Winning Through Disruption In The Transport Market

Transcription

1 Winning Through Disruption In The Transport Market Investor Overview March 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 and financial performance and similar statements; statement regarding future products or technology as well as the timing to market of any such products or technology; 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, delays in the release of new products or updates to existing products; the risks of competitive responses and shifts in the market; fluctuations in customer demand, changes in industry trends, and changes in the macro economic market; 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; aggressive business tactics by our competitors; customer consolidation; our reliance on single-source suppliers; 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 Annual Report on Form 10-K for the fiscal year ended on December 31, 2016 as filed with the SEC on February 23, 2017, 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 Optical Transport Where it Plays in the Network Core Routers Routers inter-connect over transport systems Routing: Edge Routers Switching: Optical Transport: Metro Transport Data Center #1 DCI Transport Data Center #2 DC Edge Router DC Edge Router Spine Switch Spine Switch Leaf Switch Leaf Switch Infinera Long-haul Transport DCI Transport DCI Transport

4 Optical Transport Industry Overview Systems Vendors Components Vendors Optics: Coherent DSPs: Infinera Systems vendors typically buy optics from 3 rd parties and may in- or out-source DSPs. Infinera predominantly makes and designs its components in-house. Infinera disrupts the traditional optical model

5 Technology Leadership Infinera Uniquely Delivers Massive Scale Conventional Approach The Infinera Approach Vertically Integrated Photonic integrated circuits Coherent optical engine Significant Barriers to Entry Hundreds of millions of dollars spent over the years to build indium phosphide PIC factory Industry s only large-scale photonic integrated circuit Intelligent software Vertically Integrated Electronics/ ASICs 15+ years of experience More than 450 patents covering IP Moore s Law-like for Optical Infinera

6 Infinera: A Differentiated Optical Systems Company The most vertically integrated optical transport systems company Unique technology innovation with PIC Vertical integration drives superb reliability and differentiated cost structure Best-in class systems with automation, convergence and scalability Industry leading global service and support Right tools for right job Focused on customer success XTM/XTG Series Cloud Xpress 2 Cloud Xpress Photonic Integrated Circuit (PIC) XT-3600 XT-3300 XT-500 Enabling An Infinite Pool of Intelligent Bandwidth FlexCoherent Electronics DTN-X XTC Series Infinera

7 An End-to-End Portfolio to Serve an Expanding Market Infinera

8 Long-haul: Infinera s Heritage 2000: Infinera founded, promises to do the impossible: PICs 2007: 10G wave market leader (47%)*, completed IPO 2012: Shipped 500G PIC-based DTN-X 2004: Introduced industry s first large scale PIC 2005: Shipped 10G PIC-based DTN, rapidly reaches $100M 2008: #1 market share in NA Long-haul* : Leapfrogs 40G, invests in 100G DTN-X Fuels Infinera s Growth Revenue CAGR Infinera: 26% Worldwide Long-Haul: 8%** * Dell Oro DWDM Long Haul Reports **Average of projections from Dell Oro, Ovum, IHS Infinera

9 Long-haul: Established Leader Long-haul Market Leadership* Last 4 quarters average Market Share: 37% North America; 13% Worldwide Q3-16: #2 North America, #5 worldwide DTN-X Family Technological Differentiation Operational simplicity Terabit-class PIC-enabled scalability Sliceable photonics Power/space network efficiency * Based on average of latest quarterly reports from Dell Oro, Ovum, IHS Infinera XT-3600 XT-3300 XT-500 XT Series XTC Series

10 Infinera Instant Bandwidth Industry s first software-activated bandwidth delivery solution Flexible infrastructure: optimize network, meet variable needs of customers One-click capacity: rapid deployment accelerating time-to-revenue Lower Opex: Minimize planning, engineering, truck rolls, & cabling Hardware Innovation WDM Line Card 500G Super-channel Customer adds capacity via software licenses 100G Latent 100G Latent 100G Latent 100G Latent 100G ACTIVE Infinera

