Infinera has turned in revenue increases like clockwork over the last several quarters, and company watchers are not expecting that to change when the vendor reports second quarter earnings next week on July 22.
That's just as well, because the biggest story out of Infinera Corp. (Nasdaq: INFN) right now is the company's pending acquisition of Swedish vendor Transmode Systems AB . The shareholder acceptance period for the offer is underway and runs through August 7. But the deal is no slam dunk, as suggested last week by Infinera when it adjusted its offer to allow Transmode shareholders to choose from two options -- either a mix of cash and Infinera stock for their shares or all cash. Furthermore, 90% of Transmode shares need to be tendered for the deal to be approved, and as recent as late June, only 54% had been tendered. (See Infinera Enhances Offer to Transmode Shareholders.)
Sell-side analysts remain pretty bullish about Infinera's prospects, while noting the clear importance of the Transmode acquisition to its future market ambitions. Both Michael Genovese, managing director of MKM Partners, and George Notter, telecom and networking equipment analysts and managing director of equity research at Jefferies LLC, think that Infinera can beat the $200 million revenue estimate it gave for the second quarter, according to research notes issued this week. (See Infinera Keeps Its Revenue Streak Alive.)
Genovese wrote, "According to our checks, 2Q15 was a good quarter overall for new footprint builds in Europe and in the U.S. wholesale market. Additionally, there was strong capacity demand from CenturyLink and from Infinera's top Web 2.0 and Cable MSO customers. We expect CloudXpress [Infinera's data center interconnect platform] to contribute $10mn-$12mn in 2Q15, putting its 1H15 sales total at roughly $15mn." The latter figure would put the Cloud Xpress in line to be a $30 million product in 2015, a mark some company watchers predicted months ago that it could achieve.
But, regarding the Transmode deal, Notter wrote, "Our recent perusal of Infinera’s S-4 filing shows how strongly they feel about buying Transmode. The company raised their bid for the Swedish metro WDM supplier on a number of occasions [before the April deal announcement]… Clearly, Infinera chased Transmode to get an agreement on the transaction. From our perspective, the Transmode deal is very important strategically." Notter added that Transmode can help Infinera fill out its current product breadth and product feature needs in the metro market.
Ultimately, analysts aren't panicking about Infinera's chances to complete the acquisitions, and they have noted that Infinera could still extend the acceptance period deeper into August if necessary. Raising its bid remains another option, and one Infinera officals could be quizzed about on the second quarter earnings call.
Meanwhile, analysts also believe Infinera could have at least one and maybe two significant new product announcements at an analyst event reportedly planned for October. The first is a metro core product the company has discussed plans for in recent months. The second could be a 1.2 Tbit/s PIC, according to Notter. (See Infinera Asks: Hungry for a Slice of Photonics?)
— Dan O'Shea, Managing Editor, Light Reading