Infinera Courts Rumors

Mega-startup Infinera Inc. just can't escape the rumor mill.

Shrouded in secrecy for so long, the company has disclosed its DTN optical transport system and named several customers. But new buzz continues to follow it, with big names and numbers attached -- namely, an alleged Google (Nasdaq: GOOG) contract and a possible $51.3 million round of funding.

Infinera officials wouldn't comment on either topic, but they did make noise this week about a Dell'Oro Group report citing the company as tops in one slice of the 10-Gbit/s market. It's a sign that Infinera, despite the hype, could be on its way to building a solid business. (See Infinera Claims Lead.)

Grand rumors are practically part of Infinera's corporate culture, given the company's flashy start on the cover of Red Herring. (See More on Infinera (née Zepton).)

Let's start with the funding, which came to light in a regulatory filing saying Infinera had received the first $13 million of a $51.3 million Series G round. Should the full amount come through, it would bring Infinera's total funding -- which has come in chunks of roughly $50 million lately -- to more than $250 million. (See Infinera's Amp-less Ambition and Infinera Raises $52M More.)

That sum is one reason why Infinera was dropped from Light Reading's Top Ten Private Companies. The list points out companies likely to go public or get acquired. An acquisition seems less likely for Infinera as VC money piles up. And an IPO doesn't seem to be in the immediate plan.

"An IPO is not the end game for us. The IPO is simply a milestone," Infinera CEO Jagdeep Singh tells Light Reading. "The key is to build the company."

Many observers believe Infinera's long-term success might hinge on finding a big-name telecom vendor as a sponsor, much the way (NYSE: S) championed Ciena Corp. (Nasdaq: CIEN) in that company's early days.

"What they need is a true heavyweight service provider, because it will lead to more service providers buying from them," says Mark Lutkowitz, an analyst with Telecom Pragmatics Inc.

(Nasdaq: LVLT), announced as a customer earlier this year, doesn't have that heft, Lutkowitz thinks -- although he's quick to add that he's heard Level 3 is "very, very happy" with Infinera's equipment. (See Infinera Reaches Level 3.)

Well, how about Google? It's not a telecom vendor -- yet (cue ominous music), but it would be Infinera's biggest score so far. In addition to Level 3, Infinera's announced customers include CityNet, Flag, FreeNetde, and OnFiber. (See Infinera Scores With CityNet, Infinera Wins Flag Deal, Infinera Goes Live, and OnFiber Selects Infinera.)

The Infinera-Google theory was reported in a Nov. 7 UBS AG report on the telecom industry. UBS believes Google is "initially working" with Infinera's long-haul equipment and ADVA Optical Networking's (Frankfurt: ADV) metro equipment. Google's optical network buildout has been the subject of massive speculation, particularly considering the company's aggressive moves to branch into different technology areas. (See Google's Own Private Internet and Links: Facing the Google Future.)

"We believe Google's long-haul DWDM network will initially be built so the company can achieve better peering negotiations with other backbone ISPs," the report says. "Thus, we believe the initial network will likely have DWDM nodes at major Internet network access points (NAPs), which will likely result in very long haul routes."

Singh declined to comment on the Google speculation.

With or without Google, it's clear Infinera is benefitting from a recovery in optical networking. Dell'Oro says optical-transport revenues grew by 31 percent in the third quarter of 2005, compared with the same quarter a year ago. Riding that wave, Infinera has been upping its forecasts "every month for the past six months," Singh says.

"What's going to help them is that the market is recovering, and sooner than most of us thought. I can see us getting to something like pre-hype normal in a year or two," Lutkowitz says.

The Dell'Oro group even ranked Infinera tops in one category -- 10-Gbit/s optical network shipments for long-haul traffic. Of 7,300 wavelengths shipped in the third quarter of 2005, Infinera had 1,449, for a roughly 20 percent market share. (NYSE/Toronto: NT) was second at 17 percent, while (NYSE: ALA; Paris: CGEP:PA) and (NYSE: SI; Frankfurt: SIE) tied for third with 9 percent.

Lutkowitz says he can believe Infinera ranked No. 1 on that list, but doesn't take it too seriously. "My hunch is that that's just a snapshot in time. A month later, it might be different," he says.

Infinera says it placed second in Dell'Oro's rankings for the whole 10-Gbit/s market, with a 15 percent share. In terms of all optical networking, ranked by revenues, the crown went to Alcatel, with Nortel in second, (NYSE: LU) third and Huawei Technologies Co. Ltd. fourth.

— Craig Matsumoto, Senior Editor, Light Reading

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