As the optical networking sector consolidates, midsized packet optical vendor ADVA sees a growing opportunity to beat larger vendors whose focus could stray as they integrate acquisitions.
Echoing similar comments made by Infinera Corp. (Nasdaq: INFN) CEO Tom Fallon after the Nokia Corp. (NYSE: NOK)-Alcatel-Lucent (NYSE: ALU) merger was announced, ADVA Optical Networking CEO Brian Protiva said on his company's first quarter earnings call last week, "There is a period of time where ADVA can definitely focus and win market share and win customers that are questioning long-term commitments to an existing product portfolio. It's really about execution and how those companies integrate their acquisitions to see if it gives them further opportunity, or slows them down and makes things more complicated." (See Infinera Keeps Its Revenue Streak Alive and Nokia & Alcatel-Lucent to Combine.)
Protiva argued that in terms of focus, margin contribution and other factors, optical could become "the least important" of all segments to a fully merged Nokia and Alcatel-Lucent. "That asset [post-acquisition] becomes €2 billion of €26 billion, instead of [pre-acquisition] €2 billion of €13 billion at this point."
However, while Protiva likes Fallon's philosophy about being able to beat the acquirers while they are concentrating on the challenges of integrating acquisitions, he suggested the same argument applies to Infinera itself as that US company looks to complete its pending deal to buy Sweden's Transmode Systems AB . "I'd say it's true of any acquisition," he said, adding moments later, "I guess that's a comment on Infinera and Transmode." (See Infinera Coming Closer to Mastering the Metro.)
Of course, it remains to be seen how sector consolidation might present itself on ADVA's doorstep. The company has some similarities to Transmode -- strength in services and metro and access products, as well as the fact of the majority of its revenue coming from Europe -- that would seem to make it attractive to a larger company looking for a stronger international foothold and a wider array of products to address healthy opportunities in metro and enterprise markets.
ADVA's positive first quarter report was highlighted by revenue of €95.6 million ($102.2 million), translating to 22.4% revenue growth year-over-year, and more than 10% growth from the previous quarter. The company had strong numbers across the board, and Protiva pointed out that ADVA had more than €73 million gross reserve cash and more than €40 million net cash after the quarter. (See ADVA Quarterly Revenue Up 22% YoY.)
Such numbers don't exactly paint a picture of a firm that needs help from a more deep-pocketed suitor, and ADVA clearly feels it's in a position to grow on its own terms, with the stronger US dollar helping its cost structure, as well as network investment from European carriers and enterprises on the rise and even the growing potential for a better foothold in the US carrier market.
Protiva said ADVA is continuing to plug away at opportunities with two Tier-1 service providers in the US, though he described the potential projects as niche applications. "We feel very good about a footprint in one of the Tier 1 telcos in the US, but it's not a big opportunity -- maybe $4 million or $5 million a year and that's moving forward," he said, adding, "It gives us a contract that enables us to talk to purchasing and technology people in there, gives us awareness and allows us to be on the hunt [for bigger opportunities]."
— Dan O'Shea, Managing Editor, Light Reading