industry stocks
to undergo tremendous growth, and it has recently launched unrivalled products that are attracting attention.
The later point was discussed in more detail in a conference call following the company’s first quarter 2012 results. In that call, Infinera’s CEO and President Thomas Fallon cited three reasons for traffic growth in optical networks: The cloud, mobile and video.
According to Forrester Research, a market analyst firmbased in Cambridge, MA, the cloud service market could be worth almost $240 billion by 2020. And with most applications in future expected to be based in the cloud, bandwidth in networks will have to grow to be large enough to accommodate massive, short-lived hikes in data transfer to deal with any disasters.
The second driver cited by Fallon for the growth of optical networks, mobile traffic, is growing rapidly thanks to tremendous growth in the sale of smartphones, tablets and laptops with a wireless connection. Data usage is tipped to increase 18-fold by 2016, and to support this, their has been a massive rollout in 3G, 4G and Wi-Fi networks. Mobile communication is not exclusively wireless, however, as data is also routed through an optical backbone.
Thirdly, Fallon argues that optical capacity must increase to cater for the growth of streaming video from multiple sources: User-generated content, such as that found on YouTube; aggregators, including Netflix and Amazon; and content creators, such as NBO. Video quality is increasing from standard definition to high- definition, with 3D just around the corner, and it is inevitable that this trend will contribute to the rise in data transmitted through optical networks.
To cater for this, investment in optical transport is on the up. For example, 19 million miles of optical fibre was deployed in the US in 2011, the most since 2000, according to the London based analyst CRU Group. This fibre will need to be ‘lit’, and Dell’Oro Group of Redwood City, CA, predicts that this should drive a 10 percent per year growth in the DWDM (dense wavelength division multiplexing) market through to 2016. Within this sector, optical packet transport is tipped to grow at 22 percent, which is great news for Infinera’s latest platform, the DTN-X.
Fallon argues that this
platform is three products in one. Firstly, it
is a DWDM transmission system that can support 500 Gbit/s ‘super- channels’ based upon 100 Gbit/s FlexCoherent channels. In addition, it is an
Right:Infinera’s recently launched DTN X combines: A DWDM transmission system that can support 500 Gbit/s ‘super-channels’; an optical transport network switching system; and an opportunity to upgrade to multi-protocol label switching,a step that can improve network efficiency
integrated OTN (optical transport network) switching system, which will initially have a capacity of 5 terabits, but eventually have an upper limit of 100 terabits. “This will enable operators to tame these large pipes, through the grooming of traffic down to 1 Gigabit granularity,” explained Fallon. Lastly, the system is designed allows upgrading to MPLS (multi-protocol label switching), a step that can improve network efficiency.
By late April, Infinera had four purchase orders for DTN-X systems – three with existing customers, and another with a new customer, Cable&Wireless. In addition, several other potential purchasers were in active contract negotiations with the company.
Infinera expects shipments of the DTN- X to take off, with sales appearing on quarterly balance sheets in the second half of this year. Interest in this platform has already led to a cut in orders for the forerunner, the DTN, and Infinera is ramping production of components for the new system. This state of affairs is expected to lead to a small fall in revenue to $92 million to $100 million for the second quarter 2012, and a loss of $16 million to $21 million for this period. But the longer-term prospects are more positive, with revenues for the second half of this year expected to be in the range $230 million to $250 million.
If this trend can continue, with Infinera’s shipments of the DTN-X increasing rapidly while gross margins fall through greater economies of scale, the company’s share price seems destined to head north. This will be welcomed by long-term investors, who have maintained faith in Infinera’s disruptive technology and are looking for a good return on shares that they bought back in summer 2007 for $13 when the company had its initial public offering.
Reaching skywards
Skyworks, in second place with a fall in share price of 12 percent, has seen the value of its stock plummet from April 2011 until the end of that year, and climb
June 2012
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