“The Future of our Next Internet Depends on this Tiny Breakthrough”

Sniffing out Ray Blanco's teaser "Profits at Light Speed: 'Owning' the New Internet While You Still Can"

By Travis Johnson, Stock Gumshoe, December 3, 2014

This article was originally published on August 6, 2014 and the ad is circulating again and sending a lot of questions our way. The same stock is being touted and teased, and the original article below has not been updated or revised… the stock teased is up by about 50% since it was first teased, thanks to a big “beat and raise” quarterly release in October, so it’s working out well so far.

—–from 8/6/14——-

I was reading the latest pitch for the “next Internet” and thinking that it was yet another spiel about the “Internet of Things” that we’ve covered so many times (like the Fool’s “The Internet Disappears” or Marc Lichtenfeld’s “Web 3.0” pitch)…

… or even about the “wearable tech” revolution that’s often likened to the “Internet of Things” — with the specialized little chips that everyone from the Fool to Michael Robinson believes will change the internet and the world.

But no, this one’s a bit different. Thankfully. Not that I disagree that the “internet of things” will be huge or that wearable tech will continue to advance, but I’m a little sick of seeing the same little chip companies teased over and over. Ray Blanco is touting the “Internet of Things,” sure, and also talking about how drastically different the next version of the Internet will be… but he’s not touting the next wave of internet sensors or internet-connected chips or wireless modules, he’s focusing on the vast demand for broadband that this “next internet” will create when thousands more objects are connected and transmitting data.

So he’s got a photonics stock to tease for faster fiber optic networks — one that he says has set a Guinness Record for their speedy networking, and that can transmit data thousands of times more quickly than conventional networks.

Sounds interesting, right? Well, what is it?

Now, now — before we get ahead of ourselves, let’s just see how it is that Ray Blanco gets our pistons firing for this idea. He talks about the “Mysterious billionaire” who got everyone excited about a “wealth event” in the next version of the internet back in January (that’s John Chambers of Cisco, who can’t tie his shoes without saying “Internet of Everything” and gave a big address about it as the keynote speaker at the Consumer Electronics Show in January).

And then throws in some more hyperbole:

“‘The biggest business opportunity in the history of mankind’

“Even Time has written about this, calling it the ‘next big thing.’

“In fact, they went on, ‘We’re talking trillions of dollars here, not billions.’

“There’s Business Insider, who says this could be, ‘Bigger than the smartphone, tablet, and PC markets combined…’

“And of course, Wired, which calls this same event… ‘The most monumental tech boom to date…'”

So that’s all about this “Internet of Things” still, not specifically about this company. Let’s start digging into the clues for the stock Blanco is teasing:

“What I’m guessing that you haven’t heard yet is why this huge phenomenon — worth a potential $19 trillion — might be in danger of not happening at all.

“At least, not without the breakthrough I want to reveal to you today….

“… there’s one very big [challenge] that must be overcome before the ‘Internet of Everything’… or even today’s crowded Internet… that must be dealt with first.

“I believe I’ve found the company that figured out how to deal with it.

“And it’s this company, I believe, that you’ll want to look at first.

“Preferably before you go chasing fortunes anywhere else in the exploding new ‘Internet of Everything’ marketplace.”

And yes, it’s all about connection speed, bandwidth and internet congestion:

“If the Internet is a digital pipeline, bandwidth measures how much data can pass through it at any given time. And already that amount of available space is running out.

“If you’ve ever noticed a slower connection speed… videos that buffer… super-slow emails… or dropped chat connections with the grandkids… you know what I’m talking about.

“As the ‘Internet of Everything’ explodes from 9 billion connected devices… to over 75 billion… what happens then to those already crowded digital ‘pipelines’?

“And this is the huge opportunity.

“In fact, even if the entire ‘Internet of Everything’ wealth tsunami gets postponed by another year or more, this is where you’ll want to look for a potential tech market bonanza.”

So that’s the big picture argument. On to the clues about this specific company:

“The Tiny Breakthrough That Could Unleash This Entire New Wealth Revolution

“Their answer is so tiny it fits on your fingertip.

“It’s called a ‘photonic integrated chip’…

“… silicon microchips are overdue to be replaced.

“And these “photonic integrated chips” could be that answer.

“Photonic” just means it uses light-guided circuits. They’re literally tiny lasers, packed into a space that’s just 1 centimeter square. It’s the laser light that moves the data back and forth.

