Despite Infinera’s claims of significant integration between the two product lines, its purchase of Coriant is really about the continuing shortcomings of its PIC strategy, as well as its desire to remain an optical system player in the marketplace by ensuring an adequate amount of revenue. The story provided of transferring the PIC technology seems to have no more credibility than the similar tale it told in the past about adopting the same product strategy after its purchase of Transmode, as we anticipated. In order to be a credible end-to-end optical vendor, there needs to be a minimum of a billion dollars in sales in order to do the necessary development work. It may be a positive sign that David Heard, Infinera’s General Manager for Product and Solutions is definitely front and center this time in promoting this deal, rather than Dave Welch, Chief Strategy and Technology Officer and Director, and that hopefully the company will finally stop playing favorites with just the gear developed in-house. All in all, if Infinera plays its cards correctly, it can theoretically survive indefinitely, partially because it has somewhat improved its competitive position in buying Coriant (along with sustaining service contracts from the latter). Yet, it is hard to see much of a large growth path because of the challenge in supporting overlapping products (including between the Coriant 7100 and the Transmode offerings) along with the increasingly tough technological hurdles in meeting the demands of its customers.
In our opinion, Infinera’s sincerity has never been more deficient than it is today. We believe that the buyout of Coriant is an admission by the supplier that it has been terribly disingenuous about the ability of its ICE evolution strategy, which ate up a tremendous amount of cash, to result in the necessary level of business to remain a viable player. In addition, there appears to be no doubt that all of its rhetoric about providing open systems, particularly for the hyperscale data center interconnect space, has been misleading.
In the past, we discussed that its PICs inherently do not allow for the necessary flexibility in interfacing with the piece-parts from other vendors. Conversely, Coriant positioned itself early with openness to the point of arguably extreme emphasis. So, while Coriant’s Groove G30 is a competitive solution to Infinera’s Cloud Xpress, the former should be more attractive in a good number of cases in the DCI market.
In connection with this situation, our doubts have increased even more on the expectation that Infinera will actually offer new generations of its ICE device. Our understanding is that a lot of people have left the company in recent months, which almost assuredly included key technical folks. There has even been some speculation that the latest ICE chip has had some difficulties.
At the same time, we have questions as it relates to the supplier’s ability to eventually offer Probabilistic Constellation Shaping (PCS), when it only recently started selling just 16-QAM. We understand that every supplier needs to have at least a story about what appears to be the future stage of coherent constellations. The first vendor to commercially ship this shaping will probably have a major competitive advantage.
Lastly, with the Coriant acquisition, Infinera is no longer in the embarrassing position of being absent as an active supplier to the two largest incumbent ISPs in its home market. However, in the case of Verizon, for example, the 7100 is getting close to the finalization of the buildout.
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[written by Mark Lutkowitz]