24 hours after completing the acquisition of Coriant, Infinera share price has dropped 15% over comments rival Ciena is on the verge of stealing one of its biggest customers.
The acquisition not only notably increases the revenues of Infinera but also brings some pretty heavyweight customers into the fray. Six of the global internet content providers are now customers, as well as nine of the top 10 global network operators. Not a bad bit of business for Infinera.
“This is an exciting day for Infinera,” said CEO Tom Fallon. “The acquisition of Coriant is a major milestone, expanding the scope of our vertical integration strategy across a powerful suite of packet optical solutions for our customers. The acquisition immediately strengthens our ability to serve a global customer base and accelerates delivery of the innovative solutions our customers demand.”
Initial feedback has been good as well. Sound bites from Telefonica, GTT and SSE Enterprise Telecoms paint a positive picture, but the bad news comes from MKM Research analyst Michael Genovese. Ciena is making moves on Infinera’s largest customer, CenturyLink, giving the firm no option but to advise customers to sell Infinera shares.
In CenturyLink, Infinera has a major customer, accounting for more than 12% of annual revenue, though consolidation in the industry has had investors worrying. Five Infinera customers count for 44% of the company’s annual turnover. With customers being merged into single entities and economies of scale working against customers, the last thing Infinera needs is Ciena going on a customer raid.
Perhaps this should not be viewed as particularly surprising however. In August, investment bank Jefferies released a research note which suggested things were on the rise at Ciena. This is another company which has a slightly unhealthy customer to revenue ratio, three counts for more than 33% of revenues, though Jefferies noted Ciena has the best technology, a reliable and secure supply of product, and the resources to support very large network buildouts, making it an attractive proposition for potential customers. It is also spending more on R&D and the only vendor currently shipping a 400G/wavelength coherent product.
Infinera has pointed out CenturyLink is yet to make a final decision, though it certainly has been a rollercoaster 24 hours for the firm.