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Optical components

Infinera Boosts Avanex

Optical components vendor Avanex Corp. (Nasdaq: AVNX) had a surprise customer in its first quarter -- Infinera Corp. (Nasdaq: INFN) (See Avanex Reports Q1.)

During an earnings call with analysts yesterday, Avanex CEO Jo Major called out Infinera, along with Alcatel (NYSE: ALA; Paris: CGEP:PA), as each representing 10 percent or more of the first quarter's near $51 million sales.

Nortel Networks Ltd. and Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) each just missed the 10 percent mark, Major said.

The mention of Infinera is surprising in a couple of ways.

First, it's unusual for a startup to be a 10 percent customer for a public company -- normally it's just the bigger names, such as Alcatel and Nortel, that top the 10 percent mark.

Second, Infinera builds its own optics, cramming them onto homemade indium phosphide (InP) chips. (See Infinera Declares WDM War.)

Avanex didn't hint at what Infinera is buying, though Major did note that Avanex hit record revenues in transponders, modulators, and dispersion compensators during the quarter.

For its first quarter, ended Sept. 30, Avanex reported net losses of $9.8 million, or 5 cents per share, on revenues of $50.9 million, compared with losses of $9.1 million, or 4 cents per share, on revenues of $45.6 million the previous quarter.

For its first quarter a year ago, Avanex reported losses of $16.9 million, or 12 cents per share, on revenues of $41.2 million.

Avanex's non-GAAP first-quarter loss of 3 cents per share was a penny worse than the 2 cents analysts had forecast, according to Thomson First Call , and revenues were pretty much in line with expectations. But Avanex predicted second-quarter revenues of $52 million to $55 million, beating the $51.8 million forecast recorded by First Call.

Avanex shares climbed 19 cents (12.5%) to $1.71 in after-hours trading, marking the second quarter in a row that investors have been happy with the company's results. (See Avanex Soars on Q4 Forecast.)

Avanex isn't quite out of the woods yet, though. While the company has $16.4 million in cash, that figure is down from the $29 million reported at the end of June. At least some of that was attributable to problems with Avanex's invoicing system and is balanced out by a $12.6 million spike in accounts receivable, Avanex officials said on the call.

Cash has been a key question for Avanex -- and for fellow components vendor Bookham Inc. (Nasdaq: BKHM; London: BHM) -- as both companies try to right themselves before the money runs out. (See Avanex Concerns Continue.)

Avanex is showing some signs of life. While the company still isn't profitable, it's claiming some progress with new products.

For example, Avanex says an optical amplifier with monitoring capability is shipping into the backbone of a Tier 1 carrier's fiber-to-the-home buildout. That product "was a strong contributor to our revenue performance this quarter," Major said.

Major also highlighted a "multimillion dollar" win in Asia for new 980nm pump lasers targeted at the submarine market. (See Avanex Intros Pumps.)

Avanex also intends to join the reconfigurable optical add/drop multiplexer (ROADM) race, but believes that high prices are stunting growth in that market. So, the company is developing a ROADM subsystem built "with more modest functionality but at a substantially lower price." That product is expected to debut before OFC/NFOEC in March, Major said.

— Craig Matsumoto, Senior Editor, Light Reading

^Eagle^ 12/5/2012 | 3:35:52 AM
re: Infinera Boosts Avanex could it be possible that the purchases were more related to the old Corvis line they are supporting at Broadwing. Maybe Broadwing needed to use some of the un populated slots in one of their Corvis racks? maybe increasing capacity on some of those links where the Infinera stuff is not applicable?

overall, I agree with the consensus guess that it is probably things like edfa, dispersion compensators, and interleavers.

so just tossing out the Corvis / broadwing link as a possibility to see if there is any insight on this board. Lots of networks are expanding and adding capacity.

also, any chance it could be the Mux/Demux? I am thinking probably not, but if Infinera is having any issues with monolithically integrating passive mux demux with enough isolation and seperation with their active InP devices like the detectors and lasers for rx / tx, this could also be a possibility. typically doing passive functions like mux/demux in InP takes different fab and sometimes even different base epi than the active bits like lasers, detectors, and other associated high speed electronics.

Just a thought.

Overall, I agree it is probably the amps, dispersion stuff, etc as others have posted.

Just wanted to toss out the other things as possibilities and find out if anyone knows more.

sailboat
whyiswhy 12/5/2012 | 3:35:53 AM
re: Infinera Boosts Avanex Longshort...

I think I covered that with my usual safeharbor:

JMHO

Now you can guess whether I based my humble opinion on inside information or not.

-Why
longshort 12/5/2012 | 3:35:54 AM
re: Infinera Boosts Avanex >>> they are both in death spirals <<<

Is this just your own opinion, or do you have facts to back that up?

Pete Baldwin 12/5/2012 | 3:35:55 AM
re: Infinera Boosts Avanex OK, fiber_r makes good points .. I *was* thinking of 1000s of km when I cited 'really long reaches', figuring Infinera wouldn't need amps at every 80km. If in fact they do (going with the idea that amplifying would be cheapter than regen), then - OK, it makes sense.

I'm leaning toward Optiplayer's "lumpy" theory, though, which I think is related to my earlier points. Maybe Infinera needed the equivalent of a fix-it FPGA on something, or a special-case extra for a particular buildout. Infinera is still just getting out the door, in a sense, and maybe (blasphemy alert) they still don't have everything right/complete...
fiber_r_us 12/5/2012 | 3:35:55 AM
re: Infinera Boosts Avanex >Amplifiers would be interesting, but would Infinera need a lot of them?

