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Why Infinera Corp. Stock Fell 13.5% in November

By Anders Bylund - Dec 12, 2017 at 2:16PM

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The optical networking veteran is expecting a few rough quarters ahead.

What happened

Shares of Infinera (INFN 1.31%) fell 13.5% in November 2017, according to data from S&P Global Market Intelligence. A solid third-quarter earnings report was paired with weak forward guidance and an unexpected restructuring of the company, and that was the final straw for some investors.

Several Ethernet and fiber cables plugged into an enterprise networking system.

Image source: Getty Images.

So what

The maker of fiber-optic networking equipment for data centers and long-haul infrastructure connections saw third-quarter sales rising 4% year over year, landing at $193 million. Adjusted net losses stopped at $0.11 per diluted share, down from positive earnings of $0.05 per share in the year-ago period. Both of these results were ahead of Wall Street's projections.

But fourth-quarter sales were guided to roughly $190 million, far below the Street's $207 million consensus at the time. Analysts were looking for a fourth-quarter net loss of $0.10 per share, but Infinera's guidance pointed to a larger $0.14 loss per share.

Moreover, the company announced a wide-ranging restructuring plan. By cutting jobs, closing one research center, and slimming down its product catalog, the company hopes to save $40 million of annual costs. Infinera will book something like $24 million of one-time costs over the next couple of quarters, related to the up-front expenses involved in executing this plan.

Share prices fell more than 20% the next day.

Now what

The cost-cutting program should lift Infinera out of the red bottom-line ink by the middle of 2018, but the company has a long way to go before delivering on that promise.

On a global level, the telecom and cable industries are preparing for the next wave of technology upgrades with huge long-term implications for Infinera's core target markets. None of them are exactly jumping the gun, waiting for technical standards and regulatory uncertainty to die down first.

So, Infinera is forced to hope for the best and plan for the worst. I'm still a fan of Infinera in the long run, but the next few quarters may give the stock some more unwanted haircuts.

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