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Customer Growth Driving Infinera Success

Surprisingly healthy demand for bandwidth and new market share drove Infinera Corp. (Nasdaq: INFN)'s record second-quarter results, which included its highest overall quarterly revenue and bookings and well exceeded the company's previous guidance, officials said. Infinera's revenues grew 61 percent year-over-year for this quarter. (See Infinera Announces Record Q2.)

"Our customers are growing extraordinarily fast, and we are picking up market share," Tom Fallon, president and chief executive officer, said on the Infinera analyst call Thursday evening. Infinera now has four different customers -- two wholesale providers, a cable operator, and an Internet company -- that individually represent 10 percent of its business, showing increased diversification and less reliance on Level 3 Communications Inc. (NYSE: LVLT) as a customer, Fallon said.

Some of the new market share was the result of adding network operators to Infinera's customer rolls that had been using both Ciena Corp. (NYSE: CIEN) and Nortel Networks Ltd. as suppliers and now are looking for a second supplier, according to Rick Dodd, VP of corporate marketing for Infinera.

In addition, Infinera continues to add business from its six Tier 1 customers, even though it hasn't added a customer in that category. Fallon said Infinera continues to put itself in position to win new business in that category and believes it will "find the right opportunity to match what we have at the right time."

Fallon reiterated Infinera's faith in its current product roadmap, which includes introduction of 100-Gbit/s technologies for the mass market in 2012. The key to that strategy is that Infinera's 100-Gig systems will be economical to deploy, Fallon said, something he thinks competitors coming to market with 100-Gig systems later this year might not be able to claim. (See Infinera Ditches 40G, Talks 100G)

Both Alcatel-Lucent (NYSE: ALU) and Ciena/Nortel are expected to have 100G systems in deployment later this year.

"I think the market is going to start having some modest numbers -- say, double-digit deployments -- of 100-gig waves this year," Fallon said, adding that he doesn't expect much market traction until late 2012 or early 2013. "I've seen a lot of information around [competitors'] capabilities but almost nothing around the finances of current 100-Gig systems. Until the market understands what the economics are, it is really difficult for me to speculate on success based on technology."

Infinera will offer interim 40-Gig technology on a proprietary basis to its current customers with specific needs for those systems, such as submarine cable operators, Fallon said.

Infinera did add one new customer, Mid-Atlantic Broadband Cooperative , this quarter, based on use of broadband stimulus money, and it now has two customers that are using stimulus funds to buy Infinera equipment. But in general, Fallon conceded, the flow of stimulus money has been slower than expected.

— Carol Wilson, Chief Editor, Events, Light Reading

NorthernLight 12/5/2012 | 4:29:04 PM
re: Customer Growth Driving Infinera Success

Correction.  Ciena has had 100G in deployment since last year.  Below is an example of a deployment using generaly available gear on a production Verizon network.


http://www.lightreading.com/do...


I'd like to hear some info on how Infinera's solution will be more econimical to deploy then their competition.  I think they missed the boat on 40G and now are trying to downplay the fact they're behind on 100G as well.

ninjaturtle 12/5/2012 | 4:29:01 PM
re: Customer Growth Driving Infinera Success

"I think they missed the boat on 40G and now are trying to downplay the fact they're behind on 100G as well". Well there you go thinking again!!! You have no idea what you are talking about regarding INFNs plan. CIEN would love to be growing at INFNs rate. They are losing customers to INFN now and will continue to as long as they believe they can be economically competitive using commodity based components at 100G.

 


 

DCITDave 12/5/2012 | 4:28:59 PM
re: Customer Growth Driving Infinera Success

Does anyone else find it strange that Infinera and Ciena have just about the same market cap?


BTW, nearly half the folks who have taken our 100G benchmark survey say 100G probably will start having an impact on capex budgets sometime in 2011-12. So it seems products need to about in trials now in order to make it to market in that timeframe, right?


 

paolo.franzoi 12/5/2012 | 4:28:58 PM
re: Customer Growth Driving Infinera Success

 


The market cap for Infinera is derived from the view that it holds a technological edge and is therefore disruptive.  This theoretically would allow a long term growth advantage.


The real question about Infinera is can this be repeated at 100 Gb/s like it was at 10 Gb/s.  It does not make money yet, so the 100 Gb/s stuff better work and be on time or Infinera is going away.


Ciena is a larger scale business with an up and down history.  I think that tempers any upside view of their business from a stock perspective.  Really they have the same question that Tellabs and Adtran have....How will they maintain relevance in this era of consolidation of vendors and customers?


seven


 

meaty_urologist 12/5/2012 | 4:28:26 PM
re: Customer Growth Driving Infinera Success

As for the market cap of CIEN and INFN:


Market cap is only half of the story.  CIEN has $1.2 Billion in long term debt.  They have $1.22 Billion in market capitalization.  The market is valuing CIEN at $2.42 Billion dollars.  CIEN also has a negative tangible book value (net tangible assets are less than total liabilities)


 


Infinera has no long term debt.  They are cash rich and therefore have a positive net tangible book value.  Yet INFN's market capitalization is only $0.89 Billion.


 


I admit it is puzzling that CIEN's enterprise is being valued at nearly 3X the value that INFN's enterprise value. 

NorthernLight 12/5/2012 | 4:28:02 PM
re: Customer Growth Driving Infinera Success

ninjaturtle, no need to make this personal.  And you are right.  I don't know much about INFNs plans.  But that's because other then saying they have something in the works I don't believe they've divulged a lot of info.  It is undisputable though that they do not have a 40G solution and are behind Ciena and AlcaLu and others in 100G.  It may not be the end for them if they're late on 100G, but it better be a game changer.  This is why I'm curious about details behind their claims.



I also disagree with you that Ciena, AlcaLu and the like are using commodity based components for 100G.  It will be a while before those DSPs, etc. are of the shelf and available to everyone.

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