Infinera Shares Sink Along With Q3 Outlook

Infinera's hopes of a second-half recovery grew foggier this week, as the company issued a third-quarter forecast well below analysts' expectations.

That announcement, part of the Infinera Corp. (Nasdaq: INFN) second-quarter earnings report on Thursday, send the stock down 16.5% on Friday, to $9.57.

The pending merger between CenturyLink Inc. (NYSE: CTL) and Level 3 Communications Inc. (NYSE: LVLT) continues to be a headache, as Infinera counted both carriers as significant customers, and they've clamped down on spending while waiting for the deal to clear. (See Level 3, CenturyLink on Verge of Merger and CenturyLink Posts Lackluster Q2.)

That's old news, but three months ago, CEO Thomas Fallon was speculating that the tough business climate, including pricing pressure and weak carrier capex, could rebound. (See Tough Start to 2017 for Infinera.)

We now know that won't happen in the third quarter. Infinera lowered its forecast for the quarter to $185 million to $195 million missing analysts' forecasts. Michael Genovese of MKM Partners, for one, had modeled $196 million.

Analysts still like the story behind Infinera's new products, specifically Cloud Xpress2 (data center interconnect) and XT-3300 (subsea transport), but they still see Infinera being in a tough situation.

"The softness in the 3Q17 outlook looks to come from Metro in EMEA, Latin America and the Telco vertical in the U.S., which is still seeing M&A related negative effects," Genovese writes in a note issued this morning.

George Notter of Jefferies prefers to look at the business climate, including the CenturyLink-Level 3 situation, as an issue of bad timing that will pass. "The product development pipeline -- and their relative competitive position once those products ship -- is much more important," he writes in a research note.

For its second quarter, which ended July 1, Infinera reported revenues of $176.8 million and net losses of $42.9 million, or 29 cents per share. In the same quarter a year ago, Infinera reported revenues of $258.8 million and net income of $11.5 million, or 8 cents per share.

Non-GAAP losses of 15 cents per share, beating consensus expectations by a penny, Genovese wrote.

— Craig Matsumoto, Editor-in-Chief, Light Reading

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