INFN - November 2015

Now we’re getting closer to being caught up on INFN. These excerpts are from six months ago.


Other Random Musings
Mixed Signals
CEO Fallon can be transparent with analysts to a fault. He noted that two customers have pushed orders from Q4 into Q1. He further noted that Infinera hasn’t seen signs of “year-end money” becoming available, although he also noted that it might be too early to see those signs. He also pointed out that Europe doesn’t seem as strong as he expected it would be. In practically the same breath, he highlighted positives. Q3 was strong and guidance for Q4 is likewise strong. Lead times for optical components are longer than usual, indicative that optical equipment manufacturers across the board are seeing solid demand. He repeatedly cautioned analysts not to read too much into his negative comments, and eventually got to the point where he virtually stopped answering questions about it. For example:
Analyst: “Sorry to continue to beat a dead horse here. But, Tom I don’t think you mentioned any customer vertical where you saw these push-outs?
CEO Fallon: “ No, we didn’t, and we’re not going to … I don’t want … you guys [to] make it a bigger deal than it is.
This doesn’t disturb me at all. Q1 is seasonally weak, and it will start with a couple orders that otherwise wouldn’t have been there. Yes, the pushing out of orders can be viewed as signs of budgetary tightness. For many of Infinera’s customers, their network is critical to their business. Network investment can only be stalled for so long before the business starts to suffer.

On the Attack
During his prepared remarks, CFO Feller twice used the word “attack”; once regarding end-to-end opportunities and once specifically in regard to the Metro market. During the Q&A session, one analyst raised the issues of industry consolidation and of Infinera’s margins becoming compressed as they use price competition to gain market share in the metro space. CEO Fallon was calm as he talked about industry consolidation – something he’s pointed out as inevitable for a long time now, and a development he describes as being a positive for the remaining competitors. However, he became a bit more exercised as he talked about margin compression. “I have commented that we’re going to be aggressive in the Metro, and I think people have taken that to an illogical extreme.” Basically, that illogical extreme is that “aggressive competition” means nothing different than “price cutting”. He wanted the analysts to be very clear that Infinera was NOT “… going to go tank our goals about creating a 50-point margin company.” Then to emphasize and reiterate, he added, “We’re going to grow market share, and we’re going to create a company with 50 points of gross margin. Those are things we are going to go do.” Fools will appreciate that he further chastened the analysts, “… I think investors need to think about the long-term and think less about next week.” I think we’re in good hands.

Please note that italicized quotes are drawn from Seeking Alpha’s conference call transcript:…


Thanks and best wishes,
TMFDatabaseBob (long: INFN)
Peace on Earth