It seems its a play on the cycle of 100gb/s upgrades that are taking place. Are these razorblades? Someone referenced UBNT in that once upgrades are made thats it, the components last along time, the cycle turns. Can not the same be said for INFN or will the upgrade to 500gb/s and 1tb/s continue the growth? Its not like cell phones and SWKS where folks get a new phone much more often, or is it?
You are right it is a partial play on the 100 gig upgrade but I think it is more than that. Cycles in the telephone industry used to go in 20 year cycles, but this has changed. Now the cycles are starting to get shorter. Data has forced companies to upgrade their networks. Infinera skipped the 40 gig cycle and went directly to the 100 gig cycle.
Right now Infinera has a 500 gig pic that is being used by the long haul divisions. When the 1.2 tbs pic comes out I am sure the long haul will be using it. So Infinera does have razor and blades. The Razor is the DTN-x product bay. This usually will come filled with some of the blades, 500 gig pic, and client side cards. After this is done if the customer needs more blades they will order some more 500 gig pics or client side cards. The 500 gig pics are the line side which goes between offices and cities. The client sides are the drop and are pointed towards the customer in increments. The customer might want 1 gig, 10 gig, or 100 gig. All of this will be supplied by the transport companies and pushed towards the customer. Some people have said that Infinera does not have a blade model. That the Razor comes fully stocked but that is not what I have seen. Also that doesn’t really make sense unless you are cutting out an old system and replacing it with the DTN-x because none of these companies know exactly what type of service they will need to provide.
The big thing about this upgrade cycle is the push for Ethernet services. While their have been many forms of networking this was generally done at the company level (Lan) and the city level (Wan) but now that is moving into the transport levels. Long Haul and Metro is now going to Ethernet and their is a big push for that. Also M2M is starting out, this is going to push a lot of Data. Cell phones are pushing a lot of Data. Streaming is pushing a lot of Data. So if you look at this you can see that all of this data is going to need bigger pipes. This is why the upgrade cycles are getting shorter.
So what did Infinera do? They designed the DTN-x, which is a transport switch at the electrical level. What this means is that a 500 gig pic can be mapped onto any client side card in the chassis. Also the same chassis can be used for 100 gig pic or the 1.2 terabyte pic. I am not sure just how much bandwidth the backplane can use and that is something I need to check into. But this is a big deal because with their competition they are unable to do this. If you have a 100 gig line side card and want to map a client side port onto it. The line side card and client side card must be side by side. (I am not talking about the 10 gig or 40 gig line side cards because that is old technology now).
I’ve read Foolish Erik’s posts as well. I’m not sure I’m seeing the forest or the trees. In the annual under business and risks(a stark contrast to SWKS annual) it talks alot more about competition. Not sure how much or how long of a competitive advantage they have.
Right now we are not really seeing the competitive edge of the pic because the upgrade cycles have not been that short. But now with the upgrade cycles starting to collapse we will see just how much better the pic technology is. It allows Infinera to design higher bandwidth cards and chips that run cooler and with less energy. They also can bring these cards to market faster. You will see this grow and I believe it will be more transparent as the bandwidth gets larger and larger. If you look at the competition, which of them is talking about having a 1.2 terabyte line side card?
As far as the competition goes it is smart to watch them. Because this field is very intensely competitive. This is the biggest build out since the 1980’s though and we still have half of the long haul, almost all of the metro and still the data centers to go. Now the long haul and metro has been around for along time and they have built relationships with the other vendors (Ciena, ALu) but that doesn’t mean that Infn can not get a piece of the pie because we already see that they have with their growth of Revenue, Margins, and EPS. Also I do not think enough people realize just how big the Data Centers are and are going to be. They already have a market as big as the Metro and I think they will be bigger. I also think that the Data centers will go mostly with INFN. Why? Because Infinera has the smallest foot print, the lowest power usage, and the coolest running equipment. If you have ever been in a Data center you would understand exactly why that is a big deal. A lot of customers, with a lot of equipment. They are amazing.
So, IMHO, I think the growth will continue at least till the 2017’s. But it could go on much longer because of all the Data that is growing. Just think of all the ways we all use the Internet. All the ways that will come along and I can just see this growing and growing. But!!! This is not a company you just let go, Every quarter must be reevaluated to see just where we are.
I hope that helps,
I maybe just a little bullish on this Company so take everything I say with a grain of salt