Michael Fox
August 15, 2018
Founder and Director of Research at Inflection Point Research, LLC

Infinera acquires Coriant – Desperate times call for desperate measures

Infinera recently disclosed plans to acquire privately held Coriant for $430M in cash and equity, signaling a consolidation effort in the optical transport space, but also verifying a situation that has become well known in the industry: that Infinera’s technology direction and lack of execution necessitate a drastic course of action.

Coriant is a private company that has been cobbled together by PE firm Marlin partners over the span of many years, and is comprised of components of Tellabs (formerly TLAB), Nokia Siemens Networks (formerly NSN), and Sycamore networks.  A little over a year ago, Coriant almost went out of business due to poor cash flow, was under credit freeze with many of their suppliers, and owed ACIA in particular more than $20M in past due payments.   Then in June 2017 PE firm Oaktree made a "strategic investment" and enabled Coriant to catch up with most of their suppliers, and also enabled them to go on a course of "buying business", sometimes at more than a 30% discount to their competition, i.e. CIEN, ADVA, ECI, CSCO, etc., in order to boost their customer list and order book.   This enabled Oaktree to sell the company in INFN at essentially just over 50% of sales, which isn't a very high valuation in anyone's book.

Net is that we openly wonder what will happen when INFN has to pay the Coriant bills for all the business they bought at zero or very low margin, how INFN will keep the Coriant business when they have to raise prices in order to not lose more money, and how they will convince Coriant customers to continue to be customers over the next couple of years as INFN tries to vertically integrate INFN technology into the Coriant products, which they didn't want in the first place.  

We beleive this situation is positive for the remainder of the optical transport industry, especially CIEN.   The other leaders in the industry, including CSCO, NOK, and Huawei, each have their own issues and/or optical transport is just a small fraction of their business.   Also if INFN continues to miss-execute on their ICE roadmap, they will be in the position of having to promote the Coriant product roadmap, which includes ACIA as a prime supplier for several years to come.  

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