Infinera(US:INFN)2021-05-05 03:55Financial Data and Key Metrics Changes - Q1 revenue was $332 million, exceeding the midpoint of the outlook of $320 million to $340 million, with a year-on-year improvement of $19 million in operating cash flow [20][10][21] - Gross margin was 37.6%, above the high end of the outlook of 34% to 37%, reflecting a year-on-year expansion of over 900 basis points [21][10] - Operating profit was $1.3 billion, resulting in a 1.4% operating margin, which is also at the high end of the outlook [22][10] - The EPS in Q1 was a loss of $0.03 per share, representing a $0.17 per share improvement year-on-year [23] Business Line Data and Key Metrics Changes - Revenue from the open optic portfolio grew in the double-digit percentage range year-on-year, driven by network expansions and new customer wins [11] - Bookings in the subsidies segment were up almost 150% year-on-year, indicating strong demand for subsea routes [12] - Record bookings were achieved for open optical compact modular platforms and near-record bookings for open optical line systems [11] Market Data and Key Metrics Changes - 48% of revenue came from the United States, with spending recovering from a weak Q4, while international revenue was down sequentially due to seasonality [20] - The optical systems market is expected to grow 2% to 3% year-on-year, with the company projecting its revenue growth rate to slightly exceed market growth [15][29] Company Strategy and Development Direction - The company aims to leverage its core competence and vertical integration in high-performance optical engines, focusing on the shift to open optical and next-generation pluggable products [16] - Strategic priorities include enhancing the Metro portfolio with 400 gig optical interfaces and ramping up 800 gig solutions [15][16] - The company is positioned to gain market share and expand its addressable market while driving margins towards long-term targets [16] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in long-term market opportunities, despite ongoing supply chain challenges due to semiconductor shortages [14][15] - The company anticipates a meaningful revenue ramp in the second half of 2021, driven by strong demand and backlog conversion [13][29] - Management acknowledged the impact of COVID-19 and industry-wide supply chain challenges on business plans and results [4][5] Other Important Information - The company ended the quarter with $250 million in cash and restricted cash, benefiting from $90 million of cash flow from operations [24] - The company plans to invest in R&D to enhance its market position and capitalize on the transition to higher speeds in the metro [28] Q&A Session Summary Question: Can you talk about different verticals or order trends in the quarter? - Management noted strong order demand in Q1, with purchase orders received for products, and emphasized the strong demand for both metro and long-haul infrastructure products [34] Question: How much of an impact did component shortages have in Q1 and what is expected in Q2? - The impact in Q1 was estimated at $15 million to $20 million, with a similar expectation of $20 million to $25 million for Q2 [49][50] Question: Can you discuss the strengths in the tier one service provider market in North America? - Management indicated that the ICT sector remains volatile, with bookings to revenue being a key focus, and noted a recovery in Asia [44] Question: What is the nature of the orders received, particularly for 800 gig products? - The backlog includes both 800 gig products and existing product sets, with strong demand expected to convert into revenue in the back half of the year [63] Question: How is the company addressing supply chain constraints? - Management is working closely with supply chain partners to mitigate risks and is focused on fulfilling backlog orders despite longer lead times [56][92] Question: What is the company's strategy regarding inventory and chip procurement? - The company is considering maintaining higher inventory levels to combat supply chain shocks and is actively working with suppliers to secure components [92] Question: How does the company view the Huawei backlash opportunity? - Management sees this as a long-term opportunity, with potential revenue growth expected to pick up in 2022 and beyond [83][85]