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DWDM

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

startup_shutup 12/5/2012 | 2:52:15 AM
re: Infinera Courts Rumors My advice to Silly Con valley companies:

Create more value compared to confusion (innovation). Since many can not do that, they resort to fraud.....
dwdm2 12/5/2012 | 2:52:20 AM
re: Infinera Courts Rumors "InP has been a promising integration platform."

Well, I think the above will be closer to reality if restated as: "It would have been attractive if InP was a promising integration platform."

Regarding success of market, technology, or profitability, etc.: Its not a true success unless one can walk in Fry's or Radio Shack, buy an optical 'linksys' or another similar brand, and get connected to a 'real' optical network. Thats a long way to go for anybody.
Diogene 12/5/2012 | 2:52:25 AM
re: Infinera Courts Rumors Stevery,
Volumes are driven by market, not technology.

Again, if you for once do not judge respect profitability, I hope you will agree with me that InP SoC are looking forward respect micro-optic based discrete systems with lenses, filters, connectors, rings of fibers that seems to me very middle-age technology respect the possibility of integration.

InP has been a promising integration platform.
I don't hide low yield, high cost, difficult technology. I do not want defend InP, only the idea. Silicon may do better, I don't know.

Someone is working for the future. Be happy for that. Business is important, but there are also other important things.

Diogene

OpticOm 12/5/2012 | 2:52:34 AM
re: Infinera Courts Rumors I read the article and found no mention of SV.
It was a general article.
Are you twisting the facts to fit your premise?
Stevery 12/5/2012 | 2:52:36 AM
re: Infinera Courts Rumors Infinera may have different weak points, but if they are really shipping systems with InP technology, they are doing very good

How on earth is "shipping systems with InP" a measure of "doing very good"??? There's a bunch of people out there shipping InP, many of whom are losing money hand over fist.

In fact, working in a low-volume technology is more often a measure of "doing very poorly", because the companies using high-volume techology are going to walk all over you.
sigint 12/5/2012 | 2:52:36 AM
re: Infinera Courts Rumors stevery:
In fact, working in a low-volume technology is more often a measure of "doing very poorly", because the companies using high-volume techology are going to walk all over you.
_________________________________________________

While this is a fair comment, I would be loathe to generalize. A recent couter-example is from the auto industry, where Porsche bought 20% of VW, its ostensible "parent".

Diogene 12/5/2012 | 2:52:37 AM
re: Infinera Courts Rumors Dear LightReaders,

World is full of sharks, but that is old history. It happens that, meanwhile others are getting reacher and more powerful, somewhere in a lab someone is developing one of the next big things.

Infinera may have different weak points, but if they are really shipping systems with InP technology, they are doing very good, developing something that may bring important novelty in optical technologies, now more craft-like handmade jewelry than real 3rd-millennium industry, barely surviving only for <1$/hr cheap far east manpower.
startup_shutup 12/5/2012 | 2:52:41 AM
re: Infinera Courts Rumors Silly Con Valley fact:

http://news.yahoo.com/s/nm/200...

"Economic crime remains difficult to detect, despite everybody's best efforts to invest in internal controls," said Steven Skalak, Global Investigations Leader at PWC.

thenight62 12/5/2012 | 2:52:47 AM
re: Infinera Courts Rumors Heard on the rumor mill that Infinera won a big deal with Time Warner Cable....
pigglywiggly 12/5/2012 | 2:52:48 AM
re: Infinera Courts Rumors Dell'Oro interchangeably uses the words "wavelengths" and "systems" when choosing the market winner. With Infinera's integrated approach, one module (or whatever they call it) contains 10 discrete lasers each at a separate wavelength. Nortel, and everyone else, has one wavelength per transceiver. In other words, you can't only buy one wavelength from Infinera, if I understand their box correctly. If my assumption is correct, than Infinera could have sold about one tenth the long haul systems Nortel sold, but the number of wavelengths sold between the two could still be comparable. Of course if this is true, then it obviously begs the question of whether Infinera's system is so cheap that you can buy 10 wavelengths for some cost presumably comparable to 1 wavelength from Nortel.
OpticOm 12/5/2012 | 2:52:50 AM
re: Infinera Courts Rumors I am convinced that the technology is innovative and the team very solid.
The question is if the market will materialize on time for them.
Otherwise, they are great!
whyiswhy 12/5/2012 | 2:52:53 AM
re: Infinera Courts Rumors It may be impressive technology, but the point of a VC funded start-up is to show potential investors / acquirers that you are capable of making money, period. The more, the better.

That means spending less than the net the combination of your company and the market will yield for your product; considerably less. That's called return on investment. Something noone at Infinera has much history of, to my knowledge. I beg to be corrected / informed.

A couple of the posters to this board remind me of posters to the Iridium investment board (another webpage which shall remain un-named). Remember that MOT project? 77+ satellites in precise polar orbits, inter-satellite networking, etc. World mobile phones, anywhere. Super impressive technology (blows this little effort away), negative returns for all it's investors. Even when it was absolutely clear the ship was lost, posters would defend it on the basis of "how impressive the technology was".

Impressive technology = red flag.

Green in the bank = green flag.

JMHO

-Why
Stevery 12/5/2012 | 2:52:54 AM
re: Infinera Courts Rumors "Buying" your way into accounts in the optical transport market is a good way to go out of business. The opportunities are too few to even let one sale be at poor margins.

