Infinera’s Q3 Was Great, But For Guidance

Network equipment maker Infinera (NASDAQ:INFN, news, filings) reported earnings this afternoon, garnering initial rave reviews by beating estimates handily – much as they did in the prior quarter.  But when the CC rolled around, things apparently didn’t look so rosy anymore and traders reversed themselves – the stock is down some 20% after hours.  What happened?  Here’s a quick table:

$ in millions	Q1/10	Q2/10	Q3/10	Q4/10 Guidance
Revenue	$95.8	$111.4	$130.1	$115-120
EPS	-$0.07	$0.03	$0.18	$0.02-0.05
GM%	41%	44%	51%	45-47%

Revenues of $130.1M and earnings per share of $0.18 were both excellent, easily beating apparent expectations of $126.4M and $0.09.  The problem appears to have been with guidance.  Q4 revenues are forecast to be $115-120M with earnings per share in the range $0.02-0.05, while the street was expecting sequential improvement in both.  Indeed, the company said bookings in Q3 were below expectations and that they had reduced visibility, blaming simply the ebb and flow of the equipment business’s lumpiness as major buildouts finish up.  As other equipment providers report, the market will no doubt be watching to see if this is an industry-wide trend or is local to Infinera’s Q4.

On the customer front, they added two invoiced customers as well as 6 for their ATN metro product line, and they shipped some 3000 TAM modules. One of those new customers is Midcontinent Communications, a cable operator in the upper midwest, as announced in parallel today.  Much of the upside in revenue though apparently came largely from Level 3 Communications (NYSE:LVLT, news, filings) whose purchases were 19% of revenues and included a larger than expected number of TAM units which also helped out the gross margins.  That suggests that Level 3’s capex in the quarter will be up as well, as they have promised – hopefully alongside revenues.  Global Crossing was the only other 10%+ customer.

It also didnt’ help matters that the company’s chairman, founder, and former CEO, Jagdeep Singh picked this moment to make his exit to pursue other ventures. I’m actually not terribly surprised, as when he stepped down as CEO last winter it was clear he was ready to move on.  I do wonder what he has planned.

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Categories: Financials · Telecom Equipment