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Indecisive on Infinera

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Solid earnings, lowered guidance equals mixed emotions.

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Big whipsaw last night in the shares of Infinera (INFN) following its earnings release and quarterly call. Traders liked the revenue and EPS beat for the first quarter, but were disappointed by the lower than expected guidance for the 2Q.

Frankly, the whole thing seems rather goofy to me. INFN has a total of 42 customers, of which only a small portion may be active in any given quarter. In 1Q for example, four customers made up 61% of total revenues. If ever there is a company that can be taken at face value when it argues that Q/Q its revenues can be "lumpy", INFN is it. I'm not rationalizing here, as "lumpiness" was one of the risks I mentioned when I first discussed INFN.

Now for a bit more "good and bad color" from the call:

  • You could sense from the tone of the speakers that customers truly like INFN solutions. Anecdotal evidence bears that out.

  • The upside margin surprise seemed truly a one off.

  • Lower warranty claim assumptions contributed to the margin beat. This is a notable positive considering that INFN had a major product snafu right after the IPO - not a good thing when you're introducing a novel technology.

  • Why not just look at 1Q actual and 2Q guidance as a wash of positive/negative surprises?

  • Management would do itself a favor if it actually answered questions on the call, instead of saying a whole lot of nothing.

  • Watch the Operating Expenses line as it creeps higher.

  • Beginning next fiscal year, when the company migrates away from the mess of rules concerning recognition of deferred revenues, the growth trajectory - and hence the multiple it deserves - should become a lot clearer.
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Position in INFN
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