Infinera 2Q revenues at upper end of guidance; 3Q guidance positive

Despite an increase in both sequential and year-on-year GAAP losses, Infinera Corp. (NASDAQ: INFN) CEO and President Tom Fallon pronounced the second quarter of his company’s fiscal 2011 a success based on GAAP revenues of $96 million and the progress the company made bringing its 40-Gbps and 100-Gbps offerings closer to market.

Despite an increase in both sequential and year-on-year GAAP losses, Infinera Corp. (NASDAQ: INFN) CEO and President Tom Fallon pronounced the second quarter of his company’s fiscal 2011 a success based on GAAP revenues of $96 million and the progress the company made bringing its 40-Gbps and 100-Gbps offerings closer to market. That momentum should carry over into the third quarter, he believes, which led to a third quarter non-GAAP revenue guidance of between $97 million and $103 million.

GAAP net loss for the quarter was $24.2 million (-$0.23 per share), compared to a net loss of $16.4 million (-$0.16 per share) in the first quarter of 2011, and net loss of $9.6 million (-$0.10 per share) in the same quarter of 2010.

However, the $96 million in revenue for the second quarter represented a sequential increase of $3.1 million from the first quarter. While it fell short of performance in the second quarter of 2010, when Infinera earned $111.4 million, Fallon told analysts on a conference call after the markets closed July 19 that the company saw what he termed “healthy” tributary adapter module (TAM) purchases and an increase in new capacity deployments that portend future TAM growth. Meanwhile, the company also made progress in the cable MSO market; two of the five largest customers for the quarter came from that segment, Fallon revealed.

Meanwhile, investment in new product development (particularly the 500-Gbps photonic integrated circuit or PIC, that will form the basis of the company’s upcoming 100-Gbps offering) and pricing pressures eroded margins in the quarter. GAAP gross margin for the quarter was 39% versus 46% in the first quarter of 2011 and 42% in the second quarter of 2010. Fallon and CFO Ita Brennan attributed the price pressures in part to the lack of a 40-Gbps offering, which forced the company to make its 10-Gbps offerings more price attractive for customers with an immediate desire to increase bandwidth on their networks. Fallon says Infinera will solve the 40-Gbps problem in the third quarter, when he expects to begin taking orders for a new 40-Gbps line card (which will not be based on PIC technology). Revenues from those orders will not be realized until the fiscal fourth quarter, however. Much of the demand for these 40-Gbps will come from the submarine market, he added.

Meanwhile, Fallon proclaimed himself very pleased with the development of the 500-Gbps PIC – enough that he hinted the device may be ready sooner than originally anticipated. He said he was very confident that the PIC would be ready in the second half of this year and that customer trials of the resulting 100-Gbps transport capability would begin in the first quarter of 2012. He expects volume commercial shipments of such a product to begin in the first half of the year.

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