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Infinera Corporation Message Board

  • alpha1beta2gamma3 alpha1beta2gamma3 May 4, 2013 10:36 PM Flag

    Margins

    It will be interesting to see how INFN's margins develop for 100G.

    This industry is basically a brutal money pit. Operating margins, ttm, per Yahoo! Finance:

    CIEN: -2%
    INFN: -17% (just reported quarter: -12%)
    ALU: 0.9%

    Huawei and the likes of ERICY and CSCO have better margins, but they sell so much stuff, and are so large, it's tough to make an honest comparison. (In this context, it is easy to see why ALU is in such big trouble...)

    I think this is why there's so much suspicion with longer term moves in these stocks -- and why traders have done so much better than investors: With too much competition, there's too much volatility in the financial results, hence too much volatility in the stock prices. The stocks just cannot sustain a positive trend.

    I realize that it is early in INFN's current product cycle and that as INFN sells more TAMs, the company's margins will improve. But still...

    As well, Infinera is a small player, so its margins will always be a bit lower. But, even so, historical net profit numbers like these are not amusing. From Value Line:

    2006: (89.9)
    2007: (55.3)
    2008: 78.7
    2009: (86.6)
    2010: (27.9)
    2011: (81.7)
    2012: (88.8)

    So, of the last seven years, INFN has made money once, lost money six times, and lost a net of 351.5 million. Part of these can be excused (small company, early years, and so on), but, again, really, can we not do better?

    In my opinion, the only way to get out of this fiscal nightmare, and build long-term value, is to do something different. I hope that's what INFN has done with the DTN-X. It also would be a very good thing to have less competition. ALU, worldwide, and Huawei in NA, why don't you just go play a few rounds of golf.

    It will be interesting to see INFN's margins and profits over the next seven years. 2013 will be negative, at least the way Value Line calculates things. If 2014 and 2015 are positive, they'll already be ahead, hopefully by a wide margin, of 2006-2012.

    Sentiment: Buy

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    • 'As well, Infinera is a small player, so its margins will always be a bit lower.'

      disagree...

      vertically integrated company gives them imo the best chance to have the best margins/profitability than others in this 'pit'

      • 1 Reply to p1turbo2003
      • That is true. I believe in vertical integration. However, before this, size comes first. It's a matter of covering one's fixed costs and getting a bigger bang for things like marketing and R&D. This is why smaller companies are, as a rule, less profitable than bigger ones. And, why, for instance, smaller companies see more wicked fluctuations in margins. It's also why they pay higher interest rates for debt, why they are more likely to fail, and why the stock market hammers them during recessions (liquidity matters too). Fallon has effectively said something like this, saying the company is still too small, but as it gets larger he hopes to produce better shareholder returns.

        Sentiment: Buy

    • Not knowing for sure, but I'm expecting they've never had the chance to exploit their peak manufacturing capacity and efficiency, and they just need to win some big(ger) and sustaining contracts to quickly reach significant profitability. They were close to breakeven back in 2007 and are just now coming back from a long product-gap and economic bust induced trough.

      Infinera appears to have the cleanest product line of the top 10 optical equipment companies. It seems sometimes it's like a Chinese acrobat plate spinning routine with these bigger equipment companies that want to maintain the entire spectrum: LH, metro, enterprise data and PBX, last mile wired/wireless copper/fiber

      • 1 Reply to ragingbullbuyandsell
      • I have wondered whether they have the manufacturing capacity to keep up with demand, if they win bigger contracts. I agree they have been a bit unfortunate, the economic crisis and the (purposely) missed 40G cycle.

        Yet I think a lot of this shows how difficult it is to get in with the big service providers and how much margin compression big service providers can demand.

        Hopefully, a lot of this is past history. This industry needs a new paradigm because it cannot keep up with exponential demand. Electricity, manpower, time, flexibility, and so on are all being wasted and stretched. I'm hoping Infinera has the better mousetrap. They have been winning bigger names and there is customer interest. It will take another few quarters to know for sure. It certainly would be nice to win something at Verizon. I suspect, as far as the investment community and longer trends are concerned, Verizon will be something of an imprimatur.

        Sentiment: Buy

 
INFN
10.67-0.15(-1.39%)Sep 30 4:00 PMEDT

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