“See, nothing moves faster than light.

“What this company’s chips do is take the data we usually send over the Internet… and code it onto different bands of light. This then gets shot out across the network on fiber-optic cables.

“On the other side, the same photonic chips put it all back together.

“The result is data that gets sent many times faster than anything you or I are used to now.”

OK, so they can make photonic chips. There are several decent-sized companies working on that (and lots of startups and venture-funded companies), so which one specifically is Blanco teasing? More clues:

“The new secret ingredient, instead of silicon, is an optical superconductor called indium phosphide. It’s the breakthrough that lets us pack so many laser circuits on each chip.

“And nobody so far is better at it than this company.

“One of their earlier chips can power a network connection at 100 gigabytes per second. That’s about 5,626 times faster than what most Americans can get right now.

“At that speed, this company shot to the No. 1 position for building high-speed networks just three months after this early chip was released… with more than a third of all 100-gigabyte networks running on this company’s photonic technology….

“… has kicked up its photonic technology to create a 500 gigabyte-per-second chip. They call it a “superchannel” chip. And it’s 28,130 times faster….

“… as Sterling Perrin, a top network and telecom expert, put it… ‘[This company] is four years ahead of the rest of the optical industry…'”

A four-year lead sounds pretty impressive — I doubt that I’ll understand enough about the science to tell you if that’s true or not, but we ought to be close to naming the company now. Just one more little tidbit:

“… they’re lab-testing a next generation photonic chip… that could power a 1 terabyte-per-second network. Breaking that barrier is the ‘holy grail’ for networks….

“In August of last year, technicians from this company did something nobody even imagined possible. They built a 228-mile computer network that ran at 8 terabytes per second….

“It was so fast, in fact, the entire demonstration — which took just 19 minutes to set up, start to finish — is now registered in the Guinness Book of World Records.”

Well, you knew there had to be something misleading in there — there always is. They did make it into the Guinness Book, but they did so not because of the 8 terabytes per second, which is not new, but because of the 19 minutes … the novelty of their solution, in large part, is that it made switching faster and easier. This stock is Infinera (INFN).

The announcement of the record is here — it’s for ” fastest provisioning of long-haul multi-Terabit transmission capacity on a live network.”

Sounds sexy, right? I’m sure it’s quite impressive, but I do wonder if anyone else has tried to set the record for “fastest provisioning”… or whether second place would be 20 minutes or three days.

Infinera is a substantial player in optical switching — it seems, from my quick reading on the topic, that their three big competitors in this niche seem to be Ciena (CIEN), Alcatel-Lucent (ALU) and Chinese giant Huawei … though in the US Huawei seems to have been locked out of the core optical switching market because it’s Chinese. Ciena is a pretty comparably sized company ($2 billion market cap vs. $1 billion for INFN), and has a longer history, but both stocks have been pretty weak long-term performers over the last seven years (INFN went public in 2007).

INFN appears to be priced with some big growth expectations, so Ray Blanco isn’t the only one expecting big things — the stock is trading for about 35X this year’s expected earnings (well, half earned and half expected) and 25X 2015 earnings estimates, and analysts see them boosting earnings at a torrid rate of 20% a year even after next year’s near-50% increase. They blew out earnings estimates this past quarter, it appears, and said all the right things about having great growth opportunity in the current wave of network upgrades as bandwidth hogs like online video and streaming and cloud computing pressure the networks.

Analysts have increased their estimates for INFN for both this year and next year, but the stock has always looked pretty expensive and traded on the growth expectations in this sector so investors didn’t get all that excited — they’ve apparently been waiting for the real burst of growth and the expected contract wins with big telecoms for years.

I was sniffing around and found this interesting article from Seeking Alpha about their prospects and the huge growth potential… but that was from last year when the stock was also around $9 (it since surged to $12 then came back down), so while it gives some idea of the kinds of things that can drive growth in the sector I’d want to understand the business quite a bit better before jumping in on a stock with this kind of valuation. The earnings upgrades and the revenue growth are substantial and impressive, and it may well be that the company has finally gotten their base built up to surge forward with their relatively new product (DTN-X) in the 100G network upgrade cycle (see, didn’t that sound like I know what I’m talking about? I don’t), but I have no idea what Alcatel-Lucent or Ciena or the big customers like Verizon and AT&T are doing.

