Infinera (NASDAQ: INFN ) , in collaboration with the Delivery of Advanced Network Technology to Europe (DANTE), recently deployed 8 terabits per second of long haul optical Internet capacity in 19 minutes. While the Guinness World Record this garnered may sound like mere marketing showmanship, do not be decieved. It is a very public victory well aligned with Infinera's strategy on two counts: To capture the mindshare both of a new breed of broadband-hungry customer, such as Google and Amazon, and of a recovering Europe.
Courting big-data companies
DANTE wanted to know how rapidly capacity could be deployed for GEANT, its pan-European data network for the research and education community (think universities and national laboratories). GEANT is comprised of 50,000 km worth of high-bandwidth, high-capacity network to serve Europe's scientific "big-data" users.
With this demonstration, every other big-data user in the world just took notice of Infinera. These include the major Internet content providers (ICP), such as Google and Amazon, which shuttle massive amounts of data around the Internet. They need to interconnect their far-flung data centers which then feed their army of end-users, thus spurring a voraciously growing appetite for long-haul bandwidth.
These ICPs are allocating increasing capital expenditures on internal networks using copious revenue streams quite different in origin from the traditional telecom company, and they are growing in dominance on the telecom landscape. Infinera's CEO, Tom Fallon, shared an assessment from the International Strategy and Investment Group with analysts at the recent Jeffries Global Technology Conference. It predicts that network capital expenditures from the top seven ICPs would exceed that of Verizon and AT&T combined by 2017, which is only three years away.
Providers demand deployment speed
Infinera and its competitor, Ciena (NYSE: CIEN ) , have made it clear that their customers are demanding ever more rapid deployment of capacity. Ciena's CFO, James Moylan, told analysts at the Duetsche Bank Technology Conference last September that "[providers] need to be able to turn up services as quickly as they can so they can get the revenue on their new lengths [of fiber optic cable]." Infinera stated within their latest annual report that their customers seek "easy to use solutions that reduce the time to deploy new transmission capacity."
This growing need for deployment speed was confirmed by DANTE's CTO, Michael Enrico, who spoke on the purpose of their experiment, "By future-proofing our network with Infinera's technology, we are ensuring that we can continue to stay ahead of the exponential growth in data." The ultimate prize is new bandwidth on demand, much as today's content consumers seek entertainment and information on demand.
Courting a resurgent Europe
Europe has been a difficult commercial battleground for network equipment suppliers. Ciena struggled last year with no growth in their international business that fell as a portion of their total sales from 47% to 41.5%. They called out Europe's economic doldrums as the culprit. Paris-headquartered Alcatel-Lucent, the "local" supplier to Europe, fared better. Though deriving only 22% of its revenues from Europe, its quarterly report sported a 9% growth in its IP Transport business that was "driven by EMEA (Europe, Middle East, Africa) and Japan."
Infinera's international growth has been even more vigorous with 40% growth in 2013 over 2012, representing an increase from 32% to 36% of their revenue. EMEA accounted for 80% of international sales during the first quarter of 2014. Management affirmed in its recent conference call that this source of growth is a top priority, "Over time we expect our international business to grow at least as fast as our North American business." This may occur sooner than later now that Europe's economic recovery is under way.
Infinera's successful experiment with DANTE may have appeared at first blush to be mere showmanship; but the company just fired a highly visible shot across the bow of their competitors. The Europeans for sure have taken notice; so undoubtedly have customers new and old across the globe whose voracious appetite for on-demand capacity shows no bounds.
R.I.P. Internet -- 1969-2014
At only 45 years old... the Internet will be laid to rest in 2014. And Silicon Valley is thrilled. Because they know... The Economist believes the death of the Internet "will be transformative." In fact, the CEO of Cisco Systems -- one of the largest tech companies on the planet -- says somebody's going to bank "14.4 trillion in profit from one concept alone."