11 Portfolio Expansion Increases TAM Opportunity Optimized Solutions Increased Share Long-haul 1 Compact DCI 2 Metro Aggregation TAM ($M) $5.1B $0.2B $6.1B 2020 TAM ($M) $6.0B $1.1B $8.4B 3x TAM Expansion 2016 LH Only = ~$5B 2016: LH/DCI/Metro = ~$10B 2020 Overall = ~$15B 4-yr CAGR 4% 54% 8% Infinera Market share includes China 1: Average of latest projections from Ovum, IHS, Dell Oro, Cignal AI, ACG 2: Average of latest Cignal AI and Ovum Compact or Small form factor DCI forecasts

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

13 DCI: Infinera Cloud Xpress Family Cloud Xpress Cloud Xpress Gb/s super-channel line 10/40/100 GbE clients 1.2 Tb/s super-channel line in 1RU 100 GbE clients 16QAM Hyperscale Density Low Power Instant Bandwidth Simple Operation Automation Built-in Security Infinera

14 Metro: Solutions From Core To Access 1G to 100G packet-optical 100G at Layer 1 and Layer 2 P-OTS 16QAM applications with XT-3300 and XT-3600 Multi-service, access to core Low power and latency, highdensity design XTM/XTG Series Cloud Xpress Family XT-3600 XT-3300 XTC-2/2E Building a differentiated portfolio from core to access Infinera

15 Metro: A Significant Market Expansion Opportunity Differentiated Approach Strong customer base and reputation in metro edge/access Power-efficient and purpose-built products Early technology leadership in emerging applications like mobile fronthaul and Remote PHY Vertical Integration High capacity solutions for metro core upgrades to 100G Over time, lowers cost structure and enhances technology differentiation Customer Base Long-haul customer base upgrading to 100G metro Strong presence in metro-heavy cable vertical Infinera Current Metro Market Share: 3% Worldwide* Significant opportunities to grow! Infinera *Average of latest projections from Ovum, IHS, Dell Oro and ACG

16 Infinera Unified End-to-end Portfolio INFINERA XCEED SOFTWARE SUITE AND DNA Mobile Front/Backhaul LONG-HAUL / SUBSEA METRO ACCESS AGGREGATION REGIONAL CORE XTC-10 Triple Play XTG Series TM-3000 XTC-2 XTC- 2E XTC-4 Cable Broadband NID EDU TM-102 TM-301 XTM Series DTN-X Family: XTC Series Business Ethernet CX CX2 XT-500 XT/S-3300 XT/S-3600 Data Center Cloud Xpress Family DC INTERCONNECT DTN-X Family: XT /S Series INFINERA OPEN FLEXIBLE GRID LINE SYSTEM $15B* (2020) Transport Market Infinera *Average of latest projections from Ovum, IHS, Dell Oro and ACG

17 Market Expansion Bandwidth Explosion & Evolving Network Architectures Create Opportunities Infinera

18 Explosion Of Bandwidth-hungry Applications nd Devices By the end of the decade* Cloud IoT Mobility 11.6B devices Traffic >30 exabytes/month Video Mobility Video 80% global internet usage = video 11x more mobile video traffic than 2015 Cloud Public cloud services: 19.4% CAGR from 2015 to $141B (2019) Internet of Things > 24B networked devices 42.5 Mb/s avg fixed broadband speed, 2x 2014 Infinera well-positioned to address bandwidth explosion Infinera *Source: TeleGeography Global Bandwidth Forecast Q3 2016

19 The Dismantling of Status Quo Networks is Underway NFV/Software pressuring traditional router infrastructure Routing (L3) X Routers need Transport systems to connect X X X X LAYER T Pressure to break Proprietary OS, Slow Innovation Transport (L0-L2) Intelligent Transport increasingly capable of substituting for many router functions Intelligent Transport shifting $$ away from Routing Transport Becomes More Capable with More Intelligence Infinera

20 Network Transformation: The New Layers T & C Old Model New Model LAYER C Every possible network function runs in cloud L3 L7 Firewall SBC B-RAS CPE Layer C: Cloud Services NFV Apps SDN Control Open APIs LAYER T Open packet optical, move bits DC-DC, DC-user L0 L3 Packet OTN WDM Layer T: Intelligent Transport Appliance per function, Rigid, $$$, Closed Shared infrastructure, Agile, Open, $ Layer T powers hyper scale cloud networks positive for Infinera Infinera