Surely there are some folks out there in Gumshoedom who understand telecom networks and upgrading better than I do, so feel free to jump in with a comment below and tell me if you think INFN is really a great stock on the verge of huge growth — there are some underpinnings that provide hope, but I just don’t know enough about them.


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Alan Harris
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Alan Harris

Id rather bet PTK.V Poet Technology

john
Guest
john

because???

Alan Harris
Guest
Alan Harris

They are developing a MUCH faster chip. Too complicated to detail here so try http://www.poet-technologies.com/

borne0fan
Member
borne0fan

I prefer Arris for internet connectivity play. If you insist on old school telecomm, try Corning GLW instead.

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yelpik
Irregular
yelpik

Alan, Poet looks very interesting, but no sales yet. You are betting on the technology before sales and right now even before they have a product to sell. Prototype will be soon. Not sure what the competition will be. Can Intel really be that far behind. Great product and ideas IF (that’s a big if) it works.

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omcdac1
Member
omcdac1

Poet is down alot today!

Alan Harris
Guest
Alan Harris

‘IF’ (and I agree thats a big if) they crack this, I have little doubt Intel will buy them or buy an exclusive licence……I dont think they would have a choice if they want to access the whole catalogue of patents. The beauty of a penny share like this, is you can risk a tiny amount of money and potentially, still have a great payday. A bit like putting $1 on a 100/1 outsider on its first outing.
Its a very strong board of directors to waste on a no hoper.

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Alan Harris
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Alan Harris

OM: I see no point to looking at daily charts for penny shares……they are always up and down like a hookers knickers. But the big trading costs stop you constantly moving in and out. A single purchase of 1000 shares can move the market. What strategic value is that movement? I find it better to try and judge the problem they are trying to solve, the science of their solution in so far as I can comprehend it, the people involved and the potential market size. Then I forget the share until my portfolio record shows very green or red.… Read more »

omcdac1
Member
omcdac1

Thanks Alan.
Penny stocks are like that. Up and down.
I had one SLTD brought .4 cents and it went up to .19 cents!!
now is .16
So far, this was my biggest winner but i brought this by mistake.
I was about to buy worth of 400 but i purchased only for 40. just because of pushing a wrong button!
Now 40 become 160-170 around 🙂 Funny but true. My story 🙂

George Baumann, CCNA
Guest

Not to get too technical, but I noticed the term “8 terabytes” used somewhat interchangeably with “8 terabits”, the latter of which is a more correct network transmission measurement number. Simple math tells us that, since 8 bits = 1 byte, 8 terabits per second is actually equal to no more than 1 terabyte per second, and this is actual speed of the high-speed network connection recently assembled so swiftly by Infinera and Dante. Now, this is not to say that 1 terabyte per second is not an excellent transmission rate, just that it is only one-eighth as fast as… Read more »

pjwa
Member
pjwa

Surely 32 terabits = 4 terabytes?

nstiles
Member
nstiles

You never measure network transmission speeds by bytes, always bits. The reason is that 8 bits is not always a byte. There are 9 bits per byte systems (not used in America) and 7 bits = 1 byte in ascii transmission mode (as one bit is not needed, and yes this has not been popular since the mid 90’s). I’ve assumed that the author typo’d byte instead of bit in all the above.

Jeff T.
Guest
Jeff T.

These companies mentioned (especially Infinera) are way over-priced and have been. Just who is going to pay for the huge evacuation & re-charge of the Internet and the speed at which it flies? The consumer, that’s who. This is why I am leery of this. My Internet fees are escalating and we are paying way too much of our budgets for cell phones and the connection I’m on now. When anyone mentions the “Internet of Things,” I get out my checkbook because AT&T, Verizon, or T-Mobile or Cox will want their money back for any upgraded speed.

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dcohn
Member

These are router upgrades and often can be done by changing a module on the core routers. They may have several 40 Gb port modules now and they would add a 100Gb module. Or a 200 Gb module etc etc. (Gb = gigabit GB = Gigabyte same with Tb and TB related to Terabit and terabyte) Of course if the performance increase is such that the platform itself must be changed then it would require they swap out routers which is certainly more work. This has been going on for some time now. Even high end switches have port modules… Read more »

frank_m
Irregular
frank_m

Thanks Travis. I have a watch list of companies who are said to be the leaders of the new wave internet of things. My approach has been to consider them as option plays, now looking at some Jan16 leap calls for INFN. Not a huge premium for a year and a half out. Like biotech, my knowledge of high technology is at best second hand, so I am sometimes willing to learn what I can and see what happens. As Jim Skelton might tell us, even a blind squirrel finds a nut every now and then. My dad used to… Read more »

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Sam
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Sam

You are 100% right. I bet your father was a wise man. I am going to follow your footsteps.
Thanks.

