40 Gbps and 100 Gbps Digital Coherent Transponders: Do I build or buy?

Transcription

1 40 Gbps and 100 Gbps Digital Coherent Transponders: Do I build or buy? Per Hansen ECOC Market Focus September 19, 2011

2 Forward Looking Statements In addition to historical information, this presentation contains forward-looking statements as defined under the Private Securities Litigation Act of 1995 (FLSs). FLSs involve future trends or events that are subject to risks and uncertainties. Please be aware that FLSs are only predictions and that actual events or results may differ materially. These slides and the accompanying oral presentation contain the following FLSs, among others: (a) our projections of revenues, non-gaap gross margin, capital and other investments, and other financial items for FY 2011 and beyond; (b) statements about market size, opportunity and expansion, including developments affecting our industries; (c) our plans and objectives for future operations, including those relating to our current and future products, customers, technologies and competitive success; (d) statements regarding potential cost reduction, selling prices and gross margin and operating margin drivers and goals; (e) other projections and estimates; and (f) statements of the assumptions underlying or relating to any statements described in (a)-(e). Please refer to our Form 10-K and other reports filed with the SEC for a discussion of risks that could cause actual events or results to differ materially from those contemplated by the FLSs. We assume no obligation to update the information in this presentation. GAAP Reconciliation References to financial measures in this presentation will include references to non-gaap financial measures. We provide a reconciliation between GAAP and non-gaap financial information in the appendix and/or in our earnings releases which are posted on our web site Company Confidential 2

3 Agenda Brief Overview of Oclaro Evolution of high-speed networking Oclaro s role in delivering coherent technology The adoption of coherent technology Company Confidential 3

4 Company Overview

5 Oclaro Market Focus Core Optical Networks High-Powered Lasers for Diverse Markets Company Confidential 5

6 Focused on the Core Network Core Network Access networks Cloud Computing Oclaro At the Heart of Where All the Network Traffic Converges The Largest Product Portfolio for this Market Company Confidential 6

7 Oclaro Innovation Engine Line Cards & Subsystems Control Electronics and Software Transponder itla TTA Receiver Amplifier TDC TDC WSS WSS Pumps Control Electronics and Software Gold Box Gold Box Filter Chip Tunable Laser (InP) Modulator (LiNb0 3 ) Pump (AlGaAs) Liquid Crystal Thin Film Filter Transport/Transmission Amplification/switching/ dispersion compensation >1000 Patents Issued >300 Employees in R&D Company Confidential 7

8 Global Production Machine Western World Asia UK InP Chip Fab Switzerland GaAs Chip Fab Shenzhen, China In-house Manufacturing Also Korea liquid crystal fab Core Optical Network Italy Lithium Niobate Chip Fab High Powered Lasers Santa Rosa, CA TFF Chip Fab Thailand & China Contract Manufacturers +(US) Company Confidential 8

9 Evolution of High-Speed Networking

10 Core Optical Network Evolution Bandwidth-intensive applications are driving a transformation in the core optical network Bandwidth will continue to grow to 4x between 2010 and 2015 Anywhere consumption expands the access technologies On-demand video/image content drive a change in core network architecture Exabytes/Month Consumer Business *Source: Cisco VNI August 2011 Company Confidential 10

11 Service Provider s Challenge Distance is not a value driver anymore Explosion in bandwidth demand Implosion of margin for fixed line transport 32% CAGR Focus on entertainment and cloud services to leverage network for higher margin -23% CAGR ** But, mobility is (for now at least ) Increased demand for mobile data Higher margin: EBITA on wireless ~ 2x EBITA on wireline* Mobile Data Traffic projected by Cisco 92% CAGR Focus on driving bandwidth to cell towers Migration towards Ethernet backhaul infrastructure Higher and more flexible bandwidth * VZ Q2 FY2011 ** Telegeography and Cisco Company Confidential 11

12 Core Network Evolution Int. gateway Photonic Core Network Int. gateway Ultra-Long haul Long-haul Long haul Metro ring Metro/reg. ring Metro/ reg. mesh Regional Metro Core networks must Carry higher bandwidth per wavelength 40G, 100G, 100G+ Evolve from rings to dynamic mesh with multi-degree nodes Company Confidential 12

13 Optical Solutions Requirements Transponder Technology Data rate and protocol flexibility Rapid automated turn-up with performance monitoring High spectral efficiency Loss budget and impairment resilient Cost efficient Scalability to 100G+ Digital Coherent Transponder Optical Transmission and Routing Agile Intelligent network elements (monitoring and reactive) Increasing distance and node-count capabilities Multi-degree node support Low latency options High-degree ROADM, Hybrid Amps, Company Confidential 13

