Infinera Tanks on Q4 Outlook

Infinera Corp. (Nasdaq: INFN) shares have tanked by about one third this morning, on news that the company is entering a "period of network absorption."

That's the phrase CFO Ita Brennan used on yesterday's earnings call, when Infinera announced its fourth-quarter revenues would be between $115 million and $120 million, compared with an expected $132 million as tallied by Thomson. One key tip-off is the fact that bookings in September were weak, she said.

Infinera's shares were down $4.06 (33%) at $8.27 by late morning Tuesday.

Investors might be particularly disappointed because Infinera reported strong numbers for its third quarter, which ended Sept. 25: revenues of $130.1 million and net income of 4 cents per share.

It's well known that Infinera's numbers can be easily thrown off balance, because the company sells expensive equipment that fits into long-term cycles.

"With customers like Level 3 Communications Inc. (NYSE: LVLT), the cable operators, and some content providers having caught up with bandwidth requirements, customers are taking a pause while they grow into their recent network buildouts," writes analyst George Notter of Jefferies & Company Inc. , in a note published this morning.

This lumpiness, as people like to call it, works both ways; it's possible Infinera could bounce back abruptly. "I would be surprised if the lull lasted more than six months," CEO Thomas Fallon said yesterday.

Notter speculates that optical component shortages might have helped create a mini-boom in systems ordering.

Continuing that thought, it's conceivable that Infinera is being victimized by general industry conditions. Ciena Corp. (NYSE: CIEN) appears to have had weak September bookings as well, analyst Michael Genovese of Soleil Securities Group Inc. reports this morning. If that's the case, it could affect Ciena's fourth quarter, which ends in October and won't be reported until December.

Infinera did have some upbeat customer news to share, including the fact that Qwest Communications International Inc. (NYSE: Q) has begun using its gear in regional networks. Qwest was already using Infinera's DTN system in its national network.

— Craig Matsumoto, West Coast Editor, Light Reading

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Stevery 12/5/2012 | 4:21:01 PM
re: Infinera Tanks on Q4 Outlook

> "I would be surprised if the lull lasted more than six months," CEO Thomas Fallon said yesterday.


Feb. 7, Defense Secretary Donald Rumsfeld, to U.S. troops in Aviano, Italy: "It is unknowable how long that conflict will last. It could last six days, six weeks. I doubt six months."

ninjaturtle 12/5/2012 | 4:21:00 PM
re: Infinera Tanks on Q4 Outlook

$400M haircut. Totally oversold based on a great quarter and Q4 earnings guidance above Q2s. Funny market. Fallon was trained at CSCO where they constantly low balled revs and as a result surprised. My bet is they beat Q4 guidance easily. Just because there visibility is poor today it doesn't mean the orders won't come in for end of year budget closures. It always happens in Telco.

baznyankee 12/5/2012 | 4:20:59 PM
re: Infinera Tanks on Q4 Outlook

CIEN has already posted their 3rd quarter earnings and they have also recently reiterated their 4th quarter outlook (Oct. 12). 

Do you have a link to Mr. Genovese's report of Ciena having trouble with September bookings?  Seems like someone is mistaken, here.   

Pete Baldwin 12/5/2012 | 4:20:59 PM
re: Infinera Tanks on Q4 Outlook

Ninja -- Could be.  They specified that Infinera, like a lot of companies, doesn't include year-end budget flushes in their forecasts, because it's not that predictable.

What we see repeatedly with Infinera is that it's closely watched and not widely traded, so yes, there's an exaggerated Wall Street response to just about anything it does.

Pete Baldwin 12/5/2012 | 4:20:58 PM
re: Infinera Tanks on Q4 Outlook

bazn -- I got my 3rds and 4ths mixed up, as Ciena pointed out to me.  We're talking about Ciena's Q4, likely to be reported in Dec.  I've put in for a correction; apologies to Ciena.

That Genovese's research might not jibe with Ciena's reiterated outlook is... well, not that surprising, really.  He's doing research; I'd be skeptical if he always agreed with management.

Here's what he said. Note that there's still room here for Ciena to make Q4.

"Our checks into direct competitor Ciena (CIEN-Hold) suggest softness through September as well, with a strong October needed to make [Q4], suggesting Infinera's issues are at least partially macro in nature."

paolo.franzoi 12/5/2012 | 4:20:57 PM
re: Infinera Tanks on Q4 Outlook


You could also say that Infinera loses money and growth is the only path to making money.  If it slows, then....


That is the point when you place a bet on this kind of a stock.  Any hiccup results in a significant haircut.  That haircut is justified as there is no track record for what happens next.  Imagine that this is the new top line for the next year.  





baznyankee 12/5/2012 | 4:20:56 PM
re: Infinera Tanks on Q4 Outlook

Thanks Craig,

Perhaps Ciena has the benefit of a couple of weeks of "great" October sales that would lead them to reiterate their 4th outlook which is about the only explanation, other than wishful thinking on their part, if one is to buy into the Genovese "softness through September". 

I don't buy his (Genovese) conclusion about the "partially macro in nature" issues for Infinera, either since they seem to have lost their biggest customer (Level 3) to Huawei.  

ninjaturtle 12/5/2012 | 4:20:56 PM
re: Infinera Tanks on Q4 Outlook

Actually the level 3 thing is still ongoing with new network adds. More importantly the TAMS they continue to purchase to fill slots will benefit INFNs mix for higher margins and revs. BTW the TAMs are ~ a 75% margin product for INFN. Cost is minimal. ~ $400 for parts and labor I estimate when looking at one.

baznyankee 12/5/2012 | 4:20:56 PM
re: Infinera Tanks on Q4 Outlook


You are probably correct as my comment was based on another commenter's (Yahoo finance) feeling, based on his contacts with Level 3-in other words hearsay.

However this from Silocon Investor:  Analyst Sandjiv Wadhwani of Stifel Nicolaus said INFN exited the quarter with lower order bookings due to ......................lower expectation of demand at key customer Level-3 Communication....,a 19 percent customer in this quarter.

Am unsure if this is due to the entrance of Huawei.   


^Eagle^ 12/5/2012 | 4:20:46 PM
re: Infinera Tanks on Q4 Outlook


Well said!


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