Clark Craig
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Clark Craig

Stephen Leeb is pitching the next big 172 bagger based on the success of priceline.
What company is he pitching?
Thanks !
Clark

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Alan Harris
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Alan Harris

Om: Lookie….PTK.V up 30% today.

omcdac1
Member
omcdac1

Yes Poet is 9% up in usa today.
Alan Do u have TSLA and SCTY ?

v
Alan Harris
Guest
Alan Harris

9% ???….I think you mean 29+%. ie back to where it was 2 days ago. Yahoo is the same wherever youre looking at it.
Regrets no TSLA or SCTY. Personally, Id be nervous about Tesla. At the moment they have a unique product……Ford etc will be biting their heels v soon.

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omcdac1
Member
omcdac1

I was looking – OTCMKTS:POETF this one which went up 9% today closed at 1.09
I think poet have 2 Tickers another one is – CVE:PTK which is 30% up.

omcdac1
Member
omcdac1

TSLA and SCTY become story for me.
Solar City SCTY was my first stock ever i brought at $29
TSLA my friend was bugging me to buy when it was 55, i did not take step.
He knew TSLA like Dr KSS knows biotech.
I did not listen and huge upside lost. after that i brought TSLA 5 times and never sold a single stock so far. up 50 % around.
SCTY up 110% around after average.
And now I am leaning Biotech from DR KSS school with you 🙂

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omcdac1
Member
omcdac1

Learning* Sorry for typo!

Ren
Guest
Ren

Do NOT believe the hype folks. Do NOT trust a company that hasn’t delivered in the past until they actually ink the contracts for proof. If you’re impressed with 8Tb then you must be impressed with Cisco’s 322Tb which is 40x faster. That was 4 years ago! (2010) http://www.wired.com/2010/03/ciscos-new-router/ But you see….true adoption by companies is not about TOTAL speed but more scalability and upkeep. Less power consumption and 5x greater density than Cisco’s CS-3: http://www.bradreese.com/blog/5-22-2012.htm “Alcatel claims its 7950 XRS router can support 5X more density, consume 66% less power and take up less space than that of leading… Read more »

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Alan Harris
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Alan Harris

Ren: Thanks for the brilliant link. I invested in something similar and Im making bundles. See:
http://biggeekdad.com/2010/11/turbo-encabulator/

Ren
Guest
Ren

hahahahaha Thanks for the laugh Alan. Awesome community we have here to separate the wheat from the chaff. I truly wish everyone magnificent investment success and never any false hope.

Alan Harris
Guest
Alan Harris

Glad you enjoyed. Its important that folk understand this is NOT a tip sheet. Its a collaboration so that we gain 100 other eyes and ears listening at key holes and feeding back. What any individual does with that info is for them and their cheque book to decide.
My best
A

Ren
Guest
Ren

Exactly. Due Diligence and personal responsibility is first and foremost. Honestly there’s no one culpable except one’s self when it comes to the Internet. Trust thy own research, intuition, and what can be deduced in real-time results.

Ren
Guest
Ren

I will give you the diamond in the rough.
http://finance.yahoo.com/news/arista-networks-vmware-enter-strategic-120000148.html
Study VERY CAREFULLY the background of the CEO (ticker ANET) and how the CEO was appointed. Then read the article above. Then read the latency difference between a Cisco switch and an Arista switch. Then read the total bandwidth capacity and support for Geneve and VXLANs. 5-10 years from now when everyone has a Google modular smartphone and everyone you know uses a Hybrid Cloud at work, you’ll be glad you invested.

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Alan Harris
Guest
Alan Harris

Thanks for that. We cant all be experts in every techie area, so we are left to judge the author. So far, I judge that you know your stuff and you’re not just another pumper. I will follow you closely with both ears wide open.
Y’know Travis is always looking for specialists to write a once monthly column about what they truly comprehend. He pays a fabulous $5 a time 🙂 I think you should think about that.
My best.