They would need a pair of them at every terminal, and a pair at every ILA site. Is that a "lot"? Depends on the length of the route. Certainly anything outside of a metro area would require a "lot".

> My first impression would be that Infinera would use amps in special cases, where some carrier wants really long reaches.

Every terminal would have a pair. And, if the system was longer than about 100km, you would have another pair every 80km or so. Neither is a "special case" and, unless you are thinking purely of metro area networking, I wouldn't consider hundreds of km "really long reaches". In NA, 1000s of km are "really long reaches".
fiber_r_us 12/5/2012 | 3:35:55 AM
re: Infinera Boosts Avanex Infinera's system is amplified at the terminals and every 80km or so (just depending on where the ILA sites are on the carrier's plant). Infinera only uses the integrated chips at the terminals and when they have to regen every 400-500km or so. It is cheaper to amplify all of the wavelengths than to regen them, even with the Infinera integration.

Here is the product page for the amplifier that goes into ILA sites:

http://www.infinera.com/produc...

And several of the cards in the terminal shelf have amplifiers on them.
optiplayer 12/5/2012 | 3:35:56 AM
re: Infinera Boosts Avanex Generally speaking, I believe the types of purchases that an Infinera (or any optical transport company ramping production) is making from Avanex are lumpy in nature particularly when a route is first being built. They may also be building some inventory to respond to the needs of their customers which continue to diversify.

Just my opinion but who am I to spoil the "we hate Infinera" cult on the LR board...
Pete Baldwin 12/5/2012 | 3:35:56 AM
re: Infinera Boosts Avanex I'd be surprised if it's modulators. Modulators were one of the things integrated into the all-in-one chips, IIRC.

Amplifiers would be interesting, but would Infinera need a lot of them? My first impression would be that Infinera would use amps in special cases, where some carrier wants really long reaches. Actually, I guess it could still be amps in that case, with Infinera's 10% status being just a blip.

Come to think of it, that's another topic to ponder: How permanent is Infinera's 10% status with Avanex? Could it be that whatever they're buying is suitable to be integrated (or corrected) in the next chip spin.
redface 12/5/2012 | 3:35:56 AM
re: Infinera Boosts Avanex Sailboat:

""""Could it be that Infinera uses AVX modulators to overcome issues they might be having re modulation?

I have no knowledge direct or indirect, but based on the InP technology used by Infinera and its limitations, it could be a possibility.""""

I think there is virtually no chance of Infinera using Avanex's modulator. It defeats the purpose of integrating AWGs with laser source arrays.

As to how Infinera could make a decent InP based modulator, don't forget that Dave Welch was a board member of T-Networks which was an InP waveguide chip company. T-Networks had strong expertise in building good modulators in InP. In fact I suspect Infinera's first integrated chip came from T-Network's fab, before Infinera's own fab was built.
whyiswhy 12/5/2012 | 3:35:57 AM
re: Infinera Boosts Avanex The answer is all of the above, and Dave is just helping Jo while he can and vice versa...they are both in death spirals: negative bottom lines.

JMHO

-Why
fiber_r_us 12/5/2012 | 3:35:57 AM
re: Infinera Boosts Avanex I suspect it is amplifiers, dispersion compensators, and interleavers.
^Eagle^ 12/5/2012 | 3:35:58 AM
re: Infinera Boosts Avanex what about modulators?

I know Infinera has integrated dfb's, detectors, electrical processing (and performance monitoring and BER) into it's 10 channel 10g per channel solution.

but I know it is very difficult to make a good modulator in InP that can modulate a clean signal for 80km links. Most companies use LiNO8 modulators for long reach DWDM links.

Could it be that Infinera uses AVX modulators to overcome issues they might be having re modulation?

I have no knowledge direct or indirect, but based on the InP technology used by Infinera and its limitations, it could be a possibility.

of course Infinera could be using an InP based EA modulator as the solution.

Any thoughts on this possibility?

sailboat
redface 12/5/2012 | 3:35:59 AM
re: Infinera Boosts Avanex Craig:

You were right to find it surprising that Infinera got mentioned by Avanex this way. It's a good thing for Avanex.

However, it might not be too good for Infinera. Avanex's quarterly revenue was about $50M and Infinera was greater than 10% of that revenue. Let's say it's $5M per quarter, or $20M per year. Last time it was reported that Infinera's run rate was $100M per year. If the same rate is still true, a large percentage of it would be for Avanex parts. Infinera could have a pretty expensive bill of material, which could erode its profit margin and its ability to compete on price.
Pete Baldwin 12/5/2012 | 3:35:59 AM
re: Infinera Boosts Avanex Interleavers -- that's a good one. Dispersion compensators was the first thing that came to mind.

Anyway, I just found it surprising to have Infinera get mentioned like that. Seems like that's a nice testimonial for Avanex, albeit an indirect one.
redface 12/5/2012 | 3:35:59 AM
re: Infinera Boosts Avanex ""Avanex didn't hint at what Infinera is buying, though Major did note that Avanex hit record revenues in transponders, modulators, and dispersion compensators during the quarter.""

Infinera may be buying two things from Avanex in my opinion: dispersion compensators, or interleavers. Avanex's dispersion compensator is tunable and it is rather unique. Remember that Infinera's wavelength spacing is 200GHz which may be too sparse for some customers. Adding an interleaver can increase the spacing to 100GHz.
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