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OceanJackson (< 20)

The Rise And Rise Of Infinera



August 02, 2013 – Comments (2) | RELATED TICKERS: INFN

The article posted below is taken from CS Compound Semiconductor, was originally published on July 12, 2013, and can be found here: 

It provides insights into where the company stands today in this growing "Terabit Era" of Networks. 

The Rise And Rise Of InfineraJuly 12, 2013Infinera is storming long-haul fibre optic markets with its InP-based WDM platform. Compound Semiconductor finds out how.

Making waves: Telecoms providers across the world are turning to Infinera's latest  platform, based on InP-based PICs, to take communications further.

In 2005, Infinera lit up the long-haul fibre optic telecoms market with the release of a wavelength division multiplexing platform, the DTN.

Based on the company's in-house manufactured InP photonics integrated circuits (PICs), the platform catapulted the then start-up to number one in the 10G North American market. Eight years later, history has repeated itself.

Watching demand for bandwidth rise at exponential rates, Infinera has spent the intervening years honing its DTN-X platform for 100G networks while competitors built 40G platforms before moving onto 100G. The platform was delivered in 2012 and today, the company has seized around 35% of 100G market share.

As Geoff Bennett, Director of Solutions and Technology at Infinera, puts it: “We've moved straight into the number one position in the 100G market. Eighteen months ago Ciena had 95% market share here and now they have less than 10%.”

And with analysts across the board forecasting continued strong growth for 100G - Infonetics predicts coherent 100G shipments to double this year, and then again in 2014 - the future looks bright for Infinera. Carriers, from New Zealand-based FX Networks to PacNet, Hong Kong, are snapping up the company's 100G platform to build networks delivering 10, 20 and 100Gigabit Ethernet services. And Infinera's finances reflect this.

“Our [North American] competitors, Ciena, Alcatel and Nokia Siemens Networks, are massively encumbered by debt,” says Bennett. “We have something like $300 million in the bank, were a gnats whisker away from making money in the last quarter, and expect to move into profitability later this year. We're certainly optimistic about the rest of the year.”

So what is Infinera doing that the rest of the pack isn't? Bennett firstly attributes the company's rising revenues to its sales of DTN-X. The platform features 500Gb/s PICs, which integrate more than 600 optical functions onto a pair of chips, and built-in optical transport network (OTN) switching.

“Our product does not address the 100G marketplace with 100G transponders, as everyone else does. We are the only company shipping 500G super-channel line cards. And we are the only company that includes full non-blocking OTN [optical transport network] switching in every node,” he says.

Indeed, competitors are currently delivering 100G line cards and while OTN switching - crucial to eliminating stranded capacity and optimising network routing - was once considered niche, service providers now see the technology as a must-have for scaling future networks.

Clearly Infinera's dogged development twinned with industry insight - bypassing 40G and building OTN switching into architectures - has spawned sales, but Bennett also attributes success to the company's unique structure.

“We are the only long-haul systems vendor that builds its own chips. We design and fabricate our InP PICs, we have our own fab in Sunnyvale and we integrate these PICs into our own system products,” he says. “We do not sell these chips to anyone and we have complete control of our supply chain. We don't have to pay any margin to a components company; we are completely vertically integrated.”

Bennett will not be drawn on where in the supply chain his company's profitably lies; InP PICs are notoriously difficult and costly to fabricate while systems integration is relatively straightforward.

But as he highlights: “Infinera took a huge risk in developing its own InP technology. That risk was venture capital funded and couldn't have been funded in any other way... so it's now good to see that risk being awarded by unprecedented market acceptance.”

“We were shipping for just one quarter and we jumped from zero [market-share] to market leader; that's just astonishing,” he adds.

After years of heavy investment, Infinera's InP chip development is paying off.

Critically, the company's high risk InP technology is holding the cheaper, China-based competition - namely Huawei and ZTE - at bay, for now. Huawei is busy deploying its 100G WDM system across China, but Infinera still claims most 100G market share.

“Infinera is number one, Huawei is number two. ZTE and Huawei are winning market-share by undercutting the competition... so when we encounter our Chinese competitors we've got to work really hard to differentiate our product,” explains Bennett.

“We can do this with our 500G super cards and OTN switching but I fear for our western competitors,” he adds. “They are basically shipping the same stuff as Huawei and ZTE and that's why they are not able to make money.”


2 Comments – Post Your Own

#1) On August 03, 2013 at 11:42 AM, constructive (99.96) wrote:

Yet even with 35% market share they still aren't profitable. Telecom equipment is a really bad business.

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#2) On August 03, 2013 at 12:46 PM, OceanJackson (< 20) wrote:

I think the Telecom business is a fine one, it's certainly a necessary & crucial one.  But it's cyclical.  How long will the "they're not profitable" argument continue to play out against Infinera?  About 80 more days - when they announce Profit for Q3 2013 and see margins & revenue expand from there for the next couple years at least.

The projection is for .$01 - $.07 EPS.  The telecom equipment cycle is just beginning for 100g.  Infinera is the best positioned at the start of this cycle, with the leading product & service. They are taking market share.

Going public in 2007, and suffering through the Great Recession, has held Infinera at bay.  But they've strategically skated to where the puck would be today - and we've got a winner here plain & simple.

With the market at all-time highs, some saying it's a new bubble, one underperforming area has been Tech.  A cyclical tech growth company at the start of a new, that's where your money 'oughta be right now in my opinion. 

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