INFN vs ACIA

Acacia (ACIA) is an optical network equipment provider which recently held its IPO. They provide equipment for long-haul, metro and DCI markets.

Saul recently closed his position with INFN and gave a lengthy rational for his action. There was some considerable discussion about this and as could be expected, it became clear not everyone following INFN agreed with Saul. However, the only competitor that was given much consideration was Ciena.

I do not have the expertise to compare network product and service offerings, but it’s obvious that ACIA and INFN are playing ball in the same court.

Kevin (I know you’ve kind of withdrawn from your in-depth research and reporting in this area) or DBBob or anyone else with in-depth knowledge of networking products might want to do a quick review to see how ACIA (http://acacia-inc.com/) compares with INFN.

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Hi Brittlerock,

Much of the information you seek can be found in Acacia’s published S-1 filing:

https://www.sec.gov/Archives/edgar/data/1651235/000119312515…

Here are a few highlights:

Our modules perform a majority of the digital signal processing and optical functions in optical interconnects and offer low power consumption, high density and high speeds at attractive price points. Through the use of standard interfaces, our modules can be easily integrated with customers’ network equipment.

Acacia is an optical module manufacturer. They create the modules that go into a system manufacturer’s completed product. Their primary competitors are Oclaro, Finisar, Lumentum Holdings, Neophotonics and Avago Technologies.

Our products include a series of low-power coherent DSP ASICs and silicon PICs, which we have integrated into families of optical interconnect modules with transmission speeds ranging from 40 to 400 Gbps for use in long-haul, metro and inter-data center markets.

Infinera currently supports 500 Gbps (soon to be 2.4TB) and uses InP for their PICs. You can read about the differences between Silicon Photonics vs InP here: http://www.ofcconference.org/library/images/ofc/2014/Market%…

We sell our products through a direct sales force to leading network equipment manufacturers.

Per the S-1, Acacia’s customer list is currently around 20. Last year, their top 5 customers accounted for 82% of their revenue. They note that their top 3 customers in the past have been ADVA, ZTE and Alcatel-Lucent, accounting for roughly 25%, 35% and 20% of their revenue, respectively.

A significant portion of the fabrication, assembly and testing of our products is done by third party contract manufacturers and foundries. As a result, we face competition for manufacturing capacity in the open market. We rely on foundries to manufacture wafers and on third-party manufacturers to assemble, test and manufacture substantially all of our coherent DSP ASICs, silicon PICs and modules. Accordingly, we cannot directly control our product delivery schedules and quality assurance.

Infinera owns their fabrication process. They have limited dependency on third parties except for a few readily available components.

Bottom line:

Acacia has been around for about 5 years, and have begun selling in earnest in 2013 along with the pick up in the optical networking needs. They sell their products to a variety of customers, many of which Infinera competes. Acacia doesn’t own their own fab process. And neither do Infinera’s direct competitors. After reading this I am coming to appreciate Infinera’s advantage even more. Of course Infinera’s margins down the road will be superior. Any direct competitor has to first employ a company like Acacia (or Lumentum, Oclaro, etc) to build their optical modules. That optical module manufacturer in turn relies on component manufactures to assemble their sub-components. Where are the margins? Each one of those companies in the chain wants to get somewhere in the neighborhood of 20-30% margin, and there are three mouths to feed in that chain. Infinera only has one.

Remember, in Infinera’s competitor space it goes like this: system vendor → module vendor → component vendor. Infinera pretty much owns all three.

Hope this info helps.

Best,
–Kevin

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Kevin,
Thanks for the very readable and easily understood reply. You may think this was clear from the S-1, but it was not nearly so clear as you have made it. I appreciate the input. I hope others read your reply as well.

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