Infinera’s stock tumbled as ongoing operational challenges hit a tipping point, and the company announced plans for a corporate restructuring on the back of mixed quarterly results.
The company, which provides digital optical networking systems for telecom operators and data centers, reported a 4 percent year-over-year increase in revenues during the third quarter. However, increased expenses more than tripled its net losses to $37.2 million for the quarter.
The Q3 results followed a disappointing Q2 in which revenues plunged more than 31 percent year-over-year, and net income turned into a net loss.
As with its Q2 results, investors hammered Infinera’s stock, which was down more than 23 percent early Thursday to a new 52-week low of $6.64 per share.
Infinera CFO Brad Feller noted Q3 results were in line with previous forecasts, citing positive momentum around new product launches. This included the launch of a new subsea cable system.
Feller said the company saw a 10 percent sequential drop in spending during the quarter from CenturyLink, which recently closed on its acquisition of Level 3, though he expects that to rebound in the coming quarters. Infinera this week did close on a deal with Netflix, which Infinera management attributed to its growing use of software control over network assets.
Feller cited operating pressures from customer consolidation, including the CenturyLink acquisition of Level 3; aggressive pricing moves by some competitors on top of ongoing technology transitions; and customers expressing lower than expected capital expense plans for 2018.
“Despite a softening near-term market outlook, over time I am confident we will return to outgrowing the market and delivering strong financial results,” spun Infinera CEO Tom Fallon, according to a Seeking Alpha transcript.
That optimism is also based on restructuring plans that are expected to garner approximately $40 million in annual savings.
Feller said Infinera plans to consolidate development sites, including plans to close its design center in Beijing; leverage its engineering resources across its operating regions and product line development; realign research and development plans around which products should be developed internally; and focus more on the use of prototypes.
Infinera is also reducing its facility’s footprint, and writing off some of its equipment and licenses that it no longer plans to use. There are also plans for a reduction in headcount, though an exact number of job cuts was not disclosed. Infinera currently counts around 2,000 employees worldwide.
The restructuring is expected to cost Infinera between $21 million and $27 million, with a majority of the plan completed by year-end.
“In recent years we have made significant investments to become a multi-market company, deliver a fully refreshed product portfolio, and establish a faster technology cadence,” Fallon said of the restructuring plans. “Reflecting on the internal expansion associated with these investments, we have identified areas where we can be more efficient going forward. While difficult, my expectation is taking action at this time will result in a more cost-efficient structure that enables us to focus on our strengths and return to profitability as we grow.”
Jeffries analyst George Notter said the restructuring plan “provides some consolation for slipping new products, competitive losses at Microsoft, and continued spending pressure at CenturyLink/Level 3.”