Winning Through Disruption in the Transport Market

Transcription

1 Winning Through Disruption in the Transport Market Investor Overview August Infinera

2 Safe Harbor This presentation contains "forward-looking" statements that involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, our results may differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact could be deemed forward-looking, including, but not limited to, any statements about future market performance and similar statements; any statements about historical results that may suggest trends for our business; any statements of the plans, strategies, and objectives of management for future operations; any statements of expectation or belief regarding future events, potential markets or market size, technology and product developments, or enforceability of our intellectual property rights; and any statements of assumptions underlying any of the items mentioned. These statements are based on estimates and information available to us at the time of this presentation and are not guarantees of future performance. These risks and uncertainties include, but are not limited to, the risks of competitive responses and shifts in the market; delays in the release of new products or updates to existing products; fluctuations in customer demand, changes in industry trends, and changes in the macro economic market; the risk that Transmode s and Infinera s businesses will not be integrated successfully and/or the risk that synergies will not be realized or realized to the extent anticipated; the effect that changes in product pricing or mix, and/or increases in component costs could have on our gross margin; our ability to respond to rapid technological changes; our reliance on single-source suppliers; aggressive business tactics by our competitors; our ability to protect our intellectual property; claims by others that we infringe their intellectual property; war, terrorism, public health issues, natural disasters and other circumstances that could disrupt the supply, delivery or demand of Infinera s products; and other risks and uncertainties detailed in our SEC filings from time to time. More information on potential factors that may impact our business are set forth in Infinera s Quarterly Report on Form 10-Q for the fiscal quarter ended on June 25, 2016 as filed with the SEC on August 2, 2016, as well as subsequent reports filed with or furnished to the SEC from time to time. Our SEC filings are available on our website at and the SEC s website at Forward-looking statements are subject to change, and we may not inform you when changes occur. We assume no obligation to, and do not currently intend to, update any such forward-looking statements Infinera

3 Infinera: A Differentiated Technology Company Redefining what the network will be Unique technology innovation with PIC Best-in class systems with Automation, Convergence and Scalability Industry leading global service & support Unmatched reliability Right tools for right job Focused on customer success Infinera XTM/XTG Series Cloud Xpress Photonic Integrated Circuit (PIC) DTN-X XT Enabling An Infinite Pool of Intelligent Bandwidth DTN DTN-X XTC

4 Global Customer Base Over 600 customers spanning six continents 3 of the top 4 Internet Content Providers Leading North America and Pan-European wholesale operators Six of the top seven global cable operators 17 Tier 1 operators globally Infinera

5 Infinera Differentiators Infinera differentiates due to its technology, market expansion opportunities and vertically integrated business model Cloud Xpress XT-Series XTC-Series XTM-Series PIC-enabled Technology PIC enables scalable, intelligent functions: SDN, integrated switching, sliceable bandwidth High capacity applications: Long- Haul, Metro Cloud, Metro Core New Purpose-Built Products Cloud Xpress for DC Interconnect XT-Series for Long Haul XTM-Series & XTC-2 for Metro ~3x TAM expansion to >$15B in 2020* Infinera PIC Fab Vertical Integration Lower cost structure than competition Supply chain control Infinera * Based on average of latest forecasts from Ovum, IHS, Dell Oro and ACG

6 Outpacing Other SP Networking Players 150% 125% 100% 75% 50% Revenue Growth: Quarterly Trailing 12-month revenue DTN-X for 100G Long-Haul New Metro portfolio introduced Cloud Xpress for 100G DCI 141% 55% 3x faster growth than closest competitors INFN CIEN JNPR 25% 41% CSCO ADV 0% -25% Jun '12 Sep '12 Dec '12 Mar '13 Jun '13 Sep '13 Dec '13 Mar '14 Jun '14 Sep '14 Dec '14 Mar '15 Jun '15 Sep '15 Dec '15 Mar '16 Jun ' Infinera

7 Disruptive Technology Innovation: The Infinera Way Infinera

8 Technology Leadership Infinera Uniquely Delivers Massive Scale Conventional Approach The Infinera Approach Vertically Integrated Photonic integrated circuits Coherent optical engine Intelligent software Vertically Integrated ASICs and coherent Industry s only large-scale photonic integrated circuit Moore s Law-like for Optical Infinera

9 Infinera PIC-based Optical Engines Unmatched Capacity per Line Card/Chassis Capacity Optical Functions Integrated ~1000 Fiber Connections Eliminated > G PIC Sliceable 600G 2.4T Up to 2.4T PIC Future Long Haul/DCI PIC 10 Channel 100G PIC 10 Channel 100G ULH PIC Future Metro PIC Infinera 2 Channel 100G PIC Infinite Capacity Engine Metro PIC Future

10 A Quantum Leap in Optical Transport to Terabits Industry s first 2.4 Tb/s transport technology The next step function in optical with Infinite Capacity Engine Advanced electronics (DSP/ASIC): Next-gen FlexCoherent processor Cutting-edge photonics: Fourth-gen Photonic Integrated Circuit (PIC) Bigger Multi-terabit super-channels, up to 12x bigger Multi-terabit wire-rate L1 encryption Smaller One of world s smallest multi-terabit subsystems Lower power: 82% vs. competition Infinera PIC DSP Infinera Infinite Capacity Engine Better Sliceable photonics, 53% lower TCO Advanced coherent, 40-60% improved capacity-reach performance

