Infinera's Fallon: Cable industry consolidation is an opportunity

As a major supplier to the cable industry, Infinera is not afraid of the ongoing consolidation that the U.S. cable industry is going through.

Three main deals are changing the face of the U.S. cable industry. Charter is in the process of purchasing Time Warner Cable and Bright House Networks, while French conglomerate Altice has made a bid for New York-based Cablevision.

But Tom Fallon, CEO of Infinera, which bolstered its portfolio with new metro capabilities from its Transmode acquisition, sees the cable industry's consolidation as a new way to win customers and deepen its relationships with existing cable company customers.

"I view it as an opportunity," Fallon said. "These companies being acquired, we have a very large installed base at these companies, so the thought of being displaced to me really is I can't imagine it, so I am looking forward to these acquisitions getting completed, so that we can go on to helping them build their businesses. We probably won't know what it means until sometime next year, but I anticipate a strong first half build cycle with the cable guys."

Interestingly, Fallon noted that Infinera saw some cable wins in the third-quarter, something he says is not typical.

"We did have some cable business in Q3 which is unusual, quite frankly," Fallon said. "So I'm not concerned about the cable space at this point, but clearly in the cable space there is ongoing acquisitions, ongoing consolidation."

Besides cable, Infinera reported that it won deals in a number of the customer verticals in which it provides equipment, including Tier 1 service providers, enterprise and wholesale providers.

"Across our customer verticals, the Tier 1 in enterprise and wholesale carrier verticals led our growth in the quarter with each contributing a greater than 10 percent customer," Fallon said. "Our business continues to be diverse as our top five customers in Q3 came from four different verticals, two wholesale and enterprise carriers, a Tier 1 and Internet content provider and a cable operator."

Two areas of particular growth are the Cloud Xpress platform and the metro market.

During the quarter, the vendor began to ship the 100 GigE version of Cloud Xpress, signing up a number of new customers.

"We now have 14 customers and see a nice pipeline of opportunities on the horizon," Fallon said. "Importantly, our largest Cloud Xpress customers have already placed follow-on orders suggesting that the platform is a strategic element of their data center architectures."

Having completed its acquisition of Transmode, Infinera now has a sizeable metro product set to serve new and existing customers. It has already signed up Hanoi Telecom as one of its initial new customers.

"Only a few weeks after the acquisition closed, we're already seeing early tangible benefits from Transmode," Fallon said. "Our recently announced deal with Hanoi Telecom was notable, marking the first customer where we sold Transmode's portfolio into an existing Infinera customer." 

Infinera reported total revenue of $232.5 million, up from $207.3 million in the second quarter of 2015 and $173.6 million in the third quarter of 2014.

GAAP gross margin for the quarter was 44.2 percent compared to 46.7 percent in the second quarter of 2015 and 43.4 percent in the third quarter of 2014.

The company's results surpassed Wall Street expectations. Analysts surveyed by Zacks Investment Research had forecast earnings of 18 cents per share.

For more:
- see the earnings release
- here's the earnings transcript (sub req.)

Special report: Tracking wireline telecom earnings in Q3 2015

Related articles:
Infinera's Fallon: There's a pent up demand for 100G
Ciena, Cisco and Infinera lead optical hardware market, IHS Infonetics says
Infinera says focus on content providers, metro 100G helps overcome challenging carrier spending environment
IHS Infonetics: Global optical hardware spending rises 5% on strong WDM, 100G sales
TeliaSonera says 100G opportunities with content companies, enterprises continue to ramp