Shares of Infinera (INFN) are sliding after MKM Partners analyst Michael Genovese downgraded the stock to Sell, saying his checks suggest the company’s loss of its biggest customer amid concerns with its ability to produce leading-edge equipment as the pace needed.

SELL INFINERA: This morning, MKM Partners’ Genovese downgraded Infinera to Sell from Neutral and lowered his price target on the stock to $5.50 from $10. According to his checks, Infinera has all but lost its largest customer CenturyLink (CTL) to Ciena (CIEN) because of concerns with its ability to produce “new leading-edge DSPs every 18-30 months”. Genovese said he believes other customers are probably concerned too. The upcoming fourth quarter and 2019 guidance including Coriant is likely to be disappointing on revenues and margins, he contended.

The analyst added that Infinera’s 2019 sales outlook is likely to be weak because of revenue dis-synergies and market share loss across both the organic and the Coriant sides of the business while pointing out that weakness in revenue outlook is likely to overshadow cost synergies. Nonetheless, stand-alone third-quarter results should be “solid”, Genovese acknowledged, adding that revenues are expected to increase 9% year over year and 1% quarter over quarter to $210M driven by strength with new customers in Asia and the Subsea, DCI, and Metro verticals. While the analyst is cautious on the combined companies’ 2019 revenue outlook, he thinks it is difficult to predict the fourth quarter revenue guidance due to variations on precisely when the deal will close and how Coriant will recognize its 2H18 revenue linearity.

WHAT’S NOTABLE: Last week, Morgan Stanley analyst Meta Marshall reinstated coverage of Infinera with an Overweight rating and $9.50 price target, placing it at the top of her Optical Scorecard as she believes the company’s Coriant acquisition could help it generate upwards of $2 of long-term earnings power if it is successful. Access to Coriant’s Tier 1 customers can help Infinera’s revenues and greater leverage of their fab and vertical integration can help its profits, Marshall told investors.