Should Infinera Go Metro?
The company's had a good year, with a successful IPO, a series of customer wins, and continued revenue increases -- although its math draws some serious questions. (See Reading Between the Lines at the Infinera Time Machine.)
But analysts say Infinera has plenty of opportunity still available -- or, depending on how you look at it, a big piece missing.
"Being only a long-haul player leaves a big hole. They need a metro product," says Heavy Reading analyst Sterling Perrin.
Infinera seems to already realize this. In a note published yesterday, analyst George Notter of Jefferies & Company Inc. writes that Infinera "is working on a metro product with expected delivery in 2009."
Infinera declined to comment.
Here's the problem: Infinera's DTN system is well suited for bandwidth wholesalers and long-haul backbones, since it offers densities of 100 Gbit/s per line card, in the form of 10 10-Gbit/s channels. (See Infinera Declares WDM War.) But for smaller deployments, that's overkill.
The consequences can be seen at Level 3 Communications Inc. (NYSE: LVLT), Infinera's flagship customer. Level 3 deploys Infinera gear in places where it will need six or more wavelengths and uses ADVA Optical Networking in situations requiring less than six, Notter says.
A scaled-down DTN might be suitable for those small jobs, but it would also lose the density that gives Infinera its cost advantage. Moreover, the metro market is more sensitive to price than the long-haul market. "The question becomes, 'Can they drive down the cost of the DTN by redesigning the PIC [photonic integrated circuit] interface or the PIC chip?'" Notter tells Light Reading.
Another avenue that Infinera could take to address the metro market is through acquisition, analysts say. Many believe that Infinera's secondary offering announced last month -- which boosted its cash stash to $300 million -- was a way to shore up for a possible purchase. (See Infinera Aims to Raise $113M.)
One rumored target is ADVA, due to its place in the metro market and its large accounts in Europe. But it might make more sense for Infinera to acquire a company for its technology than for a product portfolio, says Mark Lutkowitz, an analyst at Telecom Pragmatics Inc.
"They wouldn't necessarily want to sell anyone else's products, but they might be able to acquire technology that they could integrate into their own system," Lutkowitz says.
"They're not going to buy another PIC company, because they're the only ones doing it. They could try and create a PIC for that product. That might be one way of going about it," says Ehud Gelblum, an analyst with JP.MorganChase . The problem is that it could take Infinera up to 18 months to integrate another company's technology into the PICs.
Whether a metro system is in Infinera's future or not, the company's got another notable vacancy: no Tier 1 carrier wins.
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