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No. of Recommendations: 5
It took me a couple days, but I got through the earnings call.

I have about the same feeling as I'm sure others seem to have. I saw the brief article about earnings. Ugh. I saw the share price drop. Ugh. I listened to the conference call. Eh, maybe?

I initially was thinking - is it time to get rid of my shares? I was thinking yes.

Over the years, it's gone from roughly $5 to roughly $25. We're here around $10 today. If you bought low and sold high, you may have done well. If you bought for the long term, it really depends on when you bought. However, even if you bought low, you may be up a nice %, but there's still a good chance that you're losing to the market.

The investing thesis was largely based on INFN's PIC technology. It's superior. Is it? INFN has proven that they can take market share with the DTN-X. They've proven that they can successfully enter and even create new markets with the Cloud Xpress (2). They've proven that they can acquire companies with TransMode, but honestly, I think that's too soon to call as a good move at this point. As metro and 5G move along, we will get a better idea about the worthiness of this acquisition.

In spite of all of this, I see 3 major problems.

1. Prices are constantly dropping. This is an undesirable trait, but it's how this field works. They are expected to make better products and sell them at lower prices over time.

2. The inferior technology of competitors is apparently good enough for some potential customers. If it weren't good enough, it wouldn't be selling.

3. There has been (recent) poor execution by management. The ICE4 was late. CX2 was late. INFN has fallen behind recently. While they are now about where they should be in terms of next gen products, they likely lost some market share due to the late arrival of these products. To give management credit, they have promised to speed up the gen to next gen cycle to prevent this from happening again. They recognize that they must stay in the lead with their tech. They can't go back and forth, jockeying with competitors. To take away credit that I just gave, I've long viewed this as a problem with INFN. They used to say that they don't want to be first to market. They want to let the market start. They want to let prices drop. Then, they will enter the market and make it grow. Well, why not be first? Why not charge more for initial products? Management has noted that the initial new products cost more and are sold at a loss, so why not enter the market first when prices are high and sell at break even or at less of a loss? Why let competitors take market share at the beginning and potentially build a nice reputation for their product before you even have a product out? What happens when INFN enters a market first? They dominated with the CX from the very start and had a very strong market share. Why not do that as much as they possibly can? The only way that I can see INFN as a successful long term investment is if they are able to successfully speed up their process of moving from one generation of product to the next. It should help them gain market share. It should support the razor/blade model. It should help their reputation. It should gain confidence from customers. However, even if management does this successfully, that doesn't prevent point 1 and point 2 from being relevant.


TMFEdyboom223
Long INFN
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