Infinera posted disappointing second quarter financial results, which came in under expectations and caused on strong sell-off of Infinera stock. Investors also questioned the firm’s future.
The company, which provides digital optical networking systems for telecom operators and data centers, said second-quarter revenues plunged more than 31 percent year-over-year to $176.8 million. The drop was wholly on the back of its product lineup, as service revenues actually showed a slight uptick from last year.
Flat expenses, in turn, weighed on Infinera’s profits, which reversed from a return of $11.3 million last year, to a loss of $42.8 million this year.
Infinera management attempted to put a positive spin on the financial performance, with CEO Tom Fallon stating recent and planned product launches have the company “well positioned to grow market share and to gradually improve our financial performance.”
Investors were not soothed, as the company’s stock was trading down nearly 18 percent early Friday.
The product shortfall was partially attributed to the delayed launch of a platform targeted at the data center interconnect (DCI) space. Fallon took blame for the company not being ready for changes in the DCI space, explaining competition was a “fist fight right now.”
“I think a mistake I made was missing the DCI transition to an optical cadence of every couple of years,” Fallon said, according to an investor call transcript. “That has been an expensive lesson learned. We won’t make that mistake again.”
Fallon also said the company sees growth opportunities in growing demand for fiber to support cloud services and pending 5G network deployments.
“As you look to fiber densification in the metro for both 5G and for what the cable guys are doing, as you look the advent of more and more cloud networking, there is more and more as a percentage of optical networking going in to enable new communications infrastructure than has ever been possible,” Fallon explained. “That makes the environment, quite frankly, a healthy demand environment.”
A Communications Industry Researchers report predicts the optical networking industry will account for nearly 60 percent of the $2 billion spent on 5G backhaul by 2022.
5G and Cloud Growth Opportunities
However, analysts were concerned about Infinera’s long-term prospects. Citing recent performance challenges, Infinera’s management was forced to defend its position to analysts as an ongoing standalone company.
“We’re a public company, so we’re always for sale,” Fallon said, when asked about the company’s future prospects. “I think the challenge continues to be in our industry. There is not a – I don’t see people wanting to buy optical companies right now. It’s a tough space, right? So our goal is to build an entity that sustains itself. You said that our profit certainly has not been acceptable. Completely agree. You said our cash flow has been okay. I disagree. We’re consuming cash. That’s not okay. And we have to go and fix that next year at the latest. 2018 cannot have those results on cash or profit, period.”