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Infinera Obliterates Q4 Estimates

Light Reading
News Analysis
Light Reading
1/31/2008

Infinera Corp. (Nasdaq: INFN) posted a narrower GAAP loss in the fourth quarter, but it demolished analyst estimates on invoiced shipments, the metric that the company says really counts.

By generally accepted accounting principles (GAAP), the optical equipment vendor posted a loss of $3.9 million, or 4 cents per share, on revenues of $76.1 million. That compared with a loss of $25.0 million, or $3.55 per share, on sales of $43.8 million during the same quarter a year ago. (See Infinera Reports Q4.)

Invoiced shipments were up 32 percent, to $93.4 million in the fourth quarter of 2007 from $70.5 million in the fourth quarter of 2006. Wall Street estimated that Infinera's fourth-quarter revenue would be $85 million on an invoiced shipment basis.

But it's in the non-GAAP earnings where Infinera blew the numbers away. There, it reported net income of $15.9 million, or 17 cents per share, for the fourth quarter, beating the consensus estimate of 2 cents per share.

That compares with a non-GAAP loss of $7.3 million, or $1.04 per share, in the fourth quarter of 2006.

Invoiced shipments matter because Infinera doesn't report a sale all at once, instead spreading the money across multiple quarters or even years, as a software company would. As a result, Infinera says invoiced shipments are a better measure for what's being sold. (See Infinera Smooths Out the Lumps.)

Infinera shares were up 83 cents (8.5%) at $11.02 in early after-hours trading.

The company, which makes a highly integrated optical transport system based on photonic integrated circuits, added three new customers in the fourth quarter, bringing its total customer count to 41.

After heavy dependence on Level 3 Communications Inc. (NYSE: LVLT) early on, Infinera is getting sales from a wider customer base. Four customers represented at least 10 percent of Infinera's revenues last quarter, including Level 3 and Cox Communications Inc. , the company says. No customers accounting for more than 18 percent of its sales.

In the previous year's fourth quarter, the company had only two 10 percent customers, with Level 3 accounting for nearly half of all invoiced shipments in the quarter.

While Infinera scored its earliest customers, including Level 3, due to the density and scaleability of its gear, the company has recently begun talking up the service provisioning advantages of deploying its equipment, including "bandwidth virtualization," which the company says allows faster provisioning of services in carrier networks.

That marketing pitch has helped it win accounts in companies like Equinix Inc. (Nasdaq: EQIX), XO Communications Inc. , and 360networks Inc. , among others. (See Equinix Calls on Infinera, XO Picks Infinera Again, 360networks Picks Infinera, and Infinera Pulls a 360.)

Elsewhere in its fourth-quarter numbers, Infinera said GAAP gross margins rose to 36 percent in the fourth quarter, from 34 percent in the third. Gross margins on an invoiced shipments basis were 47 percent in the fourth quarter, compared with 43 percent in the third.

For the fiscal year, Infinera posted a loss of $55.3 million, or $1.09 per share, on GAAP revenues of $245.9 million. That compared with a loss of $89.9 million, or $14.90 per share, on sales of $58.2 million during the year-ago quarter.

On an invoiced shipments basis, the company earned $24.1 million, or $0.37 per share, on revenues of $309.3 million in fiscal 2007. That compared with a loss of $49.4 million, or $8.18 per share, on invoiced shipments of $146 million in 2006.

— Ryan Lawler, Reporter, Light Reading

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optiplayer
optiplayer
12/5/2012 | 3:48:53 PM
re: Infinera Obliterates Q4 Estimates
What's not to like.

- Strong revenue growth
- Continued GM expansion (many here doubted this could ever be done)
- Continued customer diversification with 4 10% customers and no customer over 18% of revenue.

