Infinera Q1 revenue rises to $245M, but 'spending lumpiness' drives lower Q2 outlook

Infinera reported first quarter revenue was $245 million, up from the $186.9 million in the first quarter of 2015, but a key concern for investors was the vendor's second quarter outlook. 

Infinera has forecast second quarter revenue of $255 million, plus or minus $5 million. It also forecast earnings per share (EPS) of about 17 cents, falling short of analyst estimates of $272.2 million in revenue and 22 cents EPS.

Brad Feller, CFO of Infinera, attributes the lower outlook to uneven spending patterns and uncertain investment timing from some of its key customers.

"Among certain customers we are seeing signs of spending lumpiness, driven by uncertainty around the timing of their investments," Feller said during the earnings call, according to a Seeking Alpha transcript. "While it is difficult to predict how long these dynamics could affect our results over the short term, the strong bandwidth demand environment, the customer experience we provide, and our differentiated technology gives us confidence in our medium- and long-term outlook."

First quarter revenues were down slightly sequentially. Analysts had forecast $246 million in revenue and 17 cents per share in net income.

From a regional perspective, results were mixed by region with gains in North America and Europe, while Asia Pacific was slow.  

The vendor reported that its largest customers drove "strong growth" in North America accounting for 71 percent of total revenue. Likewise, EMEA revenue represented 25 percent of total revenue driven by the success of adding capacity to certain long-haul customer networks and steady contributions from its new metro portfolio that it gained from its acquisition of Transmode.

Alternatively, Infinera said that Asia Pacific and Latin America revenues were "weak" in the first quarter at 3 and 1 percent, respectively, "due to the timing of deployments in these regions."

Meanwhile, service revenue in Q1 was $29 million, down 14 percent sequentially but up 11 percent year-over-year.

Feller said despite the slowness in first quarter service revenues, the ongoing movement into the metro market could drive further service sales.

"Service revenue tends to be seasonally soft in Q1 as customers often take time to finalize their capex budgets, submit orders, and build networks," Feller said. "As we continue our expansion in metro, we see the opportunity to further grow our services business."

A key area of future growth that Infinera is citing will be in the metro market.

Evidence of the potential growth was seen just this week as Telia Carrier, one of Infinera's largest DTN-X long-haul customers, announced it would be using Infinera's TM-Series platform to create another low-latency West Coast route to connect the San Francisco Bay area with Hollywood. The deployment will deepen Telia Carrier's presence in a number of major West Coast metro markets and connect major internet content providers in the Bay Area with the entertainment and media providers in Hollywood.

"We announced today a really significant cross-selling opportunity," Feller said, adding that the company also chalked up three wireless fronthaul architectural wins. Additionally, "We picked up several new smaller customers."

However, first quarter metro results were mixed because one of the TM-Series customers has not made a purchase of equipment in the past few quarters.

"We have one significant metro customer who has historically been part of the Transmode customer base and who hasn't bought for about two quarters," said Tom Fallon, CEO of Infinera. "And there's nothing, I don't believe, that's structural there around the relationship. We believe that there is a big opportunity for us in the next quarter or so. There's an opportunity that's been driven to them by one of their customers, and I think they get back on track soon. It's a big enough customer that it's really tough to backfill that in the short term."

Shares of Infinera were listed at $13.35, down $2.22, or 14.26 percent in Thursday pre-market trading on the Nasdaq stock exchange.

For more:
- see the earnings release
- see the Seeking Alpha earnings transcript

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