Cleos, It is true that I try to provide some facts to balance out Byron's cheerleading. There is no need for another bull on the board. Plenty of posters provide the bull case. But someone should ask, why do you think that Infinera is gaining market share? Even if I restrict the analysis to LH WDM which is what they always talk about, their market share peaked in 2010 at 13%.
There have been a few posters who've provided what I view as an objective view of Infinera's financial results. I think you would agree that they have not been good. Balance sheet is a strong point but just a couple of years ago, posters talked about the fact that they had no debt. Well now they have debt and they continue to add shares ever quarter and dilute your ownership position.
GLTA as well
This has been discussed already on the board. AT&T will go to their domain vendors to procure equipment for any new architecture.
The only side by side testing of these systems is in the customer labs and that is governed by confidentiality agreements. There are services (subscription) that do feature comparisons but obviously that information is covered by copyright. Some vendors are open about their equipment specs on their websites (for example Cisco). Infinera is particularly opaque.
Relationships is another way of saying trust. Things happen in business all the time. Suppose you have a situation where the end customer has an outage. Multiple vendors equipment is involved and each vendor is saying it's not my equipment. The customer needs to trust that they call make a call and it will be handled no matter whose equipment is involved. Everybody says that they have great customer service. They can even provide testimonials from friendly customers. That doesn't mean that they will necessarily go over and above when you need them too. That trust is built up over numerous situations where the vendor did take the extra step. Another example is leverage in purchasing. Once you make a decision to purchase a vendors equipment you are invested in that vendor. Your techs learn how to maintain the equipment etc. Now suppose the vendor only sells the customer one type of equipment. The contract runs out and the vendor says ok you can still purchase plug-ins to fill out the slots but we're raising the price by 50%. The customer now has no leverage. If they have a relationship, then a phone call is made and the problem gets fixed.
It is not a fact. I have posted before that they have inferior electronics. That leads to lower capacity per fiber. That is a metric that customers care about. They also have feature gaps. Ciena has much better integrated ethernet switching. That's something that customers care about. If you get all your information from the Infinera web site, then you probably are having a hard time understanding the performance of Infinera's stock. It is not an accident.
It almost doesn't matter who you compare to on that chart. I tried alu, csco, jnpr in addition to cien. They all show better performance than Infinera.
Ericsson is in the other category for LH WDM. In other words, they don't have market share there to give up. They real benefit to Ciena is in the wireless backhaul business. They now have a sales channel into every major wireless customer for their PON gear.
I haven't been a fan of Ciena management either but this is a coup for them. It is negative for Infinera (and the rest of the optical vendors) in that it will make Ciena even stronger in the optical space.
Bull, sorry if I stepped on your toes. That was an attempt at humor which in hindsight was ill advised. You have to admit that even for you the last two days were exceptional in posting frequency. At any rate, I understand that longs are hurting and I'll try not to be such an #$%$.
However, point to a current statement by an analyst that says their current margins are around 15%. If you find it, then you'll know that analyst doesn't know what he/she is talking about. I would refer you to the last earnings report from Alu where Combes said "On gross margins. So you are right on optics. You are right that we were below 20%. So much lower than our peers. So as you know, optics was one, and is one of my key focus, in terms of turnarounds for Alcatel Lucent. So we have been able already to deliver a strong improvement in gross margin of more than 10 points which means that, let's say, we are moving up. That's driven by the mix that I have explained. The 1830 plus the 100 gig cards." In fact, there is extensive discussion of margins in the last 3 ALU earnings reports. The growth in 100g sales is referenced multiple times as a bright spot. As I've stated previously, ALU is a turnaround story and margins are at the core of that. That's part of what makes me skeptical of statements like they gave it away.
Tracey, First of all we don't know that ALU gave the product away. Just because Bull has been putting out continuous messages stating/arguing that, it doesn't mean it is true. All the analyst said was that the deal was "well below market pricing". That would be expected for a deal of this type. Part of the reason that vendors like NA is that you actually can make money here. Compare that to India or China. I would submit that Notter doesn't know what optical equipment is going for there.
I do agree with you that this has been an awful sector. Too many competitors chasing too few deals does that to a market. I would expect that in addition to ALU and Infinera that Fujitsu, Cisco, NEC, Coriant, and ADVA all bid on the Vz deal.