They are making excellent progress. Now they need a Tier 1 customer to take it to the next level. I'm also curious to hear what guidance they provided for next Q and 2008. Will listen to the call later.
Pete Baldwin
Pete Baldwin
12/5/2012 | 3:48:53 PM
re: Infinera Obliterates Q4 Estimates
Shares have continued to climb since press time ... they're now up about 18% in after-hours trading.
litereading
litereading
12/5/2012 | 3:48:52 PM
re: Infinera Obliterates Q4 Estimates
You know, I think the SEC should start making all companies report "Invoiced Shipments" - 'cause that's the real measure of success!

litereading
litereading
12/5/2012 | 3:48:52 PM
re: Infinera Obliterates Q4 Estimates
Wow, Craig, you think the stock might get back to its IPO price?
ninjaturtle
ninjaturtle
12/5/2012 | 3:48:51 PM
re: Infinera Obliterates Q4 Estimates
Does LR make or generate money? Do they pay you Craig or are you still an intern? If they do they you owe them back that 25 cents.
Pete Baldwin
Pete Baldwin
12/5/2012 | 3:48:51 PM
re: Infinera Obliterates Q4 Estimates
Wow, Craig, you think the stock might get back to its IPO price?

LOL. Yes, always good to be reminded that they're still a 'down' story overall.
ninjaturtle
ninjaturtle
12/5/2012 | 3:48:51 PM
re: Infinera Obliterates Q4 Estimates
There have been so many negative comments spewed on LightReading it just makes me feel good to see that INFN is not only doing well but has a very secure business model that should make it a huge success in the future.

As far as "Invoiced Shipments" that is the only way they can show their numbers correctly. It is by the way how most telecom equipment companies do it. They just don't say it that way. But if that is how you report and you are comparing quarter to quarter, it all rolls out the same at the end of the day.

Great Year INFN. And to the LightReading crowd that thought for the last 7 years that INFN wouldn't amount to anything. FU!!!!!!!!!!!!!

BTW by year end INFN will be in the $20-$25 range so hop on the train now. Look for a $425M 2008 revenue number. INVOICED THAT IS!!!!! Hee Hee
howsweetitis
howsweetitis
12/5/2012 | 3:48:50 PM
re: Infinera Obliterates Q4 Estimates
for a new IPO. Good for you INFN. Keep ROCKING!!! Very compelling story and Technology.
ninjaturtle
ninjaturtle
12/5/2012 | 3:48:50 PM
re: Infinera Obliterates Q4 Estimates
I agree...they are off to the races. Should be a very impressive 2008. Cheers.
hyperunner
hyperunner
12/5/2012 | 3:48:49 PM
re: Infinera Obliterates Q4 Estimates
...now it's time for the market to learn how to get comfortable with this company. The company keeps bringing in better than expected revenue growth, profits rising, costs falling and dependence on Level 3 is almost a thing of the past. The stock is in the crapper partly because the whole market has gone south, but more specifically because Infinera is such a volatile stock, they will inevitably be hit harder by a weak stock market. But the flip side is that they recover more quickly if sentiment changes.

I'm a big fan of the Infinera technology, but it's clear that as they are becoming so dominant in the ROADM space they need to figure out how to increase their addressable market (this isn't insight by yours truly, they get asked the same question on every earnings call).

So what is it to be?

- Develop their own metro product?
- Acquire a metro company?
- Develop their own carrier Ethernet platform?
- Acquire a carrier Ethernet platform?
- Something else?

I read this list and I get a bit worried because, as far as I can see, PIC technology on its own does not give them any serious advantage in any of these markets.

What a lot of people don't get though is that the PIC makes other stuff practical too. In particular this bandwidth virtualization thing, while a real geek fest of a name, actually starts to look interesting for a carrier ethernet edge device.

And while they don't make much noise about it, Infinera has the most flexible GMPLS implementation on the market.

If they can pull a story together around these technologies then I think they can turn a technology acquisition into a commercial success (something that is all too rare).

So when I look for future growth from this company I have to think an acquisition of a carrier Ethernet company is on the cards in 2008. The problem is that Ciena has overpaid for WWP and set the entry price for an acquisition pretty high.

Any thoughts?

hR.
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