Infinera Q2 revenues rise to $259M, but issues cautious outlook on soft metro, subsea sales

telecommunications equipment

Infinera may have seen second quarter revenues increase in the second quarter, but the optical company is facing softness in the North American market as Tier 1 telcos and other carriers are taking more time with long-haul and metro equipment procurement decisions.

Speaking to investors during its second quarter earnings call, Tom Fallon, CEO of Infinera, said that some key customers North America and Europe aren't spending as much on new optical gear.

"We are monitoring ongoing macroeconomic developments, though we cannot predict their impact on our business," Fallon said during the earnings call, according to a Seeking Alpha transcript. "In my estimation, while demand appears solid in our smaller regions, like LATAM and APAC, we are seeing a softening demand environment from certain customers in North America and Europe."

A particular concern is the long-haul market where Fallon said RFQs have fallen off.

However, he added that "I believe that has to be a temporary dynamic because none of the demand drivers that are in place, whether it's to move to cloud, whether it's more video, whether it's just increased bandwidth requirements in general, are going away."

Besides long-haul, Infinera is seeing slower spending trends in metro optical and submarine cable network segments. Following what it said was a year of strong results, Infinera's technology transition hindered its success in some submarine cable applications.

"Although we continued to see a reasonable volume of new subsea opportunities over the first half of the year, our win rate was well below our historic run rate and below our expectations, which will meaningfully impact our subsea revenues for a period of time," Fallon said. "I anticipate that incorporating the Infinite Capacity Engine will improve this situation and allow us to recover share in subsea, which has been a traditionally strong market for Infinera."

In the metro market, Fallon said that results were "mixed" as existing Transmode metro customers slowed equipment spending. What's more, Infinera has been facing challenges in cross selling Transmode and Infinera solutions.

"While we continue to win deals on our pipeline of opportunities with large customers grow, spending from some of Transmode's traditional metro customers remains muted," Fallon said. "I am encouraged that mobile front haul and back haul opportunities continue to increase in response to wireless carriers seeking increased efficiency in their existing networks and planning for 5G which will necessitate significant growth in bandwidth to and from cell towers."

From an overall financial perspective, Infinera's second quarter revenue was $259 million, up 25 percent over the second quarter of last year and up 6 percent sequentially.

The company noted that business continued be broad based with its top five customers in the second quarter comprised of two Tier 1s, an ICP, a wholesale and enterprise carrier, and a cable operator. 

Citing several near-term headwinds, including the ability to cross-sell metro solutions to Infinera's existing customer base or from sales of recently introduced products for the third quarter, Infinera has forecast third quarter revenue to be $185 million, plus or minus $5 million. 

"Although we continue to make solid progress, we are not yet realizing significant financial benefits from cross-selling metro solutions to Infinera's existing customer base or from sales of recently introduced products," said Brad Feller, CFO. "These factors, along with the demand weakness Tom discussed, are resulting in our third quarter revenue outlook shaping up to be extremely challenging."

For more:
- see the earnings release
- read the Seeking Alpha transcript (sub. req.)

Special report: Tracking wireline telecom earnings in Q2 2016

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