Demand for bandwidth has been exploding as consumers continue to embrace technologies like cloud computing and 4K video. Unfortunately, Infinera (NASDAQ:INFN) has been struggling as of late to translate that strong tailwind into revenue and profit growth. Those difficulties caused management to guide for a steep drop in revenue in the fourth quarter. That report came out Thursday. Let's take a closer look at the company's actual results to see how it is holding up through this challenging period.

Graphic illustrating a networked city.

Image source: Getty Images.

Infinera Q4: The raw numbers

Metric

Q4 2016

Q4 2015

Change

Revenue

$181 million

$260 million

(30%)

Non-GAAP net income

($17.0 million)

$32.0 million

N/A

Non-GAAP earnings per share (EPS)

($0.12)

$0.21

N/A

Data source: Infinera.

What happened with Infinera this quarter?

  • Revenue of $181 million came in at the high end of management's guidance range of $165 million to $185 million. 
  • Non-GAAP gross margin was 41.8%. This figure was down 650 basis points year-over-year. Infinera said that the drop was owed to product mix, discounting, and the loss of sales leverage.
  • Non-GAAP net loss of $0.12 came in at the low end of the company's guidance range.

While the results were largely weak across the board, there were a handful of bright spots in this report.

First, Infinera said that it posted 30% sequential growth in EMEA (Europe, Middle East, and Africa). This region now accounts for 37% of total quarterly revenue and was a big reason why the company was able to reach the high end of its target range.

Next, the company also stated that its data center business is performing quite well. Management stated that it added six new Cloud Xpress customers during the quarter. That's an encouraging performance, especially given the competitive landscape and Cloud Xpress 2 on the horizon.  

Finally, the company stated that it received an initial metro order from "a large North America cable operator." Management believes that this customer is poised to ramp its spending with Infinera over time.

What management had to say

CEO Tom Fallon is well-aware that his company is in the middle of a transition period, but he remains steadfast in his belief that investments in its "Infinite Capacity Engine" (ICE4) products will help to turn the ship around: 

As network infrastructures rapidly evolve, our objective remains to help our customers win by delivering the highest performing solutions at the Transport Layer. Though our product transition is currently holding back revenue growth and profitability, by introducing next generation ICE4 products, my belief is that we are well positioned to begin improving our business results over the course of 2017 and for significant opportunities in the future.

Looking ahead

While the company believes that it is making the necessary investments to be able to compete over the long term, management is still predicting that the upcoming quarter will be quite challenging.

Here's a look at the guidance that CFO Brad Feller offered up for the first quarter of 2017 when compared to its actual results from the first quarter of 2016.

Metric

Q1 2017 Guidance

Q1 2016 Actual

Revenue

$167 million to $177 million

$244.8 million

Non-GAAP gross margin income

39% to 41%

50.2%

Non-GAAP earnings per share (EPS)

($0.14) to $($0.18)

$0.19

Data source: Infinera.

As you can see, management expects that its results will continue to be quite weak. Thankfully, Feller stated that the company's new product rollouts should translate into improving financial results over time. In addition, he reaffirmed that the company remains focused on cost control, stating:

We will continue to manage expenses prudently and make the required investments to maximize the significant opportunities ahead. Longer term I'm optimistic that our accelerated development road map, strong reputation for quality and unique operating structure will enable us to achieve significant market share expansion in earnings growth over time.

Of course, Infinera isn't the only optical equipment maker looking to become more competitive in 2017. Ciena (NYSE: CIEN) is also looking to step up its game in an effort to wrestle away even more market share from Infinera. Infinera's investors will certainly want to keep an eye on Ciena to get a better sense of the competitive landscape.

Wall Street applauded Infinera's earnings report by sending shares up 27% by 3:15 p.m. Friday. That hints that market-watchers believe that the worst of the declines are finally over and the company's competitive position is strengthening. The new customer wins are likely helping to reaffirm that belief, but only time will tell if the company is truly out of the woods.

Brian Feroldi has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Infinera. The Motley Fool has a disclosure policy.