Following a brutal second half of 2016, optical equipment vendor Infinera has experienced a tough, albeit more stable, start to 2017.
First-quarter revenues were roughly in line with expectations at $175.5 million, while the non-GAAP earnings loss (excluding one-time costs) was $0.15. That loss was exactly in line with the expectations of the financial analyst community, which had been expecting revenues of $172.6 million. (See Infinera Reports Q1.)
However, those revenue numbers still represent a 28% decline compared with the $244.8 million generated during the first quarter of 2016 (before the revenues rug was pulled from underneath the vendor). On the company's earnings call held late Thursday, CEO Tom Fallon noted that Infinera Corp. (Nasdaq: INFN) is "still seeing heavy pricing pressure" and that it still faced some continuing uncertainties. "Recent discussions with customers suggests they are squeezing as much out of current networks as possible even as bandwidth demand continues to grow," Fallon said. "We are seeing this with our telco customers in particular, whose revenues declined materially in Q1."
In addition, customer consolidation is also impacting purchase cycles, though Fallon believes this trend will be transitory. "My conversations with these customers lead me to believe that as M&A activities dissipate, we are well positioned to grow with them ... Indications are that we have maintained wallet share in our traditional markets, and are better positioned to earn opportunities in new markets within these customers."
The operator merger that has most impacted Infinera's business is that of Level 3 and CenturyLink, both of which have been significant customers. (See Level 3, CenturyLink on Verge of Merger.)
The ongoing pressures and uncertainty, and a slower introduction to the market than planned for the Cloud Xpress 2 data center interconnection (DCI) system, mean Infinera is expecting its second-quarter revenues to come in at about $180 million (plus or minus $5 million), lower than the $190 million that the financial analyst community was expecting (on average). In addition, the company expects its non-GAAP per-share loss in the second quarter to be around $0.17, worse than the $0.11 that analysts were anticipating.
As a result, Infinera's share price took a hit in post-close trading late Thursday, dipping 3.5% to $9.60.
But Fallon is confident that the second half of the year will bring some respite as pricing pressures ease, customers take the brakes off their spending, market traction picks up for products launched in 2016 -- such as the Cloud Xpress 2 and its "meshponder" platforms -- and new products are brought to market. (See Infinera Adds Business Smarts to Its Instant Network Pitch , Infinera, Nokia Chase 'Anyhaul' Dollars, Infinera Intros the 'Meshponder' and Infinera Ups the DCI Ante.)
Analyst George Notter at Jefferies & Company Inc. believes Infinera will pull through its current storm -- "we continue to believe that Infinera is a long-term winner in both the Long Haul and Metro WDM markets" he stated in a research note issued early Friday -- and says that the vendor's "new product initiatives will be critical to their ultimate success (or lack thereof) in the marketplace."
But Notter remains cautious. Noting that the Cloud Xpress 2 product is hitting the market later than expected, he states that Infinera has "a lot of R&D execution ahead of them on the new product front" and that it will still take some time for the company to "work through their product and customer issues."
— Ray Le Maistre, , International Group Editor, Light Reading