11 Infinera Market Expansion Opportunities

12 Well positioned to grow and win in Optical Positive Macro Drivers Worldwide Bandwidth Explosion Server-to-Server traffic driving growth of private backbones High Growth Customers and End Markets Diversified, high growth customer base Solid Long Haul + high growth Metro and DCI Structural Technology Advantage High capacity, low cost of ownership, unmatched reliability Vertical Integration enables advantageous cost structure Grow faster than market, achieve best-in-class profitability, build a diversified optical transport business Infinera

13 Explosion of Bandwidth Hungry Applications and Devices IoT Cloud Video Mobility By the end of the decade* Mobility 11.6B mobile connected devices Monthly global mobile traffic >30 exabytes/month Video 80% of global Internet consumption will be video content 75% of mobile traffic will be video, 11x more than 2015 Cloud Worldwide spending on public cloud services will grow at a 19.4% CAGR to $141B in 2019, from $70B in Internet of Things > 24B networked devices globally Average fixed broadband connection speed 42.5 Mbps, double that of 2014 Infinera positioned to benefit from bandwidth explosion Infinera *Source: TeleGeography Global Bandwidth Forecast Q3 2015

14 Poised to Benefit from ICP-driven Bandwidth Demand Top 4 Cloud & Content Providers: 77% market share by 2020 Private backbones replacing Internet transit (i.e., massive server-to-server traffic growth) IaaS + PaaS Estimated Revenue Trans-Atlantic Bandwidth $100.0 $80.0 $60.0 $40.0 $20.0 $- 48% 55% 62% 68% 74% 77% 31% 35% Amazon Microsoft 100% 80% 60% 40% 20% 0% Internet Private Google IBM Big 4 Combined Mkt Share% Infinera Sources: Cloud market share from UBS report, 5/9/16 Is the Sky the Limit for Cloud Computing ; Private vs. Internet bandwidth from TeleGeography

15 Infinera Ready for 100G Coherent Metro Ramp Ports (Thousands) % CAGR 100G starting to ramp, rapid acceleration CY12 CY13 CY14 CY15 CY16 CY17 CY18 CY Infinera Source: 2015 IHS 100G Coherent Optical Equip Ports Mkt Fcst

16 Building on Long Haul leadership in DCI and Metro Networks Simplifying to New Model of Cloud Services and Intelligent Transport Market Inflections 100G Long Haul 100G Metro Cloud 100G Metro Aggregation Scalable Optics and Integrated Packet-Optical Key for Simplification Accelerated 100G uptake & 40G decline st to market with purposebuilt solution 2014 Infinera Core + Transmode portfolio 2016 Building a diversified optical transport business Infinera

17 Infinera Unified End-to-End Portfolio Infinera $15B* (2020) Transport Market * Based on average of latest forecasts from Ovum, IHS, Dell Oro and ACG

18 Infinera s Ascending Global Market Position $3,000 $2,500 $2,000 Cross-selling and revenue synergies create opportunity to continue to ascend $1,500 $1,000 $500 $ Infinera Source: Dell Oro2Q 16 DWDM Market Share report (Q3-15 to Q2-16).

19 Fully Addressing The Optical Transport Market Forecasts CAGR Long-Haul $4.9B $6.0B 5% DCI $1.6B $4.3B 29% Metro $6.3B $8.5B 8% Infinera - Long-Haul and Metro forecasts are average of latest projections from Ovum, IHS, Dell Oro and ACG - DCI based on latest projection from ACG. Small Form Factor CAGR is 57% ($335M in 2016, $2B in 2020)

20 Long Haul Adding new tools to solve customer needs Infinera

21 Established Long-Haul Leader Long-haul North America Long Haul Market Share Q1-16** 40.1% #1 in North America market share #2 Worldwide market share* Operational simplicity Terabit-class PIC-enabled scalability Power/space network efficiency 33.8% 13.4% 14% 10.5% * Source: IHS (Ovum ranks Infinera #3, Dell Oro #4) ** Average of Dell Oro, Ovum, IHS (as of Q1-16) Infinera XT-Series XTC-2 XTC-2E XTC-4 DTN-X Family XTC-10

22 Data Center Interconnect Capturing emerging cloud infrastructures Infinera

23 Cloud Architecture Drives Network Demands Search Query 1500 Miles HTTP request 930x Network Traffic Cloud Data Center Network Infinera sources: google.com, facebook.com

24 Optimized Solutions for DCI CX 10E CX 40E CX 100E Cloud Xpress Family XT-Series Purpose-Built Metro and Long-Haul DCI solutions Hyper-Scale Density Minimal Power Simple Operation Infinera

