Infinera CEO: The 'R' word is dampening carrier demand

According to Infinera CEO David Heard, there's one word that's haunting the halls of service providers worldwide: "When you hear the 'R' word, recession, a lot of them are sweating their assets and running a little hotter and burning down backlog," he said.

The chief of the telecom component vendor explained during the company's quarterly earnings call this week that service providers are in the process of reviewing their overall spending amid tightening economic conditions and the threat of a recession.

But Heard argued that Infinera, primarily an optical systems supplier, remains relatively well positioned.

"I think the good news for the long term and the medium term is actually that fiber is a big priority," he said, according to Seeking Alpha. His comments are a nod to historic fiber buildout in the US and elsewhere.

"We've got some design wins in many of those big CSPs [communication service providers]," Heard said.

Figure 1: (Source: dpa picture alliance/Alamy Stock Photo)

Most financial analysts agreed with Heard's assessment and outlook.

"Like others in the sector, Infinera is seeing some increased macro caution," wrote the financial analysts at Rosenblatt Securities in a note to investors. "We are positive on the optical industry, and like Infinera's story."

In their own note to investors, the analysts at Raymond James said that "Infinera's business tends toward lumpiness." However, they added, "we are optimistic regarding Infinera's roadmap."

The inventory question

Infinera is one of several top telecom vendors dealing with "inventory absorption." Network operators in North America and elsewhere snapped up all the equipment they could during the COVID-19 pandemic, largely due to traffic spikes amid a troubled supply chain. Now, as the pandemic abates and supply chains relax, they are trying to put those stashes to use.

As a result, they're not buying anything else. That situation has affected vendors including Corning, Nokia and Adtran.

"Within the communication service provider or CSP customer segment, we are also seeing a push out of some projects as customers work down inventory and run their networks a bit harder," Heard said.

Partly in response, Infinera forecast a slump during the middle of this year. However, the company maintained its overall expectations of 8% revenue growth for 2023 – a signal that it doesn't believe fears of a recession will dramatically cut into its business prospects.

"We find Infinera's confidence in its 2H23 order outlook, which is based on its sales pipeline and customer conversations, to be notable," wrote the Rosenblatt Securities analysts.

Is Infinera for sale?

One issue Infinera officials didn't address during the earnings call was a report that the company is for sale.

"We are skeptical regarding speculation that Infinera is an acquisition target, but we would never say never," wrote the Raymond James analysts. "Why would Infinera want to sell now, when it believes it can get to $1 of EPS [earnings per share] by 2026 from $0.20-$0.30 in 2023?"

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mdash; Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano