Infinera’s Crack at Quasi-Reconstruction

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Actions speak louder than words. The rather isolated introduction of the XTM II is a new attempt by Infinera to straddle the line between joining the rest of the community of optical system vendors, which determined a long time ago, the lack of merit with choosing a Photonic Integrated Circuit (PIC) approach, and the supplier’s stubborn adherence of continuing to push a PIC template in its marketing efforts. fibeReality still believes that these PICs not only fail to provide substantial differentiation, but can actually be counterproductive. Similarly, in our opinion, the small minority of financial analysts, who have been outspoken advocates of the “optical sypercycle,” which we have referred to previously as a “farce,” are striving to reconstruct their credibility, especially with the huge dip presently in the China optical space, as they are being forced to straddle the fence themselves, by unconvincingly pointing to Infinera as a sign of an impressive growth spurt in the market.

As we pointed out to followers of our second blog a couple of weeks ago, “Infinera could have better protected its position in the DCI space earlier by taking advantage of the XTM technology sooner, as we advocated in the past. Now the industry will deal with splitting hairs: [calling the XTM II a] ‘lower range’ DCI.

We use such a characterization because there would have been nothing to stop the ex-Transmode, metro-centric engineers from developing a 1RU box, which would have been at least in the running with the most state-of-the-art DCI solutions today. Ironically, Infinera’s countless expressions of regret about its supposed mistake in not developing its next-generation chip sooner, should have been a fixation about a different error.

For one thing, there is an emphasis by Infinera on the TMX II and its “Open Line System” capability, which is heavily pushed as a requirement, predominantly by the hyperscale data center operators. In contrast, the vendor’s only alternative with its PIC-based, “CX family,” is apparently still an unattractive band-aid scheme, interfacing with another supplier’s white box.

Secondly, Infinera has more than implied at times that its PICs were an essential enabler of its “Instant Bandwidth” offering. Yet, evidently, it was always about software, as the TMX II now has this capability as well.

It was probably no accident that Infinera announced the TMX II with the summer months approaching, and the possibility of only a limited number, if any, public events with financial institutions (with the exception of an August earnings call), until after Labor Day. A lot of questions about further development of a product line without incorporating its PICs will be avoided. Still, the insistence by the vendor that such a possibility is still on the table, when it was totally illogical with just the first generation of the TMX, demonstrates how trapped the company is with its historic rhetoric, and how potentially detrimental it will continue to be to its long-term survival.

Moving to the “optical supercycle” proponents, Infinera “insist[ing its] deal pipeline is the strongest in the company’s history…,” [and] suggesting a reacceleration in demand,” is hardly a compelling conclusion. A more prudent explanation is that it predominantly reflects the pent-up demand from the tremendous amount of the company’s business being held up for a while from M&A activity by its customers.

Once again, the tremendous amount of irony is unmistakable. There would have not been any “megacycle” designation without the recent boom in China for optical components, which had a lot to do with aberrations, resulting from governmental and political activities, leading to constraints in purchases.

[written by Mark Lutkowitz]