Infinera's Fallon: Industry focuses too much on AT&T, Verizon's spending patterns

While Infinera may still have room to grow in the optical market, CEO Tom Fallon is not worried about the spending patterns of AT&T (NYSE: T) and Verizon (NYSE: VZ), but rather on how the broader industry is purchasing optical products.

Speaking to investors during the Stifel Technology, Internet & Media Conference on Monday, Fallon said that AT&T and Verizon aren't the sole barometers on how the telecom industry is advancing next-gen networks.

"The industry focuses too much specifically on what AT&T and Verizon are doing," Fallon said. "For a long time they really defined network architectures and defined how much money was going to be spent in the industry, but I think that day is gone. While they still spend a lot of money, they are not defining the networks of the future and they are not building the biggest networks."

With the completion of many Project VIP initiatives, AT&T expects capital expenditures to be in the $18 billion range for 2015, while Verizon has forecast capital spending of between $17.5 billion and $18 billion.

Perhaps not surprisingly, Verizon has said it will dedicate more of its capital to funding wireless projects throughout 2015 and beyond as it comes to the end of its FiOS fiber-to-the-home (FTTH) build. 

"I have been pretty consistent with this in the fact that we will spend more capex in the wireless side and we will continue to curtail capex on the wireline side. Some of that is because we are getting to the end of our committed build around FiOS, penetration is getting higher," said Fran Shammo, CFO of Verizon, during the company's fourth-quarter 2014 earnings call.

Fallon said that the more relevant question to ask revolves around overall industry-wide capex, but even that metric can be misleading.

"People always ask me about capex, but I say you're spending a lot of time talking about the pie so let's talk about the slices of the pie," Fallon said. "Capex can remain flat, but if people aren't buying SONET and SDH anymore, but they are buying DWDM and are buying next-generation optical networks, we can grow that slice of the pie in a flat capex environment."

Besides AT&T and Verizon, Infinera continues to gain ground with CenturyLink (NYSE: CTL), a customer that made up 10 percent of its 2014 revenue.

"CenturyLink has built a lot of network with us and very much like what we do," said Brad Feller, CFO of Infinera. "We expect them to continue to build a lot of network with us."

Infinera continues to diversify its customer base and sees growth across the various vertical segments it serves. Today, the vendor has 17 Tier 1 carrier customers globally and a mix of telcos, content providers, cable operators, wholesale providers and enterprises.

A key piece of growth for Infinera is its DTN-X platform.

During its fourth-quarter 2014 earnings cycle, Infinera reported revenues of $186 million, up from $173.6 million in the third quarter of 2014 and $139.1 million in the fourth quarter of 2013, due to ongoing customer wins of its DTN-X platform.

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