, growth possibility, etc. All voted on by a wide and deep pool of analysts and other experts. Taking in and weighing of course results by quarter and by year.
We may not like it, but in this world, Wall Street rules control the game. This is reality. Hence, market cap does count. It is the vote of those who control capital in our economic system regarding the success of a company. Just the way it is.
Also, can you send me a link to any report that states that ALU's liabilities are larger than their assets? If you indeed have such information, or have read such a report, I would appreciate a link very much.
I agree with all your points. You phrased it more coherently than I did.
One thing I would say about the "Juniper" option of a buyer for IFN. Would it really give Juniper what they need technically? It would give Juniper a very costly EPI & FAB to run, and a large packaging operation.
Another way to accomplish the same thing would be to incorporate line side transport optics directly onto Juniper's line cards. Juniper could do the abstraction at layers 2 and 3, which they already do as a routing / switching company.
Juniper is fully capable of developing their own signal processing ASICs (one of the real values at IFN is their signal processing and ASICs).
So, even if Juniper wanted to be more in telco optical transport, either metro or Long Haul, would buying IFN be more effective or would simply doing more intelligent line side optics for 10G- 40G - 100g on their line cards be more cost effective? After all, after the actives on the line cards, the networks of an IFN design or any one else's design either requires OEO regenerators and / or EDFA's and passives like mux / demux and ROADM's. Not much really differentiated at that level by IFN's approach. Yes, IFN can offer grooming, retiming, regeneration.... because all things are taken back into the electrical domain at each PIC... so that is cool. But there are other ways to do it. So mainly a price issue. So far, the other systems vendors have done just fine competing against IFN on price / performance. That is ALU, NSN, Ericsson, Huawei, Fujitsu, NEC.
So, even if Juniper wanted to be in transport telecom optical (I agree with you, not sure they do, but I don't know), would buying IFN give them what they would want in that space? Might be other players that would be a better fit for Juniper than IFN. What about ADVA for instance on one end of the scale... and NSN's division on the other end of the scale.
I simply look at balance sheets and ALU is underwater INFN is not. Market Cap means nothing if your liabilities exceed your assets. That is the case with ALU. Financials don't lie. Bankrupcy is in the future for ALU. It's their only chance for survival. We shall see.
Let's explore who might buy Infinera. They would be a company that believed that either they need to be in the Optical Transport Business or one that wanted to improve their position in that business.
Of that former group, their seems to be only one credible choice and that is Juniper. I have never believed this, but everyone brings it up all the time. I see Juniper moving more into Enterprise and not deeper into Service Provider (outside of switching and routing). I could be wrong but I only see one other non-optical player (and they are too small right now to pull it off) and that is Adtran.
Of the latter group, I think it is hard for a major player to want to buy Infinera. No matter what people are thinking here, Infinera is a bit player in the optical transport business. Nice technology, wonderful human beings but not huge market share. They do not have a customer that anyone covets, which means that this would be either a consolidation play or one where one wanted to change how they were investing in optical. Possibilities might be the Chinese (to get a US player) or somebody that is hurting for a new way to go (like say Tellabs).
As to Verizon, I can tell you that AFC was on the edge of a company large enough to be a provider of a major system to them and they were very happy we sold the company. And at the point of the Tellabs Acquisition, AFC was about 1/3rd larger than Infinera. Not saying that this is definitive, but we had 3 things on top of that - Profit, $1B in cash, and an installed base in Verizon.
ALU as a company has a significantly higher chance of surviving than INFN in the near term. And ALU's Optical business unit has a much greater chance of remaining intact in the longer term.
The same can't be said of INFN. I give them just over a year before they're desperate for a buyer who may never emerge.
well, let's see. ALU has a market cap more than 5x what IFN has. Also deeper / wider talent pool and ability to deliver national networks.
IFN while a good company, is a niche player with only optical transport. If you want to compare IFN to ALU, IFN would have to absorb Juniper + a big wireless player + several other companies.
IFN has no better (and no worse) chances of survival than ALU. Different for sure, but not better odds.
IFN's IPO was a success for only those insiders and investors who had very early shares and were able to cash out.
IFN and ALU both have difficulty showing profit, although ALU has a wider product mix so relatively lower risk.
The real interesting question is will either of them show a return to investors if you bought shares at the current prices.
Finally, you state that IFN will survive or be bought. Pray tell who would buy IFN? ALU? Cisco? (I gotta believe that if Cisco wanted IFN it would have already happened) Dell Computer? HP? Brocade? Huawei? Really, IFN can be acquired?
I can't imagine Verizon would pin their next 10 years of expansion requirements on ALU. Will they be a viable company and be around in 10 years? Infinera will be around or at a minimum be acquired. Their technology leadership which has solidly proven is too compelling to be irrelevant.
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