Ren
Guest
Ren

Thanks for the confidence Alan. That does sound interesting. My intention would be to get the word out there on techie areas of interest that I know because I agree it’s good to have informed decisions on investments. I hate when people lose their hard earned savings so this website has my respect for its caring of its members. I’ve loved what insight I learned from stockgumshoe so far and it’s a highly valuable community not just for me. So kudos to you and Travis for all your efforts. My background is tech and finance.

Alan Harris
Guest
Alan Harris

Get the word out there…..What price fame.!!!
I hope youre an Irregular for the princely sum of $49pa and hardly any ads!! I dont know if your interested in bio investing, but KSS’s columns are genius if you add three or four letters to the alphabet. http://www.stockgumshoe.com/2014/08/microblog-a-non-statin-pill-that-really-lowers-cholesterol-blood-pressure-and-inflammation-without-side-effects-would-be-a-good-investment-right

And thats 1% of what on offer. Honestly, I dont work for Gumshoe, so I make zip, zero, nada from the recco.

renkaizen
Member
renkaizen

Oh you’ll get much more than 10%… I call it Opportunity Atomic Incubation or OAI for short or can also be expressed as the big O, ai yai yai.
Thanks for your cheque and reco. =D

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renkaizen
Member
renkaizen

Thanks for the link. Based on your persuasive reply I decided to fork over the measly sum pa to join up/support stockgumshoe as an irregular. Oh you don’t work with Travis…just goes to show how good folks like you Alan, are getting value and spreading the word to help others as well. Cool. Happy Investing!

Alan Harris
Guest
Alan Harris

Welcome, and you can send me my 10% later once youre truly satisfied…..Ill send you 10% if youre not. My cheque will be ‘in the post’ 🙂

Ferruccio Fortini
Guest
Ferruccio Fortini

I’m way long INFN (originally based on Fool recs, but later followed up with lots of deep digging including via local Silicon Valley friends who are way more technical than me!), but a lot of the bet is about their soon deploying a metro-scale offering as technically wonderful as their historically successful 10G-level DTN (mostly history by now…) and their current world-beating 100G-level DTN-X — both products limited to long-haul networks, crucial but far from a complete system offer. By end of year their metro-scale offering should be announced (if not necessarily yet available for purchase) and they’re going to… Read more »

sevepc
Member
sevepc

I have more than a little knowledge of this and while IFIN may be a good investment for various other reasons, the indium phosphide story is a bunch of bunk. Most optical chips today are based around lithium niobate which, like indium phosphide is an inorganic crystalline material. Because of the molecular structure of both lithium niobate and indium phosphide, they are limited to 10 Gbs/second speeds. The move to indium phosphide is real but it is more about the limited supplies of lithium niobate not because it is much different. These materials work in modulators that convert digital information… Read more »

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Alan Harris
Guest
Alan Harris

Wow, that would be an exciting post if I understood 1% of it. I remember reading a post that told me that physics/math proves it’s impossible to transmit faster than 56kb via telecoms. So I bought a 56k router. Er,,,,,, Where are we today? So you have more than a little knowledge….so spill the history, or how will I trust you ? I know everything about Nova trunyons and you should bet the farm on XXYDT…believe me? You may be telling it as it is. But please come out from the shadows so I can judge you. You will see… Read more »

dcohn
Member

Alan – I believe he is saying the technology they are pushing as an important attribute is not since they are only using it because it is easier to obtain (indium phosphide) . His point (I believe) is that it is not faster going to that new material just easier to obtain.
I know nothing about this level of routing or switch technology as I am more of a integrator than engineer. I just think I understood what he wrote. (Maybe not though) 🙂
This is a tip sheet though isn’t it HAHAHAHA

Alan Harris
Guest
Alan Harris

Ps Also, remember what I said in post #11. ……. ‘ this is NOT a tip sheet. Its a collaboration so that we gain 100 other eyes and ears listening at key holes and feeding back. What any individual does with that info is for them and their cheque book to decide.’

Abraham Medina
Guest
Abraham Medina

REALLY???

Abraham Medina
Guest
Abraham Medina

BIGGEST HOAX OF ALL TIME??? “You can fool some people all of the time, some people some of the time BUT NOT ALL PEOPLE ALL OF THE TIME!!!! Abraham Lincoln WARNED the world….