That greenfield network that Wellbrock was talking about in the Gazettabyte article was a metro greenfield network. Infinera doesn't have a metro product. If Vz. were serious about a 2015 build, they would have to issue an RFP very soon and be prepared to evaluate equipment by the fall. Of course they could just use their existing 100g dwdm vendors Ciena and ALU. Both of those have shelf variants suitable for the metro. In fact, Verizon Wireless already deploys the ALU product in the metro.
The point I was making was about cost. The ASIC should be significantly cheaper than the FPGA. But yes the ASIC will also be lower power consumption. That's not really a TCO issue, it's more a heat issue. Managing heat dissipation on a circuit pack with 10 complex FPGAs has to be quite a challenge. I'm assuming it is some sort of multi circuit board stack with maybe an optical board/controller and then 2 or more electronic boards.
You have to pay NRE to develop an ASIC. The design cycle is probably greater than 18 months for a complicated asic like this one. Not likely they are going to switch.
Bull, Costs in optical have been going down over 10%/year forever. It could have been a very profitable industry if anyone had any pricing power. But, they don't. So all of those technology advances and their resultant cost savings get passed along to the end customers. If this is a typical contract, it is probably for 3 years and it will have price reductions built in for year 2 and year 3 of the contract. All ALU has to do is beat those included price reductions by cost reducing their gear at a faster rate. Generally when a technology is relatively new (100g) you can achieve steep cost reductions as more suppliers start offering the required components and initial suppliers start achieving economy of scale.
Infinera's purported cost advantage may be entirely in their own minds. I remember back in the day when we had a competitor undercutting us on a modem, we bought one and took it apart. We had custom silicon on the front end and they were entirely discretes. We priced out the discretes and found that they had a cost advantage over our integrated solution. I'm not saying this is a common situation but it can happen. It's a complicated relationship between the cost of the fab, their yield and the volume that they are pushing through the fab. If they don't win contracts and the volume stays low, their cost could actually go up. Also, remember that ALU has an advantage on the electronics. They require fewer coherent processors and they have an asic. Infinera uses fpgas. Obviously I don't know the answer. However, it is should be very troubling for longs if Infinera has a cost advantage and they lost a contract on price. It doesn't really make sense does it?
Of course the pricing was below market. You don't bid market price to win one of the most prestigious/largest contracts in the market. One of my colleagues used to have an expression "Bid to win, manage to profit".
But, rest assured that it wasn't all about price. Vz has an extensive bid evaluation process. They don't buy just the cheapest price. Relationship, yes. Technology, yes. Past performance, yes.
As to why ALU isn't up more on the news, this is relatively small potatoes for them. They are a $20B/year company. For them, it's much more about the success of the turnaround plan. Progress on margins, etc.
This article was written back in May of 2013. Inflection Point Investing continued to be bullish on Infinera thru Oct. 18 when they wrote an article predicting big things for the Q4 guidance. In response to the guidance they actually got, they posted the following:
"This has to rank as one of our worst calls to date. To those who bet against us, congratulations. We were dead wrong and will be eating humble pie on this one for a bit. Best, John Henderson"
I don't love stocks. I didn't start a thread about ALU. I only replied to a misleading post by Byron about an ALU downgrade. I've been replying to Byron's posts about ALU since he started his ALU is going bankrupt bs. Just for the record, I wouldn't recommend ALU. They are a highly speculative turnaround situation. They rewarded stockholders last year but this year it will probably tread water until it's clear which way the turnaround is going.
One chart does not a story or situation make. The optical market has been going through a transition. Sonet/SDH equipment is been being replaced by dwdm/packet gear. ALU's optical business was hurt by this as they were the market leader in Sonet/SDH. The good news for ALU is that their dwdm business has started growing at a rate that almost matches the decline in Sonet/SDH. You could see this on a quarterly chart but not a yearly chart. Notice the vendors that show up on the chart: Huawei, ALU, ZTE, Ciena and Fujitsu. For all of Byron's cheerleading, Infinera still doesn't even show up.
This is bad news for Infinera of course since ALU can now focus their development resources on dwdm versus splitting it on the legacy product lines.
The downgrade this morning on ALU from Deutsche was due to concerns over the margin impact of the China and LTE wireless wins. It doesn't have anything to do with optical and certainly doesn't have anything to do with Infinera.