Mine was based on past upgrade cycles. Regardless, we should see business among suppliers (in aggregate) pick in 2015. If AFOP sales continue to be flat after next quarter while competitors’ business expands then we have a problem.
I agree Chris if Afop can not grow in this market then they will have a big problem. They need to get out there and take market share. I am going to evaluate them at the end of the year.
Regarding your opinion of metro (as opposed to long haul) buildout, how big do you think this opportunity is and how long do you think the build out will continue? And what are the risks associated? And do AFOP’s current product mix address this opportunity? Thanks.
This is what Tom Fallon stated on Infinera’s last conference call. I trust what he has to say because I have always seen his statements as conservative and muted. That could be one of the reasons Infinera just can’t take off.
On that note, I would like to make a few comments on this rapidly growing data center interconnect market and also the Metro market. We see the datacenter interconnect market segmented into long-haul and Metro. We see the very high capacity Metro portion of this data center interconnect market which we were calling Metro cloud as distinctly different from a more traditional Metro aggregation market driven by telcos and cable operators. We believe that large scale a 100 gig in the Metro will happen first in the Metro cloud market starting in earnest in early 2015. And that 100 gig in the Metro aggregation market will become interesting in late 2015 or early 2016, a view shared by many industry analysts.
Second, the migration of high capacity requirements into the Metro provides a new opportunity for us to use differentiated PIC technology to bring customers the experience they have grown the count on in the core. The overall Metro market is estimated to be over $7 billion by 2018 with the main growth driver being 100-gig according to Dell’Oro. This high-capacity 100-gig segment, which we plan on addressing, represents a significant opportunity for expansion. Third, the emerging high-capacity metro and long-haul cloud market is an opportunity we believe will be best served with high-capacity PIC-based solutions. While this category is currently tracked as part of the overall DWDM market, we believe that this market will grow extremely quickly and may add to the overall TAM of the DWDM market.
Chris I believe, don’t hold me to this, that they said the long haul portion was around 5 billion. I work at the Metro level and we just started putting in 100 gig pipes. That is only going to grow. I am sure if Infinera gets a Metro product that we will have it in our network. Here is a little more color from that last Infinera CC.
Simona Jankowski - Goldman Sachs
Sure, sure. Appreciate that. And just one last question on the timing of the Metro opportunity which I think before you had kind of talked about the real volume in the industry which is typically what you look to intercept happening more towards the end of 2015, but now you kind of broke that opportunity up into two parts kind of the aggregation piece and the cloud piece and it sounds like the cloud piece you think will be taking off in early ’15, so is that a little bit of change in the timing of when you think you will be intercepting that opportunity?
Tom Fallon - Chief Executive Officer
We are going to try to always intercept opportunities as the opportunity becomes interesting which is with volume. And you can anticipate we are going go hard after both the cloud interconnect market and the more long-haul market or aggregation market. And Simona, I am in hold off on giving any more details because I am excited about people coming to visit us in September to get a deep drive on what we are doing.
any impact, it’s just – it may impact the timing and size of future deals.
Alex Henderson - Needham
Okay. Going back to the metro side of it for a second, Sienna made the comment that 20% of their sales of coherent went into the metro last quarter. Would you characterize the market currently as straight cloud interconnect within that context of the granularity that you gave earlier? It seems like the coherent market is seeing some move into metro, but it’s not clear from what’s been said whether you would – which category that would fit into?
Brad Feller - Chief Financial Officer
Yes, there as Dave Welch - we have started before we do supply some of our products in the high capacity metro or even metro regional markets. The application of that is high-capacity aggregation rings and/or high-capacity datacenter connections to that. That is – if you look at the historical numbers of the growth rate and total unit volume that we expect out of the Metro market it is insignificant to the opportunity that’s out there. So currently we supply with the exclusion of China we supply – are the largest supplier of 100 gig technologies out there. And we expect to the Metro market to turn on as Tom indicated from volume perspective from the data center connections start turning on more so in ‘15. And the aggregation rings late ’15, beginning of ‘16. You will see applications within that, prior to those dates but from a volume perspective I don’t think they will really be that accelerating until those timeframes.
Tom Fallon - Chief Executive Officer
One of the things I’m asking I think about Alex is we certainly understand that today, there are some 100 gig coherent being deployed in the Metro. I pick the word interesting for the volume of it carefully. If you look back on the long-haul market, the initial 100 big coherent entered the market in 2010, the market became interesting 2012, 2013 timeframe. That’s when the bulk of the decisions were made, that’s when the bulk of the dollars started to ramp, it’s when market share was earned. And it’s the path we followed with the DTN-X and I think has served us quite well. So when we say that 100 gig in the Metro because interesting in 2015 late ’15, ‘16, you should kind of map into that kind of model.
Thanks to seekingalpha I was able to get these from Infinera’s last CC.
I think it is helpful to read Infinera’s CC because they do give some great insight to what is going on. At the Metro end we are already running 1 gig into people’s homes on fiber so we are ahead of much of the country, not counting Verizon. But this is the wave of the future and all everything needs to be changed out from copper to fiber. This is going to take awhile and some copper plant may not ever get changed out but I was talking to a technician for a small telco company in Utah and he said his companies ten year plan was to have every customer on fiber by the end of 10 years. This makes me think that all broadband suppliers will be going this route.
When you and Saul first started talking about AFOP I was not interested because it really is a commodity player with some big companies. But when I started looking at the numbers how could you argue with that.But I agree that if they can not keep growing then they are losing market share and I will be out.
Regarding your opinion of metro (as opposed to long haul) buildout, how big do you think this opportunity is and how long do you think the build out will continue?
Chris I think Fallon is very conservative so when he said the Metro was 7 billion I am thinking it is twice that. There is alot of data kept at the Metro level especially with all of the companies like Netflix and Amazon Prime. Companies are storing those video’s at the Metro level. As far as the buildout, I am not sure, but at the Metro level it is just at the very beginning stages. I would say at the Transport stage we are at the beginning of the middle stage.
And what are the risks associated?
I see the biggest risk is that other companies start taking Afop’s market from them, They make what I would consider the nuts and bolts of the Fiber optic world. Not the real high tech portion but a necessary part of it. Another risk is that they do not keep bringing more products to the market place. There are alot of avenues of growth they can take because they do have the capabilities to expand. They could be making FOT’s and competing with Corning and SFP’s(small form pluggable’s) to compete with Champion to name a few. Also they are already into the fiber jumper or patch cord’s which alone can help them grow. Those are used extensively in the industry.
And do AFOP’s current product mix address this opportunity
Personally I think their product mix will work out good for data centers and broadband central offices. But they have the ability to grow from there into the enterprise network. I would like to see them branch out even though the Data center growth right now is impressive.
I hope this helps some Chris. This is my view point and I just started looking at Afop so I may not have a real clear picture of them yet. I have opened a position on them though.