21 Layer T Traffic Patterns Changing Tb/s Private: 58% CAGR Mostly DC to DC Internet: 21% CAGR Mostly user-to-content 100G: 75% CAGR 10G: 16% CAGR Trans-Atlantic Bandwidth Mix Source: Telegeography Q Global Bandwidth Forecast Service 100G Services Are Surging Source: Ovum Ethernet Services Forecast Report: Infinera

22 Hyperscalers Increasingly Dominate Cloud Services Top Four Providers: 77% Market Share by 2020 IaaS + PaaS Estimated Revenue $100.0 $80.0 $60.0 $40.0 $20.0 $- 48% 55% 62% 68% 74% 77% 31% 35% % 80% 60% 40% 20% 0% Amazon Google Big 4 Combined Mkt Share% Microsoft IBM Infinera Source: Cloud market share from UBS report, 5/9/16, Is the Sky the Limit for Cloud Computing

23 From 4G to 5G What Can We Expect? 2008: LTE (R8) 2013: LTE-A (R10/R11) 2016: LTE-A (R13) 2020: 5G 4G Bandwidth 50x over 3G 10ms latency Fiber MFH w/cpri emerges Ethernet Backhaul Central RAN emerges Early open environment Industry expects 4G co-existence as 5G emerges 5G 1000x bandwidth per unit area New apps/mec - 1 ms latency Fiber everywhere possible, MFH & MBH merge Cloud RAN pervasive Fully open & RAN vendor agnostic Bandwidth explosion further densifies the network, creating significant opportunities Infinera

24 Metro: Layer T Architectural Shift, Fiber Deeper Into Metro Fiber Deep Opportunity Packet Optical Requirements Fiber to the business CPE Metro Biz Services Fiber to the tower Fiber to the node CPE Mobile Fronthaul Deep fiber access CCAP B cast BBU 100G Mobile Backhaul 100G Backhaul MEF CE2.0 Services Flexible Configs Low Latency Superior Sync Low Space, Power Hardened Systems Infinera

25 Significant Inflection Point for Cable/MSO All-IP Vision MSO Objectives Countering competitive fiber initiatives from Tier 1s Video On demand, OTT BW Growth Ubiquitous Access Software Delivery Fiber Deep Running out of bandwidth for broadband and Over-the-top ( OTT ) services Need to reduce power #10G access links homes/node N+5 Remote Phy Devices N+4 N+3 N+2 N homes/node N+0 N+#amps on coax Node Split Fiber Deep Infinera

26 Market Expansion How Infinera Wins Infinera

27 Infinera s Journey Seizing and Creating Market Inflections 2000: Infinera founded, promises to do the impossible: PICs 2004: Introduced industry s first large scale PIC 2007: 10G wave market leader (47%)*, completed IPO 2008: #1 market share in NA Long-haul* 2012: Shipped 500G PICbased DTN-X 2016: Infinera validates interoperability with white box open line system : Expect to introduce several next generation products powered by new optical engine ( ICE4 ) and deliver upgrades to XTM Metro Portfolio 2005: Shipped 10G PIC-based DTN, rapidly reaches $100M 2010: Leapfrogs 40G, invests in 100G 2014: Introduced Cloud Xpress for DCI 2015: Infinera enters Metro; Acquires Transmode Infinera * Dell Oro DWDM Long Haul Reports

28 Billions (Market Sizing) A Significant Market Expansion Opportunity $16 $14 $12 $10 $8 $6 $4 China Compact DCI Metro Long-haul INFN CAGR 19% INFN Revenue $2,000 $1,750 $1,500 $1,250 $1,000 $750 $500 Millions (INFN Revenue) Prior to 2015, Infinera only addressed the long-haul market (~$3.5B ex-china) Expansion into Compact DCI and Metro expands TAM 3x to ~$12B ex-china by 2020 Infinera well positioned to outgrow the overall market through 2020 $2 $0 Market CAGR 7% $250 $0 Expected Overall Market CAGR ( ) = 9% Infinera - Market sizing based average of latest forecasts from IHS, Cignal AI, Ovum, Dell Oro, ACG; China data from IHS, Compact DCI from Cignal AI

29 Global, Fast-Growing Customer Base Over 600 customers spanning six continents Three of the top four 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

30 Infinera Leads the Move To OPEN Member of open industry initiatives including Telecom Infra Project (TIP) First Transport SDN solution to be technically certified Powered by OpenDaylight Integrated/integrating with multiple orchestrators Rich set of open application programming interfaces (APIs) and cloud automation Industry s most widely deployed flexible grid open line system (OLS) Scalable capacity over any line system, successful interop testing with Lumentum OLS Netconf/YANG, REST, XML, OpenFlow, OVSDB, OpenConfig, grpc FlexILS Open ICE XCEED SDN Infinera

31 Our Strategy: How Infinera Wins Building Blocks Deliver Differentiated Next-gen Platforms in 2017 Increase Cadence of Optical Engine Lead in Open: Open APIs, Open Line Systems Markets Disaggregated and Integrated Solutions Optimized per Customer Balanced Portfolio LH/SS/Metro/DCI (End-to-end) Grow Faster than the Overall Optical Market Help Customers Transition to Layer T and Win in Their Markets Infinera

32 Infinera Differentiated Financial Opportunity

33 A Structure to Deliver Differentiated Financials Gross Margin High scale integration Long-haul DCI Metro Fixed cost leverage Instant Bandwidth Unique pricing structures Operating Expenses G&A grows slower than revenue R&D = long-term target 20% of revenue Success based S&M investment Structured long-term financial model Financial discipline Infinera

34 $ (Millions) Sustained Success and a Setback Long-Term Targets Intact $1,000 $800 $600 $400 $200 $0 $544 $438 $668 44% 13% $888 $871 48% 48% 42% 8% 6% 1% 38% -9% FY12 FY13 FY14 FY15 FY16 Revenue Gross Margin Operating Margin 49% Solid Balance Sheet $360M cash and investments $210M net cash (cash and investments less face value of 44% convertible debt) Last four quarters cash flow from operations = $38 million 39% Q4 16 Performance $181 million revenue 41.8% gross margin -9.2% operating margin 34% Infinera Balance sheet as of the end of Q4 16; P&L-related figures are non-gaap

35 FY17 Paving the Path to Profitable Growth Revenue Growth Drivers Margin Expansion End of 2016 Current Products Integration drives lower costs More purpose-built products 1H H XT/S XTM 400G + CX2 + XTC-10/4 1.2 Tb/s + XT/S-3300 Fewer investment deals Fixed cost leverage as volumes grow Improving yields Follow-on IB licenses Entering 2018 with a new product portfolio attacking a broad market Planned expansion of gross margin begins 2017; continues in Infinera

36 Gross Margin: Investments today drive value tomorrow Short-term margin impacts Strong return on investment Long-haul Pre-deployment of bandwidth at next-gen pricing Well positioned with a strong customer base and growing IB license stream Metro DCI Investing to earn incumbency and footprint Pricing pressure increasing; Bridging key customers to CX-2 Market transition from 10G to 100G packet optical creates great opportunity Emergence of cloud architectures should drive tremendous growth Near-term margins compare well to industry: Low to mid 40s GM% anticipated for next few quarters Infinera GM% is non-gaap

37 Growth in All Markets: Building a Diversified Company Today 2020 LH/Metro, Networks blur between high and low capacity Long haul Metro DCI Subsea Services Long haul LH/Metro Metro DCI Subsea Services Long-haul outgrows market; DCI and Metro expected to fuel growth and increase as percentage of revenue mix Infinera

38 Key to Long-Term Differentiation Cost Structure Typical Systems Vendor Cost Structure Infinera Cost Structure System ASICs/DSP Optics Margin Cost Margin Cost Margin Cost INFN aspires to achieve a significant gross margin advantage over closest competitors System manufacturer Silicon manufacturers Component manufacturers System ASICs/DSP PICs Margin Cost Cost Cost Vertical Integration Infinera

39 The Future is Bright: Infinera s Ultimate Opportunity Long-haul/subsea return to growth; DCI and metro = high-growth opportunities Photonic integration and pricing strategies enable differentiated cost model Balancing technology investments with disciplined expense management Long-term Goals Intact Outgrow Market 50% Gross Margin 15% Operating Margin Infinera Gross margin and operating margin targets are non-gaap

40 Thank You Infinera