By
Dave Mock
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June 17, 2008
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Even though it was coupled with the announcement of a major new deal, investors read between the lines of Infinera's (Nasdaq: INFN ) updated guidance released after the market closed yesterday and summarily dumped the stock this morning.
While Infinera expects to meet its current-quarter guidance, the optical networking company expects to grow revenues at only 10% this year, as opposed to the 25% growth it envisioned before.
Blame for the shortfall was laid on the timing of customer network build-outs in the U.S., and extended sales cycles with new customer wins. Apparently, customers such as Level 3 Communications (Nasdaq: LVLT ) and Qwest (NYSE: Q ) aren’t rushing to spend heavily on equipment these days but are taking a more measured approach.
The new deal with German giant Deutsche Telekom (NYSE: DT ) will have Infinera deploy its digital optical network in a pan-European build-out to help the major telecom prepare for increased network traffic in the coming years. But Infinera will be taking a hit up front -- the company will incur about $4 million in one-time expenses related to the deployment during its second and third quarters.
Taken together, the news was enough for investors to cut Infinera's stock by nearly 30% today, leaving confidence in the equipment supplier shaken. But assuming that management is not using smoke and mirrors to cover a fundamentally deteriorating position against other suppliers, such as Alcatel-Lucent (NYSE: ALU ) , Cisco (Nasdaq: CSCO ) and Nortel Networks (NYSE: NT ) , investors may be staring unsupported near-term pessimism in the face -- and the chance to take advantage of it.
Infinera holds technical and cost advantages over many alternatives, giving it a good moat and solid standing against much larger competitors. It takes a lot to destroy a business with this kind of leverage. And with the Chinese Ministry of Industry and Information recently approving Infinera's solution, the company has the gate opened now to play in the new telecom world in China.
Certainly, investors had a door slammed on them this morning, but this Fool sees a window of opportunity opening.
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