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Infinera CEO Campaigns for Growth

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News Analysis
Light Reading
9/5/2012
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Infinera Corp. (Nasdaq: INFN) CEO Tom Fallon says he won't be updating his company's quarterly guidance as he takes the stage today at the Citi Technology Conference in New York City.

Whew.

But will he announce a new customer? We'll see.

What is worth noting is that this week's speaking engagement comes almost exactly one year after Infinera’s launched its DTN-X packet optical platform, based on 500Gbit/s photonic integrated circuits (PICs), an announcement that had Infinera jumping ahead of the 100Gbit/s crowd after it took a pass on the 40Gbit/s market. (See A Peek Into Infinera's PICs and Infinera Unleashes Coherent 100G.)

Infinera has at least 10 purchase orders for its DTN-X platform, all of them signed since mid-June. One of those orders is from a Tier 1 carrier, widely believed to be Verizon Communications. "The Tier 1 that we have won we are not at liberty to say who it is yet, but I believe we’ll have that ability over the next quarter," Fallon tells Light Reading.

Infinera’s announced customers for the DTN-X include Cable & Wireless Worldwide and research and education network Dante. "It’s still a young market and for us to come in with this many customers in the first quarter of shipping, I’m pretty pumped up," he says.

Fallon’s feelings of confidence come not long after Infinera was passed over by XO Communications Inc. (OTC: XOHO) for its first 100Gbit/s deployment. The carrier committed to Nokia Siemens Networks instead. Though Infinera is an XO supplier, and XO indicated it will use Infinera’s DTN-X, the perception was that Infinera’s platform was not ready for the August announcement. An Infinera spokesman admitted that the DTN-X was not ready to fill what he described as a "stop-gap" need for XO, but added that XO's evaluation of the vendors came in the first quarter, before the DTN-X was ready to move off the loading dock.

"The vendor selection for 100G deployment across the XO network is not yet final," the Infinera spokesman says.

[Ed. note: For more on XO's NSN selection and how it unfolded, please see: XO Deploys First Nationwide 100G Network.]

Legacy laggards
Infinera, like Ciena, at least won’t be burdened with legacy gear as it tries to avoid the macro-economic trends cutting into the optical sector. Andrew Schmitt, principal analyst, optical, at Infonetics Research, suggested a few weeks ago that the Synchronous Optical Network (Sonet) market was cratering and said companies with revenue weighted toward legacy Sonet platforms face more of a threat.

"If your business is half WDM and half Sonet/SDH, and one is declining 15 percent a year and the other is growing 15 percent, your top line revenue is intrinsically flat," Schmitt says. "So companies with large amounts of legacy revenue in Tier-1 carriers have massive growth headwinds. But that is more a reflection of financial condition, not the quality of their WDM products."

Schmitt indicated that the increasingly busy 100 Gbit/s marketplace may offer some daylight, with carriers now able to get competitive bids from a longer list of suppliers. "Prices are dropping fast, so evaluation of 100G is going on in a big way now," he says.

That Infinera is pushing 500 Gbit/s flex-coherent superchannels on the DTN-X while most others are still focused on 100 Gb/s line cards should not delay appeal of fatter pipes, Schmitt adds. "There are always bleeding-edge customers who need that kind of bandwidth, but decisions on what I deploy today are about what I will need in the years down the road, so whether I can fill a 500G pipe immediately isn’t the core issue."

Fallon is betting that service providers will realize the benefit of investing in the packet-optical convergence, an area where PIC provides power and space benefits to allow lower-cost integration of transport, switching and bandwidth management. "Convergence of bandwidth management, switching and transport really is becoming a requirement in the industry," he says.

"There’s energy around how do we lower all costs, not just transport, not just switching, not just routing, but overall. People who are putting in 40G networks now are putting in less cost-effective networks than the competitors doing 100G, and that kind of mismatch in the industry won’t exist for very long," Fallon says.

The question for Infinera and other optical suppliers is how long they will have to wait. Fallon notes that the whole sector is focused on one question: "How much will the industry grow this year? Will it be 5 to 10 percent, or will it be more like 2 percent? If it stays flat, that’s a big deal for both Sonet and WDM."

There is increasing evidence that optical investor confidence is being shaken by the economy. Ciena's recent report and subsequent stock price drop and Infinera's string of quarterly losses aren't helping. (See Burnt Ciena: Optical Stock Falls After a Tough Quarter.) But Schmitt says there's a more optimistic angle here. "If Infinera takes three quarters rather than one to be profitable that isn't a big deal two or three years down the road. Quarterly results are important but you need to ignore the high-frequency noise."

— Dan O'Shea, special to Light Reading

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