Preliminary 2FQ21 Results: Light Revenue Driven by Supply Chain Issues that Might Continue into 2H21



KEY POINTS
  • Supply chain issues were again front and center during the call. Infinera said it experienced a $30-35 million revenue hit in the first six months of 2021 due to supply chain issues. Revenue came in at $339 million vs. consensus of $345 million. Lead time for some components has gone from 15 weeks to 50 weeks. Currently, only 2% of the parts are being impacted.
  • Gross margin in the quarter was 37.7% on improved cost structure and higher services margin. The 390 bps YoY improvement was also impacted by 100 bps hit from higher component costs.
  • 800G demand looks solid, but supply chain issues are expected to hurt revenue by ~$15 million per quarter and hurt margins by 150 bps in 3FQ21. A few line system units slipped from 2FQ into 3FQ. With the supply issues, the company saw YoY growth in bookings and a record backlog at the quarter end.
  • The semiconductor industry supply issues continue to be a concern to some investors on the call, but the company believes it can grow faster than its market, which it sees growing 2-3% in 2021 vs. 2020.
  • The mid-point of the 3FQ21 revenue guidance of $355 million is slightly below consensus of $362 million. The company expects a gross margin of 35.5%, which would be up 30 bps from 3FQ20, and this includes a 100-150 bps impact from higher component costs.
  • The stock closed at a forward P/S of 1.25x, below its two-year high P/S of 1.54x back in January, but above it 1-year average of 1.17x. The stock traded down over 5% in the aftermarket after earnings were released but recovered to down 2% during the earnings call.
  • Read our initiation and other reports on Infinera on read or view our fireside chat report or video on 800 Gbps.
COMPANY OVERVIEW

Infinera provides optical transport networking equipment, software and services to telecommunications service providers, Internet content providers (ICPs), cable providers, wholesale and enterprise carriers, research and education institutions, enterprise customers and government entities across the globe. The company's portfolio consists of the Infinera DTN-X Family, the Infinera DTN platform, the Infinera Cloud Xpress Family, the Infinera XTM Series, the Infinera XTG Series and the Infinera FlexILS platform, addressing long-haul, subsea and metro networks end-to-end. Its technology includes Infinera Intelligent Transport Network Architecture, Infinera Photonic Integrated Circuits, Infinera FlexCoherent Processor, Super-Channels, Sliceable Photonics, Disaggregation, Integrated Digital Switching, Infinera Instant Bandwidth, Infinera Packet-Optical Transport, Multi-layer Switching and Optimization, and Management, Control and Security.

Supply chain issues were again front and center during the call. Infinera said it experienced a $30-35 million revenue hit in the first six months of 2021 due to supply chain issues. Revenue came in at $339 million vs. consensus of $345 million. Lead time for some components has gone from 15 weeks to 50 weeks. Currently, only 2% of the parts are being impacted.

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