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Is Infinera Set for Verizon 100G Deal?

Ray Le Maistre
10/25/2013
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It's been talked about for some time, but current chatter amongst the optical networking community suggests that Infinera is set to become the second 100G transport supplier at Verizon Communications, joining incumbent supplier Ciena. (See How Infinera Could Get a Shot at Verizon.)

Word has been circulating for a few weeks now that Infinera Corp. (Nasdaq: INFN) is "the chosen one" ahead of Alcatel-Lucent and the speculation has been stoked even further by Infinera management's reference during the company's third-quarter earnings conference call to anticipated "strategic" customer deals in North America.

MKM Partners analyst Mike Genovese noted in his report on Infinera's third-quarter results that there appears to have been "recent positive competitive changes at one or more major US strategic accounts where management seems to have increased confidence in their likelihood of winning significant deals," though George Notter at Jefferies & Company Inc. noted that industry sources say Verizon Communications Inc. (NYSE: VZ) has not yet made a decision but that the carrier will likely choose before the end of this year.

The US carrier reiterated that position. "A final decision has not been made," said Verizon spokeswoman Lynn Staggs in an email to Light Reading in response to questions about a second 100G equipment supplier.

Infinera says it doesn't comment on rumor or speculation. But for some in the industry, the vendor's name is all but on that deal.

If confirmed, that news would undoubtedly give the transport equipment specialist's stock price a boost. Unfortunately for Infinera, which has been touting its software-defined networking proposition to carriers in recent weeks, its share price was heading south following the publication of its third-quarter financials, dipping 9 percent Thursday to end the day at $10.40. (See Infinera Reports Q3 Profit and Infinera: SDN Can Master Optical Layer.)

The vendor's numbers looked strong: revenues up 27 percent compared with a year ago at $142 million and its earnings after one-time costs stood at 10 cents, much higher than expected. But its fourth-quarter guidance of revenues between $130 million and $140 million left investors dissatisfied, while the vendor's expectation for 2014 gross margins in the low 40 percent range failed to excite.

Even at $10.40, Infinera's stock is still at the high end of its 52-week range. And any confirmation of a deal with Verizon would certainly help the vendor's stock head north instead of south.

— Ray Le Maistre, Editor-in-Chief, Light Reading

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DOShea
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DOShea,
User Rank: Blogger
10/30/2013 | 10:52:00 PM
Same topic, different vendor
The Verizon news hasn't come out yet, but subsea cable operator Columbus Networks just gave a 100G deal to Coriant. Maybe Coriant will be able to start competing for more of these supplier spots--if there are that many up for grabs.
DOShea
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DOShea,
User Rank: Blogger
10/25/2013 | 9:22:40 PM
Level 3
Level 3 is supposedly getting pretty close to a 100G decision, too. Could be a very interesting last two months of the year for a couple vendors out there.
dwx
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dwx,
User Rank: Light Sabre
10/25/2013 | 4:26:03 PM
Re: Infinera Vs. Alcatel-Lucent at VZ
Yes there have been a lot of vendors with good techology who never succeed unless they get purchased by a larger vendor or happen to be selected by a large carrier. 

ATT got burned years ago with selecting Avici Systems as its core routing vendor, that didn't turn out so hot...  Compass Systems right now has a interesting router with an optical backplane.  Intune Networks has a photonic packet transport platform, but I don't see those companies sticking around long-term right now unless they get some big wins, but both may have technology larger players want.  

I'm a little surprised Infinera has stuck around on its own for as long as it has, but they make good (albeit expensive) equipment that's very easy to manage and has some advanced features.   
Carol Wilson
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Carol Wilson,
User Rank: Blogger
10/25/2013 | 2:47:12 PM
Re: Infinera Vs. Alcatel-Lucent at VZ
Seven,

Well-said - those practical issues often outweigh the potential innovation of a newer player. 

It also explains why sometimes carriers encourage their larger, established vendors to buy smaller companies with technology that intrigues them. 

 
brookseven
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brookseven,
User Rank: Light Sabre
10/25/2013 | 1:44:48 PM
Re: Infinera Vs. Alcatel-Lucent at VZ
Carol,

One of the challenges for a company like Infinera is that Verizon and AT&T don't want to be a huge chunk of business for a smaller company.  They have lots of good reasons for this:

- The scale of interaction in these relationships can be daunting.  I have been on calls where nearly 100 people from Verizon were on the call (about FiOS).

- Variability in the business can cause cash flow issues for smaller companies, big orders have to be placed before you can get paid.

- The relationship can cause a move in the stock price in a smaller public company.  Last thing an RBOC wants is to be part of a lawsuit when they choose another vendor.

All of that is beyond the FUD around choosing a small vendor.  For example, we had a huge advantage in having been a supplier to AT&T for years and also to GTE to give us credibiilty (deserved or not) before FiOS.

That is why you see things like WWP being picked up by Ciena (wonder if Tellabs wishes they had done that deal when it was offered to them).

seven

 
Carol Wilson
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Carol Wilson,
User Rank: Blogger
10/25/2013 | 11:10:11 AM
Re: Infinera Vs. Alcatel-Lucent at VZ
This also shows the ongoing market power of Verizon - and AT&T and maybe Century Link - in the U.S. Consolidation has made it much harder for newer vendors to get a foothold in the market and sustain the kind of results that make investors happy. For all the talk about SDN/NFV opening the door to new vendors, this is a bit of a cautionary tale. I'd agree with Sterling that it would seem strange for Verizon to be so publicly friendly with Infinera and not give them the number two vendor status. But life is sometimes strange. 
sterlingperrin
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sterlingperrin,
User Rank: Lightning
10/25/2013 | 9:38:53 AM
Infinera Vs. Alcatel-Lucent at VZ
The relationship between Verizon and Infinera has been very cozy going back to the launch of the DTN-X. We've seen Verizon execs, like Stu Elby, supporting Infinera events - including the Infinera workshop at our POTE event 2 years ago, which caused alot of speculation at that time. But also, we've seen co-authored technical papers betweeen VZ and Infinera touting the need for very Infinera-specific functionality - like the PIC.

I haven't seen the same type of public relationship between ALU and Verizon over the same time period. It's hard to imagine that Verizon is being so public with Infinera while picking ALU (or any other supplier) for their build.

Sterling
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