Summary
The CEO from Infinera will obviously continue to make statements that defy reality until he steps down next year. The analyst quoted in the article is wrong about the argument regarding the 40G space as being “somewhat compelling. It is not convincing at all.
Analysis
The analyst should be more than “concerned that late entry into the marketplace limits Infinera’s opportunity in 40G.” He should be downright alarmed. What other reason could there be for Infinera losing the contract with Level 3 other than the supplier missing a 40G-centric product? We have written in the past how much the carrier likes the product. It could not really be about price. Although Level 3 is obsessed with maintaining the lowest cost network in the business, one is not talking about Global Crossing here, which will buy anything. Level 3 must have been convinced that Huawei is offering at least a satisfactory product. In any event, Infinera would have undoubtedly matched any price from any competitor to maintain its relationship with the service provider. It has practically given away products in the past.
The point that Infinera “wants to be the best” in the 40G market does not pass the laugh test. It has simply had difficulty getting its technology up to higher speeds. In fact, Infinera is considered by carriers to be in the weakest position of all transport providers at 40G.
The fact that “Nortel was also early to the 10G market that Infinera eventually dominated” is irrelevant. There are 10G interfaces all over telecom networks. The 40G opportunity will be much smaller as major carriers are looking to move to 100G as quickly as possible. More importantly Infinera’s “disruptive economics” after the technology bubble burst earlier in the decade led to a major decline in the size of the total market for 10G. The comparison with Nortel is also ridiculous because it was able to bring in several billions of dollars worth of revenue on its OC-192. In addition, with its closed system, Nortel had relatively high margins during the boom. Now the profit potential for 10G is much less.
As far as “play[ing] in the full range of applications in the DWDM space” is concerned, it is more out of desperation than anything else. There was the announcement of the RUS approval for RLECs, which mainly caters to Tier 3 providers. In that space, access equipment dominates expenditures – not long haul or even metro. Getting into the submarine business does not appear to make any sense. What’s next – the medical industry?
It will be clear early whether the new CEO of Infinera is willing to set a new tone and get the entire company all on the same page. If there are these kinds of hyped comments, one will know nothing has really changed.
Samuel Greenholtz consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
