Infinera: An Unanticipated Destination Point

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Given this writer’s justifiable criticism of Infinera for almost the entire existence of the firm, it has been a little awkward to begin suggesting to optical engineering managers either looking for work or considering moving on from their present positions that they may want to take a serious look at opportunities at the supplier. fibeReality has been steadily gaining confidence that the prospects for Infinera have never been more positive. We are convinced that the influence of board member, Greg Dougherty, with his intense personality to be a winner, while being fiercely loyal to his good friends, including the CEO, Tom Fallon, along with the product reconciliation efforts of COO, David Heard, who has played an instrumental role in gradually changing the corporate culture away from spending lots of money on unprofitable gear, will likely result in a sustainable turnaround, and eventually, attractive exit options in as few as five years. (Of course, if we are correct, any stock provided as part of the package, given the current price, would be an added benefit to people joining the firm).

We do not believe that the leadership at Infinera would want to remain in the marketplace any longer than that period of time, as the international stranglehold of the system duopoly of Ciena and Huawei Technologies will increasingly tighten. As an aside, it should not have taken even close to a half decade for Oclaro to get an offer for a buyout. (As Dougherty was early-on pulling the component player out of its dire situation, we have discussed that Finisar’s CEO, Jerry Rawls, apparently refused to engage in any kind of communications, and so the supposed reluctance later of a merger of companies too close in valuations was evidently a red herring.)

In the shorter term, the “Tellabsation” effect of getting away from PICs, but continuing to use the “infinite” rhetoric, including in keeping co-founder, Dave Welch, preoccupied with his pet project, XR Optics, with relatively little financing, and even less of a chance for success (but a potentially useful decoy), is making for an easier transition. It is the Groove, which is taking on a prominent position to help keep Infinera in play for new gear at CenturyLink. While the buyer unquestionably received major price concessions, for just agreeing to be part of a press release, it does help open the door for the solution to be used at other US large incumbent ISPs.

Then it is the “Transmode” technology, which was mistakenly forced to take a backseat to the PICs by Welch, after closing the acquisition, which is now at the forefront of Infinera’s latest packet optical switch announcement. The person in charge of this device, Glenn Laxdal, SVP, GM of Product Management, is also an outsider, and more importantly, has top-level ties to Ericsson.

As the culture has changed at Lumentum, some ex-Oclaro individuals, most notably decision-makers, have moved on to Infinera. These actions are partly the pulling ability of Dougherty, but additionally a work environment, which is becoming increasingly appealing.

One example is the former COO of Oclaro, Craig Cocchi, who is now SVP Operations at the Optical Modules Group at the system provider. With vertical integration becoming more critical than ever on the optics system house side, a greater number of talented component/chip folks will obviously be required. Certainly, we can also envision technical folks leaving the ex-Finisar for similar reasons, related to II-VI, and then landing at Infinera.

In one of the links above, there is a connection to a discussion of the possibility of Infinera spinning off its 800G DSP presently in development. Naturally, there could be more than one subsidiary produced, such as with the Tellabs group of offerings.

In any event, it goes without saying that there can be a lot more flexibility for an endgame when both revenue and margins are expected to be much improved. In the meantime, we believe the job openings on Infinera’s website will be filled more rapidly, as signs of significant upgrades in corporate performance become more evident.

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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]