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Infinera is a young technology company focused on the development of technology for high bandwidth optical communication networks. The company has essentially taken a shopping cart full of hardware components and miniaturized them onto a set of two photonic integrated circuits that are a fraction of a square inch in size. The chips are dubbed photonic because they process light directly. The real benefits of their innovation are not limited to the miniaturization of the hardware though that is significant. They also developed an integrated software operating system that configures and controls the hardware. Taken together, These innovations offer a powerful package of benefits to telecommunications companies. Especially companies serving the medium and long haul segments.

Today, adding bandwidth takes 45 to 60 days lead time. In the Infinera model, it takes a few days to deliver added bandwidth and the cost of the bandwidth to the carrier is cheaper which improves their margins. This time savings is largely due to the modularity of the technology as well as the software-based control model.

Take a look at Infinera's sales for 2005 through 2007 and you see evidence that their solution is attracting a high level of interest. The sequentials are $4MM / $58MM / $246MM and Q1 of 2008 came in at $138MM. So the multiples are 10x & 4x and it looks like the 2007 to 2008 multiple will likely be around 3x to 4x. All of these figures are based on GAAP accounting standards which, in the case of Infinera have actually acted to defer some revenue artificially lowering their growth rates.

The company sells to a variety of customers including Telco's, Cable Providers and Managed Service Providers. Basically anyone with a need for high bandwidth, medium or long haul networks is a potential customer. As the sales growth above attests they have done very well so far. Again, this is due to the fact that the company is selling a product that delivers ROI on both sides of their customer's P&L - it lowers operating cost and increases unit revenue. The rapid deployment is also an important competitive advantage in a market where the standard delivery time frame is measured in months not days.

Infinera is a rare company. Their revenue growth and scale is impressive. Their technology is fundamentally better on both cost and revenue potential for their customers. They are selling their products into the global telecom networks which are growing at a fairly rapid clip and their success in garnering market share to-date is pretty much unprecedented. This is a classic rule-breaking business model that is going to experience the revenue growth and profitability of a curve jumping technology. If you were wondering what the next Dell would look like, there is a good chance that Infinera could be it.

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