On July 23, 2018, Infinera announced plans to buy Coriant for $430m. The acquisition will put Infinera into a top-five optical network market position. Coriant brings a portfolio of tier-1 carriers, a strong packet-5G strategy, and a services revenue stream. The merger will lead to a combined company with a better product volume/R&D investment balance with improved market position and prospects.
Infinera and Coriant as standalone entities were wrestling with differing market challenges. Coriant's private equity ownership caused concern for many carriers. It had a high cost base and a sub-optimal margin structure due to financial constraints, and it needed to counter market resistance with aggressive pricing. Infinera, meanwhile, was behind many of its competitors due to slower investments on next-gen solutions. Infinera will benefit from greater demand to achieve the volumes required to maintain its innovative and expensive Infinite Capacity Engine (ICE) R&D program. Coriant will also bring to Infinera a substantial installed base and an operational integration with tier-1s that could become a volume channel for Infinera's ICE. There will be an improved technology cost structure, and the acquisition will answer questions about Coriant's ownership. The combined company will present a more complete product and service portfolio, climbing to second place in North America and a much more credible third in Europe.
All mergers have risks. The merged company will need to combine Silicon Valley innovation with distinguished tier-1 credentials. The two companies are close to the same size, which carries additional risk if Infinera does not deal with the organizational power and people issues while maintaining the base business of each.
Oaktree Capital Management is a major investor in Coriant and will own approximately 12% of the combined company on a fully diluted basis. Infinera will need to incorporate the lessons learned from earlier acquisitions as well as lean on Oaktree's experience to make this one work seamlessly.
2018 Trends to Watch: Optical Networking, SPT002-000024 (Jan 2018)
Market Share Spreadsheet: 1Q18 SP ON Global, SPT002-000088 (May 2018)
Market Share Spreadsheet: 2017 High-Speed Optics Global, SPT002-000060 (March 2018)
Don Frey, Principal Analyst, Transport and Routing
Ian Redpath, Practice Leader, Transport and Routing and Components