What happened

After reporting first-quarter results, shares of Infinera (INFN -5.22%), a seller of optical equipment used in telecommunications, plunged 19% as of 10: 35 a.m. EDT Thursday.

So what

Here's a look at the key numbers from the company's first quarter:

  • Revenue grew 15.5% to $202.7 million. This was above the midpoint of management's guidance range and also beat the $200.7 million that Wall Street had expected. What's more, the transition to a new accounting standard called ASC 606 caused sales to be $3 million lower than they would have been last year.
  • Non-GAAP gross margin was 44%. That was 200 basis points higher than the top-end of management's guidance range. The company stated that stronger-than-expected sales of the company's next-generation ICE products helped drive the margin gains.
  • Non-GAAP net loss was $7.2 million, or $0.05 per share. That was better than management had predicted and it was much lower than the $0.11 loss that analysts were expecting.

Turning to guidance, here's what management expects to happen in the upcoming quarter:

  • Revenue is expected to land between $203 million and $213 million. This represents 17% growth at the midpoint and is ahead of the $203.4 million in revenue that Wall Street was expecting.
  • Non-GAAP net loss per share is expected to land between $0.03 and $0.07. The midpoint is lower than the $0.06 loss that analysts were expecting.
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Image source: Getty Images.

CFO Brad Feller also shared some additional information on the call with analysts about what they expect to happen in the second half of 2018:

  • Revenue is expected to be "2% to 4% higher than the first half" of 2018.
  • Non-GAAP gross margin is expected to expand to about 43%.
  • The company is expected to return to non-GAAP profitability.

Overall, Infinera's expectation-topping first-quarter results and upbeat guidance for the second quarter should have pleased Wall Street. So what can explain the huge plunge today? My best guess is that this comment from Infinera's CEO Tom Feller during the conference call with analysts is spooking traders:

We are seeing certain large competitors being uncharacteristically aggressive on price.

When asked about the pricing pressure during the question and answer session, he eventually noted that a few competitors are being "hyper-aggressive" with pricing on some important deals that are in the works.

Now what

Infinera's first-quarter results and upbeat guidance suggest that it has made a considerable amount of progress to get the business back to profitability. However, the company is still producing losses, so shareholders can't breathe easy just yet.

I have a hard time seeing how this company will ever be able to command pricing power in its markets, and it will also be at the mercy of telecom's spending cycles. For those reasons, I can't see myself ever adding this stock to my portfolio, no matter how cheap it may become.