Xtera’s New CFO May be Its Only Hope

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Joe Chinnici was unceremoniously let go by Ciena, as the ex-Nortel executives at the company evidently advocated replacing him. In complying to the Sarbanes-Oxley requirements, there were initial glitches in those new rules, and deals were being held up – he apparently became a scapegoat. Along with the CTO, he was an important check against the Nortel coup. Now Chinnici has taken on the major challenge of turning around Xtera Communications, which will hardly be an easy task. If the very competent executive is successful, it would be one of the most remarkable accomplishments in the history of the optical space.

Toward the end of last year, we wrote an article called, “Xtera IPO an Act of Desperation?” While it could still be debated whether the vendor was in a frantic state to exit, it certainly was very anxious to have another round of funding. Given that it had been around for so long, private funding would probably have not been an option, even if there were still interest by venture capitalists to invest money in fiber optic systems. Although we understand that there was a high level of optimism at Xtera in raising funds publicly, it had insufficient appreciation of the higher level of scrutiny involved in opening up its accounts to the world.

With a veteran like Chinnici on the quarterly earnings calls, they will come off cleaner and clearer. There is a high likelihood that there will cease to be subtle accusations about Xtera engaging in the use of “semantics” (referred to on Q1 2016 earnings call).

Going through bankruptcy will certainly help to provide Xtera with a fresh slate. At a minimum, the supplier could be in a much better financial position to remain a viable player in the submarine market with a little bit of terrestrial business attached to those subsea cables.

There are still a good number of upgrade opportunities in the undersea space. We are aware of at least one significant network, which is still operating at 10G.

Some industry observers may believe that Xtera has done an inadequate job in promoting its very real advantages with Raman technology, and the extensive amount of experience in delivering both L-band and S-band capabilities. On the other side of the coin, too much of an emphasis on the technology is not going to be helpful. It is always about a balancing game, especially when it comes to experienced network engineers at the customers, who may politely acknowledge a technical edge like being able to get a much larger amount of capacity, but will always have a healthy amount of skepticism as to whether they really need all of those extra channels at any particular time. They are also naturally suspicious about the potential for partially paying now for functionality that will only be used in the future.

While there are only a paltry number of DWDM greenfield networks on the terrestrial side, there are lots of C-band systems running out of channels. Therefore, it would not be surprising if Xtera were to ultimately shift in a big way towards upgrading landline transport infrastructure.

Please consider our latest reports, Clash of Metro 100G Optical Vendors with Shifting Network Paradigm and Clash of Optical Component Vendors & Technologies in Data Center Networks. For more frequent updates, please click here.

[written by Mark Lutkowitz]