Finished the call. Great, upbeat, strong call. Here are my notes. Some stuff could be wrong – there were a lot of distractions at home. But I think the gist is there.
Q1 Guidance:
$245M +/- 5M
48.5% +/- 100 basis points non-gaap margin
$93M +/- 2M non-gaap operating expenses
11% +/- 100 basis points non-gaap operating margin
1.5M taxes
147M shares
$0.17 +/- 0.02 non-gaap EPS
What’s up with increase in deferred revenue and inventories? 4Q deferred revenue due to maintenance renewals. Elevated inventory due to new product releases, and actively reducing lead times, especially for internet-provider industry where less long-range planning occurs. They now like their leads times now. They don’t want multiple quarters of backlog. They see it as an advantage that they can deliver quickly.
Seeing a lot more opportunity for transmode gear than transmode saw before. But will take time for customers to test and acquire transmode gear, so probably second half of year to see it reflected in the numbers.
Economic distress? INFN sees permanent move to cloud that isn’t slowing down, good for INFN. Not seeing slowdown in requirements customers need on bandwidth. Demand for bandwidth means INFN will do well. Just came back from conference talking to customers, and all of them see demand for bandwidth. One difference this quarter: INFN seeing subset of customers starting to buy-on-win rather than planning ahead. Quick lead times help INFN as a competitive differentiator.
Cloud Express got off to slower start due to certifications, but fell within given range for year. Began accelerating at end of year, and accelerated more in Q1 so far and exceeding expectations. Competitors have announced competing products, but INFN not seeing any impact in the market.
Pricing power and competitive advantage in 100 gig market as it gets more crowded? A lot of people announcing products, but a lot fewer selling products that actually solve customer problems. INFN not seeing these people actually deliver products. Differentiated optics important, which is a unique distinct advantage for INFN (IP and vertically owned and manufactured). Next generation terabit tech coming out in 2016.
How manage gross margins? Margins continue to expand. INFN has a differentiated approach to the market and is selective about the business they take, have leverage through vertical manufacturing. Aiming for 50% gross margin over time.
Tax rate won’t change in 2016. In 2017, tax rate will go up, but no specifics available.
What about Cienna 6% growth guidance? INFN thinks they’ll grow market share in its various segments. Isn’t bothered at all by what Cienna is doing. Doesn’t want to be lumped together with them.
INFN investing in Q1 based on its outlook for the year, not for the quarter, and since lighter revenues in Q1 means lower operating margin.
INFN is adamant they will run R&D at 20% of revenues. Due to fast revenue growth, they’ve been lagging, but that’s where they will be. Don’t model less than 20%.
continue to see growth in 100g metro, expect acceleration in later 2016. Majority of services are still 10g.
capex 5% on annual basis for entire business. Were a little higher in 4Q, but still in line for year.
INFN believes they will be much better at any other competitor at optics due to their IP. Competitors moving into optics because customers are demanding it, but INFN has a sustainable competitive advantage with their IP, specialized expertise, and vertical integration.
All segments growing. INFN won’t break out metro expectations until perhaps second half of the year
What about cautiousness management spoke about last call? Not seeing spending from ICP’s going down. Analysts focusing too much on broad capex from ICPs, but that includes a lot of stuff. Should focus on bandwidth demand. Great and growing presence in long haul, data center interconnect, management optimistic about position and demand. Will be watching competition, but very few are delivering products. Expected a lot more competition than seen so far. CloudExpress growing faster than it’s ever grown. Not feeling cautious.
Competitive advantage in metro? Are 1 terabit pics really needed in metro? Transmode was marketshare leader because it had complete set of services, but also because it could offer lowest power, lowest size offering to meet needs. INFN continues that approach and seeing success in multiple markets and geographies. Bringing that strength to INFN customers. Will be integrating PIC with TM platform. INFN also coming out with multiple flavors of PIC that should work well for metro market. And metro will need 1tb eventually.
Very excited about mid-year software release.
When will CX get to 10% of revenue? Management not going to comment. CX obviously growing much faster than business, but all segments are growing. Management does see it getting to 10% of revenue at some point, but right now focusing in winning marketshare in growing markets. INFN management very excited about company is at, doesn’t so much care about which product is sold to customers – just wants to solve customer’s problem however it makes the most sense.
Several peers struggling. INFN management very excited about company is at, doesn’t so much care about which product is sold to customers – just wants to solve customer’s problem however it makes the most sense. That is, not trying to compete internally.
Neil
Long INFN