For years, Infinera was the most promising optical networking company that couldn’t make money. There was excitement about its Photonic Integrated Circuit (PIC) that delivered high-powered, configurable optical bandwidth. The company was feted with an IPO in 2007.
Infinera going public was met with great expectations, but the company continued to lose money (hundreds of millions) year after year. By 2012, its cumulative losses had climbed to over $250 million, according to proxy statements. Investors became impatient, as promises of the “big deals” never lived up to expectations. After briefly attaining a high of near $27 in the year of its IPO, the stock price fell into the single digits. For years, it vacillated between $5 and $10.
But now, Infinera — and optical technology generally — is back. Infinera’s shares have been marching steadily higher and have recently hit new 52-week highs, around $23 — the highest they’ve been since 2007. Although the stock has still not hit an all-time high, the company now has a healthy $3 billion market cap and is profitable. It made money in 2014 and is expected to do so again in 2015.
A big catalyst has been the Cloud Xpress product, introduced last fall, which targets at the metro cloud market. Cloud Xpress is an optical box designed to connect networks and data centers in metro areas. Because of the immense growth in data centers and cloud computing, this is where the action is.
This week, Infinera expanded the Cloud Xpress to include 100 gigabit-per-sec (Gbit/sec) Ethernet (GbE) circuits. Previously it supported 10 Gbit/sec and 40 Gbit/sec circuits. With the addition of the new 100 B, the Cloud Xpress family now supports 10 GbE, 40 GbE and 100 GbE interfaces to match a variety of applications. The platform uses Infinera’s proprietary chip, an oPIC-500 optical engine, and Dense Wave Division Multiplexing (DWDM) technology to connect at up to 500 gigabits per second (Gb/s) using a two-rack unit hardware chassis. It also added MACsec encryption for improved security, NETCONF & YANG support for software-defined networking (SDN) and ease of use, and LLDP discovery protocols, targeted at data-center configuration.
This all lends itself to the discussion about the integration of SDN technology and optical. Many of these improvements have helped boost Infinera, but more importantly, its technology is well positioned for the data center Interconnect (DCI) market — as well as other data-hungry markets such as mobile.
It’s part of a resurgence of optical technology, in general, and Infinera’s technology specifically. First of all, 500 Gbit/sec is without a doubt the highest capacity in this condensed format on the market. Second, the flexibility of Infinera’s technology allows optical wavelengths carrying massive amounts of data to be switched and mapped into new networks on the fly.
The massive growth of data pulsing through data centers, social networks, and consumer mobile networks will continue to fuel the need for high-capacity, software-configurable bandwidth. By 2019, mobile network traffic is forecasted to increase tenfold, according to ACG research. Business cloud computing services are expected to increase at a 40 percent average annual rate. ACG says that by 2019, there will be 60 percent more data centers in the world’s metropolitan areas. Data center interconnect volumes will increase by more than 400 percent.
Infinera’s aggressively gone after the DCI market, and Cloud Xpress is the product. In this week’s release, it cited one of the largest data-center managers, Equinix, as a customer.
All of this is contributing to Infinera’s rising stock price and Wall Street’s new infatuation with the stock. MKM partners managing director and communications analyst Michael Genovese, who stuck with calls to buy Infinera as an investment in the down times, thinks the story has a ways to go.
“We are strongly reiterating our buy rating after spending time on the road with CFO Brad Feller last week,” wrote Genovese in an investment note. “We believe there are still major legs left to the story and the best is yet to come. Infinera is entering an entirely incremental $5bn Metro Optical market in 2015/2016 via CloudXpress, a new Metro Aggregation platform, and Transmode.”
Genovese expects that Cloud Xpress will add $45 million in sales in 2015. He also points out that a new metro optical aggregation platform, launched with new products as well as the merger with Transmode, will fuel growth. He pegs the metro aggregation market — also known as metro telecom — at $4.6 billion, with 10% compound annual growth.
It took a long time, but eight years after its IPO, Infinera finally appears to be delivering on its vision to become the high-capacity, software-driven optical networking company. And it’s finally starting to reward some of the most patient investors in the world.