Infinera Wins DT, Loses the Day

Infinera Corp. (Nasdaq: INFN) finally got to announce Deutsche Telekom AG (NYSE: DT) as its first Tier 1 customer, but the equipment vendor's stock was down 26 percent after hours Monday night as the company shrank its forecast for 2008 revenues. (See Infinera in at DT.)

Infinera announced that this year's invoiced shipments -- a measure of sales levels -- will be up 10 percent from the $309.3 million recorded in fiscal 2007. However, the company had previously forecast annual revenue growth of 25 percent. (See Infinera Lowers Forecast.)

The verdict? Shares fell $3.54 (25.6%) to $10.27 after hours.

Revenues for the second quarter, which ends this month, are still on track for $88 million to $90 million. Then again, that range itself was a disappointment. When Infinera made that forecast in April, analysts were hoping for more like $95.6 million. (See Infinera Profits, But Gives Lower Forecast.)

The culprits are customers in North America -- hardly surprising, since that's home to the bulk of Infinera's business.

Specifically, those customers won't come through in the third quarter as strongly as Infinera had believed. Some buildouts are moving slower than expected, and some sales are taking longer than expected to land. Infinera's newly released products are also dampening sales, though that's a more minor effect, chief financial officer Duston Williams said on a call with analysts Monday evening.

Infinera doesn't believe it's losing any customers; in fact, today's news came alongside the DT announcement, and CEO Jagdeep Singh said on the call that at least two other new customers could be added before the month's end. (See DT Picks Infinera and Infinera in at DT.)

That Infinera's long-awaited Tier 1 debut is in Europe might not be too surprising, but most bets appeared to be on BT Group plc (NYSE: BT; London: BTA) being Infinera's first big catch. (See Nortel, Brocade Buddy Up.)

The DT deal, for a pan-European network, includes some services that will force Infinera to divide the sale into ratable revenues spread across four years. That kind of amortization is how Infinera has reported most of its revenues -- a side effect of intentionally conservative accounting methods, the company says. That's why it prefers to be measured in terms of invoiced shipments rather than revenues; the former is a better representation of how much money the company is bringing in, officials claim. (See Infinera Smooths Out the Lumps.)

In the first quarter of 2009, Infinera expects to switch to reporting revenues without these complications. The DT deal doesn't change that plan: "We are continuing on the path that we have advertised," Williams said.

Still, this means DT's revenues won't show up in the 2008 reports. In fact, the deal costs Infinera at first. The company will take a $1 million charge this quarter and another $3 million in the third quarter. "Most of this reflects discounts associated with the total contract that will be recognized against the first product purchases," Williams said.

As for the overall size of the deal, there's no way to tell yet, Williams said. It's going to depend on how much DT likes the equipment and how well Infinera performs as a supplier.

— Craig Matsumoto, West Coast Editor, Light Reading

materialgirl 12/5/2012 | 3:38:24 PM
re: Infinera Wins DT, Loses the Day The revenue miss at INFN shows how hopeless the NGN revenue model is for telcos. Either PIC is not asnecessary for NGNs as management implies, or NGN networks are not necessary. That spells more trouble ahead.

Trading at under $1B, at what point does INFN become a take-over target for CSCO?
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