Infinera Corp. (INFN) filed Quarterly Report for the period ended 2009-09-26.
Infinera provides Digital Optical Networking systems to telecommunications carriers cable operators and other service providers worldwide. Infinera's large-scale photonic integrated circuit incorporates hundred Gigabits per second of transmit and receive capacity and the functionality of more than sixty discrete optical components into a pair of indium phosphide chips. Infinera's DTN system and PIC technology are designed to provide optical networks that provide operating simplicity enhanced revenue generation faster time-to-service and capital cost savings. Infinera Corp. has a market cap of $691 million; its shares were traded at around $7.22 with and P/S ratio of 1.3.
Highlight of Business Operations:
Our historical revenue trends have been significantly impacted by the timing of our attainment of vendor specific objective evidence (“VSOE”) of fair value for most of our services and are not indicative of revenue trends in 2009 and future periods. Prior to the first quarter of 2008, revenue from product sales sold in combination with services (“bundled product sales”) was deferred and recognized ratably over a period of approximately one year. This resulted in the accumulation of $174.4 million of deferred revenue and $81.6 million of associated deferred inventory costs on the balance sheet as of December 29, 2007. We recognized $165.8 million of this deferred revenue and $78.4 million of associated deferred inventory costs in 2008. In addition, the attainment of VSOE of fair value for most of our services beginning in the first quarter of 2008 required us to recognize a majority of our 2008 product sales as revenue in the period in which the bundled products were accepted by the customer. The combined effect of the recognition of the deferred revenue from prior periods and the upfront recognition of revenue from bundled product sales in 2008 resulted in increased levels of revenue, gross margin and net income for 2008. We do not expect to recognize significant amounts of product related deferred revenue and deferred gross profit in the future.
We will continue to make significant investments in the business, and management believes that operating expenses will be approximately $50 million to $52 million for the fourth quarter of 2009.
In July 2009, we announced a restructuring plan under which we will close our Maryland based semiconductor fabrication plant (“FAB”) and consolidate these activities into our primary FAB location in Sunnyvale, California. This consolidation of activities in one location is expected to facilitate collaboration across integration platforms in support of our next generation products. As a result, during the third quarter of 2009, we recorded restructuring and other related costs including severance and related expenses, equipment and facilities-related costs, and other exit costs. Equipment and facilities-related costs primarily consist of depreciation associated with restructured assets which refers to the increase in depreciation expense caused by shortening the useful life or updating the salvage value of depreciable fixed assets to coincide with the end of production under the approved restructuring plan. In the three months ended September 26, 2009, we incurred $0.9 million of severance and related expenses and other exit costs. We also recorded non-cash charges of $2.4 million primarily comprised of equipment and facilities-related costs.
We attained VSOE of fair value for software subscription services in the first quarter of 2008, for training and installation and deployment services in the second quarter of 2008 and for spares management and on-site hardware replacement services in the fourth quarter of 2008. $76.1 million and $226.8 million of product revenue was recognized for the three and nine months ended September 27, 2008, respectively, from sales of bundled products and services where the only undelivered element was a service for which VSOE of fair value had been established. As of the first quarter of 2009, we had established VSOE of fair value for most of our services and recognized product revenue of $73.7 million and $193.9 million for the three and nine months ended September 26, 2009, respectively. The decline in product revenues reflects decreases in the underlying product related invoiced shipments primarily due to reduced sales of our DTN Systems to existing customers in the first half of the year somewhat offset by the timing of revenue recognition on a number of large deployments with new and existing customers that were completed and recognized as revenue in the third quarter of 2009.
We had established VSOE of fair value for most of our services by the end of 2008 and as a result, during the three and nine months ended September 26, 2009, we recognized the majority of our invoiced shipments as product revenue at the time of customer acceptance. Ratable revenue for these periods related primarily to a small portion of our shipments where products are sold in combination with software warranty and other services for which VSOE has not yet been established and amounted to $0.9 million and $3.2 million for the three and nine months ended September 26, 2009, respectively.
INFN is in the portfolios of David Swensen of Yale University, Lee Ainslie of Maverick Capital, Wilbur Ross of Invesco Private Capital, Inc..
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