25 The Metro Market A new market for Infinera as 100G Metro begins to ramp Infinera

26 Metro Solutions from Core to Access XTM-Series 1G to 100G Packet-Optical All metro/regional Layer T applications in a single platform Application specific characteristics XTG-Series Passive CWDM, DWDM and WDM-PON access infrastructure Infinera

27 XTC-2 Extends DTN-X to Lower Capacity Sites E.g. Right-sized DTN-X XTC for Smaller Cities Seattle Spokane Boise Salt Lake City Las Vegas 100G 100G 100G XTC-2 100G 100G XTC-4 XTC G Super-channels Common Hardware, E2E Network Management & Automation Infinera

28 Value of End-to-End Converged Packet Aggregation & OTN Switched Metro Core Triple Play Broadband Cable Broadband XTC-2 Business Ethernet 100G Frankfurt Metro Area, Germany Mobile Front/ Backhaul Packet-Optical Switching Access & Aggregation TM-Series XTC-2 Converged Packet Aggregation & OTN Switched Metro Core XTC G Super-channels 100G Frankfurt Metro Area, Germany Infinera DNA XTC-10 XTC-4 Pan-European 500G Network Super-channels Large LH Core DTN-X Family XTC-4 Pan-European Network XTC-10 Large LH Core XT-500 XTC-10 XT-500 Point-to-Point Interconnect Point-to-Point Interconnect Infinera

29 Metro: Mobile Fronthaul Opportunity Mobile operators are increasingly evaluating and adopting Mobile Fronthaul Significant cost savings - Lower power and less equipment than traditional Backhaul More space efficient Fewer Central Offices, less equipment at cell site Fronthaul spending expected to exceed $1B by 2020 (~$350m today)* Infinera: Won 3 Fronthaul deals to date and in trials with multiple Tier 1s RRH RRH RRH Fiber all the way from antenna to Central Office Stacking of BBUs in Central Office RRH RRH RRH Cell site cabinet Cell site cabinet RRH RRH RRH Fronthaul Backhaul IP MPLS D-RoF Load balancing BBU Central Office CO CO CO CO Network Cell site cabinet Infinera *Source: Ovum Mobile Backhaul and Fronthaul Forecast Report: (September 2015)

30 Metro: How Infinera Wins Build on Transmode s Differentiated Approach Strong customer base and reputation in Metro Edge/Access Power efficient and purpose-built products Early technology leadership in Mobile Fronthaul Vertical Integration High capacity solutions for Metro Core upgrades to 100G PIC + DSP lowers cost structure and enhances technology Customer Base Long haul customer base upgrading to 100G Metro Combined strength in Metro-heavy Cable/MSO vertical Infinera Current Metro Market Share: 3% Worldwide* Significant opportunities to grow! Infinera *Average of latest projections from Ovum, IHS, Dell Oro and ACG

31 Infinera Differentiated Financial Results

32 Infinera A Growth Story 3 years of >20% revenue growth GM%: OM%: $ % -9.4% FY12 Revenue (in $m) $ % 1.4% FY13 $ % 8.3% FY14 $ % 13.1% FY15 All income statement figures are Non-GAAP (reconciliation to GAAP numbers may be found at * All figures as of end of Q2-FY Infinera Industry leading profitable revenue growth Solid Balance Sheet* $226M net cash 9 consecutive quarters of positive Cash Flow from Ops Last 4 quarters Cash Flow from Ops = $96 million Last 4 quarters Free Cash Flow/Revenue = 9.8% Q2 16 Performance $259 million revenue (25% y/y growth) 50.4% gross margin 13.2% operating margin Q3 16 Guidance $ million revenue 45% - 49% gross margin -2% - 2% operating margin -$ $0.02 EPS

33 Q3-16 Guidance What Happened? What Happened? Longer Term Impact 1) Subsea drop-off Multiple quarter impact; Infinite Capacity Engine technologies expected to improve situation 2) Long Haul footprint pause 3) Metro synergies delayed Temporary impact; Certain customers currently prioritizing Metro over Long Haul spend; Long- Haul market expected to resume growth Synergies now expected in FY17; Planning to offer more aggressive pricing to secure footprint Infinera

34 Margin Growth Opportunity Margin Drivers Vertical Integration Footprint vs Fill Instant Bandwidth Purpose-Built Products $ Long-Haul $ $ $ $ Cloud $ Xpress $ $ $ $ $ Metro Infinera PIC Fab $ Though footprint investment could affect gross margin in the short term, long term margin drivers will still benefit Infinera Infinera

35 Long Term Opportunities Intact Disappointing Q3 guidance does not alter the future Long Haul growth paused, but should resume Only halfway into 100G Long Haul cycle Customers must invest to address bandwidth demand DCI and Metro remain promising high growth opportunities DCI Significant market growth + alignment with key ICPs Metro Synergies intact with Infinera customer base Best in class profitability Margins could temporarily decline for footprint investments Infinite Capacity Engine-enabled products should enhance cost benefits of vertical integration and Instant Bandwidth Long Term Opportunities Long Haul - Continue to outgrow the market DCI - Small form factor market leader Metro Significant market share growth GM% 50%+ OM% 15% Infinera

36 Thank You Infinera