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Analyst: Infinera Loses VZ Deal to AlcaLu

A telecom industry financial analyst says that Alcatel-Lucent has won a $100 million Verizon optical contract, which would be bad news for Infinera, the company that had been thought to be the front-runner for deal.

Infinera Corp. (Nasdaq: INFN) had been seen as the favorite to join Ciena Corp. (NYSE: CIEN) as a second supplier to Verizon with long-haul WDM optical equipment in what was pegged to be a $100 million contract. Wavelength-division multiplexing (WDM) equipment can help pump up the bandwidth of long-haul fiber optic networks.(See Is Infinera Set for Verizon 100G Deal? and Wavelength Division Multiplexing (WDM).)

George Notter, managing director of equity research for communications infrastructure at Jefferies & Co. Inc. , says he's revising his price target for Infinera's stock down from $12 to $8, based on not winning the long-sought Verizon Communications Inc. (NYSE: VZ) second supplier deal.

Notter also notes his sources are crediting the last-minute involvement of Alcatel-Lucent (NYSE: ALU) Michel Combes and some major price-cutting for the French vendor's victory at Verizon.

"We're told that pricing was exceedingly low -- in fact it was 'well below market pricing' for WDM gear," Notter says in an email note. "The anecdote serves as another reminder that the best technology doesn't always win in the Communications Infrastructure space. We understood that Infinera's DTN-X platform was heavily favored by Verizon’s technology people. Relationships and pricing can go a long way -- particularly for equipment suppliers like Alcatel-Lucent which have the clout to sell their infrastructure within the C-suite at Verizon."

Losing Verizon would have a significant impact on Infinera because of the effort and resources the equipment maker has invested in trying to win the business, Notter notes, as well as the inability to use Verizon as a reference account to win other business.

"These activities include joint product testing/evaluation, trials, and technology analysis," he writes. "Also, we believe that much of its work on integrating Ethernet/MPLS Switching technology was oriented around the RBOC's second source deal. Verizon is somewhat unique among major carriers around the world -- they've been very interested in embedding these capabilities into the Optical Transport network layer."

Alcatel-Lucent and Verizon both declined to comment on the report. Infinera was unavailable for comment.

— Carol Wilson, Editor-at-Large, Light Reading

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LuckyBeer 1/21/2014 | 1:00:39 PM
cost/price comment who said below cost ? paper says below North American market price...
MarkC73 1/21/2014 | 12:49:58 PM
Re: ALU business model Agreed, but if this gets them in, they can leverage their scales of economy and development with their higher margin customers as well as try and get more of their gear into Vz.  But yes I've seen Vz turn the screws to vendors that basically get in with no profit, those who can find leverage aren't around, to your point.  
Greg Scott 1/21/2014 | 12:47:36 PM
Fascinating How does this Notter guy get all these apparently inside details?
MarkC73 1/21/2014 | 12:44:48 PM
Tough Break That's a really tough break for Infinera.  For ALU, I wonder what this will do for its roadmap.  They are already 'focued on IP' and had long term plans for more integration of their Optical platform, but I'm wondering if the Verizon push will change any of this, such as SDN hooks into a dynamic traffic management or more enhancements to say GMPLS/MPLS-TP.  Personally, I wasn't a proponent of their optical platform, but this was quite a while ago when we were reviewing so maybe things have changed.  I'm very sure Vz got a great deal.  I guess that means ALU will be pushing hard on their customers soon, got to make up those margins ;).
rgrutza600 1/21/2014 | 12:35:20 PM
ALU business model The ALU business model of selling below cost will not be viable in the long run.
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