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Infinera Anchored by New Wins

Craig Matsumoto
1/30/2009

Infinera Corp. (Nasdaq: INFN) claims it's enjoying another wave of new customers, but, unfortunately, that's going to lead to deepened losses in the short term.

In announcing earnings yesterday, Infinera revealed it had picked up seven new customers during its fourth quarter, which ended Dec. 27. (See Infinera Levels Up.)

And officials said they've got several new customers, big ones, ready to come on board.

But Infinera's long-haul WDM system, the DTN, isn't exactly an impulse buy; sales tend to move slowly. So, some of the new customers won't account for any Infinera revenues during the company's first quarter. That includes three "significant" European customers that have signed on, CFO Duston Williams said during the company's conference call yesterday.

More importantly, each new customer starts out as a low-margin or even a money-losing proposition for Infinera. That's because of the low price of the DTN's base chassis. Infinera's real payday comes with subsequent linecard shipments to flesh out the box.

That pattern is typical for chassis-based optical gear. But the difference in margins is greater than usual at Infinera because so much of the company's technology is wrapped up in the linecard's integrated photonics, CEO Jagdeep Singh tells Light Reading.

"If we wanted to stop gaining new customers today, we would definitely have larger margins. That's not the plan, though," Singh says.

So, Infinera is forecasting revenues of $65 million to $70 million in the first quarter -- missing analysts' estimate of $75 million, as tallied by Reuters Research .

The company also expects to report losses of 12 to 18 cents per share, much worse than the 4 cents per share analysts were expecting.

Infinera shares fell 35 cents, about 4 percent, to $7.97 after hours.

Juniper Networks Inc. (NYSE: JNPR) had reported earnings that same afternoon and said some customers were requesting that shipments be delayed beyond the end of the quarter -- meaning Juniper can't yet count those revenues. (See Juniper's Q4 Shows Worry Lines.)

"We're not seeing that," Singh told Light Reading. "As Duston mentioned, the order pattern is pretty linear throughout the quarter, and when somebody orders equipment, they typically want it ASAP."

Still, Infinera's business continues to be unpredictable. "Generically speaking, most of the time when a customer does a large deployment, it's not followed up immediately with another large deployment," Williams said on the earnings call. "That's somewhat the nature of our business, being lumpy."

For that reason, Infinera's top customer in the fourth quarter -- an unspecified Internet content provider -- probably won't top the list in the first quarter, he said. (As for who that customer is, past rumors have linked Infinera with Facebook and Google (Nasdaq: GOOG): See Infinera Adds a Friend and Infinera Courts Rumors .)

Infinera closed its fourth quarter with 56 customers, including four Tier 1 operators. Deutsche Telekom AG (NYSE: DT) and Qwest Communications International Inc. (NYSE: Q) were already known; Oteglobe S.A. , a division of OTE S.A. , got announced yesterday. (See Oteglobe Selects Infinera.) One more remains unannounced.

Infinera has said in the past that it's done development work on a metro WDM system to complement its long-haul offering, but the topic didn't come up yesterday. "We didn't say anything about that, so you got all of the news there," says Singh. (See Infinera Surprises, Targets Metro Access and Metro Move for Infinera?)

— Craig Matsumoto, West Coast Editor, Light Reading

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