Infinera is becoming the industry's preferred second-source. Based on our checks, the market traction for ICE-6 is substantial, and Infinera is becoming the preferred second-source, after Ciena, for Optical Systems. We think Infinera is likely to be at least as successful in the 800G LH/400G Metro/100G Edge market cycle as it was in 10G LH in the early 2000s and 100G LH from 2013-2015. According to checks, Infinera is likley to become a significant Optical vendor at AT&T and Verizon in 2022. We think the company could begin to recognize LH revenues from Verizon in 1H22 and Metro revenues from AT&T in 2H22. Additionally, Infinera now sells to nearly all of the Top 7 Webscale ICPs, and is shipping ICE-6 to most, we believe.

The stock has not reflected positive changes. Infinera had purchase orders from 25 customers for ICE-6 at the end of 3Q21. We think this number has increased substantially, and we expect ICE-6 to make up over 10% of product sales in 4Q21. INFN is down 17% YTD, versus NASDAQ down 12%. Demand, customer wins, and bookings look very strong. Investors are not yet giving Infinera credit for accelerating revenues and margins, likely because this management team has never been through a positive product cycle. With ICE-6 looking strong, we believe it is time to buy INFN.

4Q21 preview. We expect Infinera to report earnings in mid-to-late February. Revenues should be in-line to slightly ahead of our $386mn (+9% y/y) estimate, and GMs should be in-line at ~37%. We expect management to reiterate guidance for 8%-12% revenue growth and 300bps-400bps of GMs improvement in 2022 despite supply chain issues putting >300bps of pressure on 1Q22 GMs. The company's confidence in the 2022 outlook comes from strong orders and backlog, and the mix shift to ICE-6.

INFN

Infinera Corporation

Communications Equipment

ICE-6 Is Driving Impressive Wins With Tier 1 Telcos and ICPs

Great Q For ICP Wins & ICE-6 Ramp, Expect Strong Rev & Margin Growth In 22 & 23