Infinera Corp.: Party line
Putting an optical fiber network together is like wiring a non-stop talker: each component must join to the others, a matrix of cables and synapses that transport information impulses and spew them out the mouth. Infinera Corp. (NASDAQ:INFN) is like that. It is racing toward profitability and won’t stop until it gets there.
Infinera has lots to talk about. It plans to scale networks and increase bandwidth to handle growth in long-term telecommunications demand. It tells about the success of its DTN system, a digital optical communications system, and its unique technologies to address the $15 billion total optical market. And how it’s moving into new venues, such as dense wave division multiplexing (DWDM), which Infinera says is a $6 billion dollar market segment.
And it is not just talking, it’s doing. Infinera is selling DTN systems nearly as fast as it moves information. DTN uses Infinera’s photonic integrated circuit (PIC) technology, which receives 100 gigabits per second of optical capacity and incorporates functions of more than 60 discrete optical components into a pair of indium phosphide chips. That’s a mouthful, but believe the experts: it’s a lot of information, and it’s quick.
Incorporated in 2000, Infinera shipped its first DTN system in 2004. In fiscal 2007 through December, revenues more than quadrupled those of 2006, reaching $246 million from $58 million. At the end of the first quarter, Infinera had 44 customers--telecommunications, cable and internet service providers--in the United States and overseas. Twenty-two percent of its sales were international, to China, France, Germany, Japan, South Korea and the United Kingdom.
Infinera has racked up losses, too: it lost $1.09 per share in 2007, slicing a loss of $14.90 a share in 2006. The average of five analysts shows an expected loss of $0.06 in 2008.
But Jeffrey Schreiner at Capstone Investments thinks Infinera will speed past profitability markers more quickly. He said in a July 23 research note that the company will achieve pro forma earnings of $0.18 per share and show EBITDA of $21.0 million in 2008. He raised his estimates from a loss of $0.05 and negative EBITDA of $1.6 million after Infinera reported better-than-expected second quarter results July 22.
“It remains our belief that Infinera’s integrated PIC technology remains potentially revolutionary within network systems,” wrote Schreiner. He cited new product offerings that include integrated laser functionality—a unique development in telecommunications.
But others still see a loss this year because of the economy’s drag on corporate spending and lowered guidance issued by Infinera in mid-June. Linked to a delay in a customer’s network build, Infinera said adjusted GAAP revenue for fiscal 2008 would grow 10% from its fiscal 2007 invoiced shipments of $309 million, down from previously anticipated expansion of 25%.
Long term, Infinera’s prospects are intact, said Schreiner. “Customer bandwidth growth continues to grow at a torrid pace equaling 50%-100% year-year growth depending on customer specific objectives,” he said. He maintained a “strong buy” rating and has a target of $16.00.
Indeed, the company announced in July that Deutsche Telekom (NYSE:DT), one of the world's largest telecom carriers, had chosen a new DWDM system from Infinera for its pan-European network. The deal is a big one for Infinera and, the company hopes, foreshadows more business to be had with tier one carriers.
Goldman Sachs analyst Simona Jankowski also remains positive on Infinera long-term. “We expect the company to benefit from both market growth and share gains, as carriers adopt its higher-density, more flexible solution to meet the challenges of accelerating bandwidth growth,” she wrote after second quarter results.
Infinera also should benefit as it expands into the ultra long-haul segment—with the recent ILS2 line system introduction—and, with upcoming products, into the metro access segment.
Still, Jankowski has a neutral rating because of the lack of visibility for 2009. She listed high customer concentration as the biggest risk.
Level 3 Communications Inc. (NASDAQ:LVLT) and Broadwing Corporation, which Level 3 acquired in January, combined for 47% of revenue in 2007. Infinera said in its annual report that it expects Level 3 to continue to represent a large portion of revenue for the foreseeable future. Infinera clearly will be harmed if it doesn’t get the business it expects from Level 3.
Outlooks aside, the economy and customer delay in network buildout have muted share values. Sunnyvale, Calif.-based Infinera, with market capitalization of $1.0 billion, is down 24% on the year, compared with the communications equipment sector’s loss near 8%. Infinera went public in June 2007 at $13.00; shares closed Friday at $11.44.
Still, Infinera is one of its sector’s top performers in recent weeks, gaining more than 40% since mid-July. The company also has $211 million in available cash and negligible debt.
Enough said. Infinera has slowed to catch its breath, but it probably won’t stay quiet for long.
About the Author
Contributing author Jennifer Allen has two decades of experience as a writer and editor, mainly as a financial wire service correspondent.
Read More
(click a star)
Enter comment: