Infinera’s Fallon: We’re confident about our position with CenturyLink

Infinera says it is going to take time to understand when spending patterns at CenturyLink, which recently completed its acquisition of Level 3 Communications, will come back.

Tom Fallon, CEO of Infinera, told investors during its fourth-quarter 2017 earnings call that although CenturyLink is one of its largest Tier 1 U.S. customers, the vendor does not have enough visibility on the telco’s spending patterns.

Tom Fallon

“While we remain confident in our position with CenturyLink, we are uncertain when spending will begin to improve,” said Fallon during the earnings call, according to a Seeking Alpha earnings transcript.

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Concerns about Infinera’s status as one of CenturyLink’s main optical suppliers comes at a critical time for the vendor. Following CenturyLink’s completion of the Level 3 acquisition, Infinera reduced its workforce by 10% in the third quarter as capex spending decisions appeared to be in a holding pattern.

At the time, Infinera said that the company’s revenue had been under extreme pressure over the past year due mainly to many of its customers consolidating more of the market.  

Despite any potential concerns, Fallon said that Infinera and CenturyLink inked a joint pricing agreement.

“We've got a new, approved and agreed-to joint pricing contract that we're executing to. So, we are executing to that in Q1,” Fallon said. “We’re not baking in a lot of upside to them, but we're also not counting on some shoe dropping because of a contract or pricing issue that there's a disruption.”

Fallon added that Infinera has also responded to an optical RFP issued by the company, but would not provide any specific details.

“It's been public that there's an RFP ongoing,” Fallon said. “And I would say it's not the Level 3 team. There's only one team now, there's a CenturyLink team, and that RFP process continues. We're obviously engaged with it, but I'm not going to give any color on that beyond that.”

Here’s a breakdown of Infinera’s key fourth-quarter metrics:

Regional results: In North America, Infinera’s full-year 2017 revenue was down 21%, primarily due to customer consolidation in the cable and telco segments. Following a tough first part of the year, second-half revenue in the region was up 8% year-over-year due to a rise in spending from its cable customers.

On an international basis, EMEA grew 22% sequentially and 6% year-over-year. Asia-Pacific, which remains a small portion of its overall revenues, grew 81% over the previous fourth quarter and 29% for the full-year 2017. Infinera said that while Asia-Pacific remains a small piece of the business and 8% of overall yearly revenue, it is being cautiously optimistic about incremental new opportunities in the region.

Financials: Fourth quarter revenue was $195.8 million up sequentially to $192.6 million in third-quarter 2017 and $181 million in fourth-quarter 2016. 

Outlook: Looking toward the first quarter, Infinera has forecast revenue of $200 million, plus or minus $5 million. At the midpoint of this range, the company said revenue would be up 2% sequentially and 14% year-over-year. Infinera said that while the first quarter is typically very challenging, it is projecting sequential growth based on strong demand for new products—including initial shipments of 1.2 terabit DTN-X line cards—and a major customer in the cable space increasing their first half 2018 spending.