In quasi-opposition to fibeReality’s sentiments regarding Inphi’s exceedingly defensive posture on COLORZ, resulting from a great deal of internal sensitivity to its lackluster sales of the module, which we have amply described in the past, there is a school of thought, which supports a slightly contrarian position. We concur with many of those points, such as the high likelihood that the supplier received a tolerable return on its investment (as we addressed previously), as well as that the cost to the vendor sacrificing alternative, potentially more beneficial actions, while a valid concern, can scarcely be determined easily. Certainly, the most compelling assertion, which we have written about extensively, is that like COBO, and ultimately co-packaged optics, as well as earlier with this 80-kilometer concept, Microsoft has an appalling history for coming up with innovative designs in the optics space, and would have likely refused to listen to any useful suggestions from Inphi regarding COLORZ. However, in contrast to the first two cases, which are totally dependent on the budgets of the manufacturers, the large cloud service provider took the massive hit with its own network expenditures (including OPEX), given the unmistakable deficiencies of COLORZ. Moreover, fibeReality has come to understand lately that the apparently big misstep by Microsoft was that the 100G intensity-modulation, direct detection should have been similar to the 10G version and would have led to a hugely successful alternative to coherent options. Although as with others, which have been caught in the “hyperscale vortex,” Inphi should receive a certain amount of slack, its persistent, unjustified, primarily positive narrative on a flawed product design, which precluded sales to the other large Web 2.0 operators (despite its earlier assurances to the contrary) must have adversely effected the COLORZ name (and it is here where we separate ourselves from that marginally different perspective mentioned above). Yet, in moving forward, the firm has obviously determined that the distinctiveness of that same, well-known brand in moving forward, outweighs any previous negative connotations, and thus, the introduction of COLORZ(R) II.
Unquestionably, there have been constant, undeniable efforts up to the present by Inphi to ostensibly strive to rehabilitate the label as much as possible. Returning to opportunity costs, while again, a big unknown, we did express apprehension about the potential for the company’s SG&A outlay possibly being harmed in going after smaller accounts for COLORZ.
Still, it had to be important to Inphi to get its installed base up in the neighborhood of what might be perceived by some industry observers as a potentially attractive-looking, round number. While about 100,000 units announced recently is clearly not otherwise anything close to a stellar figure, it may have a positive effect on those particular Street investors, who lack sufficient familiarity with the optical space.
Even veteran analysts may choose to include this datum in their reports, as it is often complicated to always know what they deem to be important. For instance, when it comes to Acacia Communications, as well, with coherent DSPs, there is a narrow preoccupation just on the margins resulting in high valuations, while seemingly paying inadequate attention to all of the money that gets plowed back into R&D to create next-generation gear. (In addition, it should be noted that Inphi has become more direct about its emerging status as actually the top merchant provider in the marketplace, to the detriment of Acacia.)
So, for now, component and module vendors in general are slowly trying to get out in front of the competition with announcements of sampling and field trials of 400G devices. Inphi itself wishes to further highlight the exclusive nature of its new offering (along with the advantage of its in-house DSP) by expanding on that unique COLORZ brand. Perhaps after a certain period, the transition to the faster speed makes everybody forget what happened at 100G.
All in all, with the exception of rhetoric at times, most notably involving that gear, which unfavorably impacted Inphi’s credibility, it is hard to find much fault with the corporation’s performance since its inception. Thus, we continue to believe it should be destined to become a desirable acquisition candidate.
For our fast-growing, totally separate, quick update blog, which is exclusively on fibeReality’s LinkedIn page, please follow us here.
As always, fibeReality does not recommend any securities, and this writer does not invest in any companies being analyzed by us.
[written by Mark Lutkowitz]