And it's not like there's any shortage of transport out there. The world needs fewer optical suppliers, not more.

fiber_r_us 12/5/2012 | 2:52:54 AM
re: Infinera Courts Rumors If you can't make money off of it, then it is not "impressive technology". Since they are going for $50M more funding, then they must not be making any money from their sales (i.e. their gross margins are minimal). "Buying" your way into accounts in the optical transport market is a good way to go out of business. The opportunities are too few to even let one sale be at poor margins. The economics of Infinera's business does not make a lot of sense.
Diogene 12/5/2012 | 2:52:55 AM
re: Infinera Courts Rumors Dear Friends,

I may agree with you regarding the business opportunity (i.e. sales and margins will not justify the investment).

But maybe they will survive and live a normal business life, where someone makes money selling stuff. That's good.

But I do not understand your pessimism and your angry. I think it's an impressive technology jump, I think it's good for everyone. I think that this technology may spread in different interesting applications and bring novelty in our photonic industry.

Am I wrong?


dwdm2 12/5/2012 | 2:52:57 AM
re: Infinera Courts Rumors "...story may sound good for VC's, but I doubt their technology is convincible for real industry experts (not "paper experts")."

mding, I am curious... If it is truly an integrated technology (which is not what Infinera doing any way), why the industry experts won't be convinced? If it is really reliable, cheaper, faster, and smaller, aren't they expected to welcome it?
dwdm2 12/5/2012 | 2:52:57 AM
re: Infinera Courts Rumors "Corvis had a revolutionary ULH system..."

This reminds me of a heated dialog once I had with an industry savvy person. In a conf. presentation about an integrated photonics, he stood up and challenged that there is nothing new here, Corvis has already got it done. When asked, how does he know about that, he responded that his son was a consultant to Corvis who already has done everything. After doing a little study it appeared that Corvis has a solution but quite different than what was in the presentation. I am still waiting a response of my e-mail to that gentleman... I can't but agree that Rumor Mill has a much higher transmission capacity than a real thing.
startup_shutup 12/5/2012 | 2:52:57 AM
re: Infinera Courts Rumors Infinera = Infinite Hype Era

This is a Silly Con Valley company, they need to believe in Infite Hype and that history would surely repeat (otherwise SV can not survive).
whyiswhy 12/5/2012 | 2:52:57 AM
re: Infinera Courts Rumors Infinera:

Rumor, buzz, whispers, gossip =

next greater fool bait.

More likely:

Cost exceeds price until volume exceeds world demand.

ROTFLMAO

Oh, and JMHO...

-Why
mding 12/5/2012 | 2:52:58 AM
re: Infinera Courts Rumors Five years ago, we heard a similar story. At that time, Corvis had a revolutionary ULH system and IXC (now called Broadwing) put Corvis's system into their network. The result ? we all know.
Are there any companies use that technology now ?

Now, Infinera has a "revolutionary integrated" system and find Level3 as its customer in some way. Infinera's story may sound good for VC's, but I doubt their technology is convincible for real industry experts (not "paper experts").

Just hope history will not repeat.
Stevery 12/5/2012 | 2:52:59 AM
re: Infinera Courts Rumors The DTN has done that. It will just be a matter of time for them to explode.

or implode.
howsweetitis 12/5/2012 | 2:53:00 AM
re: Infinera Courts Rumors When you go out and make something that has been done before or climb a "Mt Everest" you know in the back of your mind "we can do this" because it's been done before. A benchmark has been set. In Infinera, they are the new benchmark. No one ever did this before so it would have been easy to fold up the tent since and no one would have blamed them...nice try. However, they persuded the seemingly impossible and have commerically succeeded. Only once in a blue moon do you see something that truely revolutionizes the telecom space. The DTN has done that. It will just be a matter of time for them to explode. I am sure the extra cash they are seeking is to get them into the end zone.
Mark Sebastyn 12/5/2012 | 2:53:00 AM
re: Infinera Courts Rumors I think Infinera is very interesting for the simple fact that while 10 other optical switch companies were all trying to build the same thing, they set out to go build something unique with a big competititve advantage. People complain about how long it has taken, but the reality is you can't build something not easily knocked off overnight.
howsweetitis 12/5/2012 | 2:53:02 AM
re: Infinera Courts Rumors Flocking would be a understated word. I would use stampedeing. These guys are for real and they will be the next best thing !!!!!!!!!!
Mark Sebastyn 12/5/2012 | 2:53:03 AM
re: Infinera Courts Rumors I don't think the Dell'Oro numbers are accurate. Huawei, ZTE are not in the top 5? I don't think so.

http://www.nyquistcapital.com/...
Pete Baldwin 12/5/2012 | 2:53:03 AM
re: Infinera Courts Rumors Schmitt -- presuming you're Andrew Schmitt -- thanks for the previous post; your comment about the Chinese vendors is well taken.

I don't want to quibble over the research numbers, though. It reminds me of the crazy baseball stats announcers throw out: "Batting .636 with runners in scoring position against left-handers on Tuesday night games after a rainstorm". OK, Infinera's slice was more reasonable than that, but still --

What I'm really curious about is how much new business Infinera is generating. That is... some of their wins have to be with customers they'd groomed during the past few years, yes? How about new converts? How quickly are they flocking to Infinera?

It's that answer, not the 10-Gig ranking, that would paint a picture of Infinera's long-term stability.
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