14 Oclaro s Role in Delivering Digital Coherent Technology

15 - x - y - y - x O O Oclaro Has it All: Vertical Integration Full line of transport subsystems for 40 and 100 Gbps DPSK, DQPSK, PM-QPSK with coherent detection Full line of required optical components p - x I Detectors Lasers, receivers, modulators Ip Ip Modulators p - x Q 90 S x Pol splitters Drivers Laser Qp Qp Pol mux p - y I p - y Q Laser 90 S y Underlying chip technologies High degree of integration LiNbO 3 Modulator Chip Tunable Laser Chip Coherent Detector Chip Company Confidential 15

16 Oclaro s Advantage Rapidly increasing bandwidth demands + Chip-level integration driving new solutions Oclaro offers a full coherent portfolio Vertical integration from chips through optical components to sub-systems (modules) Key partnerships for electronics content Vertical Integration Enables Performance and Cost Leadership Company Confidential 16

17 Coherent Transponders (PM-QPSK) Optical itla (Tx and LO) Modulator ICR VOA (Tx and Rx) Electrical DSP Drivers Controller OIF standard 100G Long-Haul DWDM Transmission Module Electromechanical IA # OIF-MSA-100GLH-EM-01.0 Jun 8, 2010 Company Confidential 17

18 Well-Defined Product Standards MSA 100G Long-Haul DWDM Transmission Module Electromechanical IA # OIF-MSA-100GLH-EM-01.0 Jun 8, 2010 ITLA Integrable Tunable Laser Assembly MSA IA# OIF-ITLA-MSA-01.1 Nov 22, 2005 Modulator Integrated Polarization Multiplexed Quadrature Modulated Transmitters IA # OIF-PMQ-TX-01.0 Mar 12, 2010 ICR Integrated Dual Polarization Intradyne Coherent Receivers IA # OIF-DPC-RX-01.0 Apr 16, 2010 Company Confidential 18

19 Adoption of Coherent Technology

20 High Bit Rate Transponder Forecast Total Global Transponder Forecast (ports) Data sources: Internal based on Ovum, Infonetics, and others Company Confidential 20

21 In the Early Adopter Stage 40G coherent has crossed the chasm Wide-spread customer acceptance Agreed upon standards and specs ~12,000 PM-QPSK units deployed in 2011* 100G coherent has not but its chasm is very narrow Wide-spread customer acceptance Agreed upon standards and specs ~3,000 units deployed in 2011* 40G 100G Definition Maximizing leverage Volume focus EOL decision * Infonetics and Ovum Company Confidential 21

22 What happens next? Expand volume Increase the value of the product to penetrate market deeply Maximize market by expanding the application space Drive down cost Leverage volumes Expand and secure supply chain Definition Maximizing leverage Volume focus EOL decision Company Confidential 22

23 Maximizing the Application Space Coherent Transmission standards generally agreed (OIF) PM-QPSK modulation and Coherent Detection Interoperability is still going to be a problem PM-QPSK only a framework not a standard The right performance and features with the right cost Value = f(t, P, S, C, ) T: Transmission performance (CD, PMD, Reach) P: Power consumption/heat dissipation S: Size/density C: Cost Company Confidential 23

24 To Make or Buy? Make Discrete Solutions First to market, niche applications, Full customization of features and design High up-front investment High technical skills requirement High barrier to multi sourcing High execution risk Buy Module Solutions Freedom to choose amongst proven solutions Leverage other s investments and skills Leverage industry volumes Low barrier to multi sourcing Rapid execution (decision to market) Low execution risk Company Confidential 24

25 Transponder Volumes Move to Modules 100% Out-sourced Modules 90% 80% 70% 60% 50% 40% 30% 2.5Gbps 10Gbps 40Gbps 100Gbps 20% 10% 0% Executing your business model well is key How to enter? Technology and market maturity, Skills, Capital, Migrate to modules? how? Timing, Differentiation vs volume, Redirection of internal skills and investments, Source of data: Ovum, 2010 Company Confidential 25

26 Sourcing Criteria Customer support Flexible business model Integration expertise Vertical integration Chip to module integration Optical component innovation Cost efficiency Proven execution Existing volume supply chain Field deployments Vertical Integration Customer Support Proven Execution Transmission expertise Transmitter and receiver technology Linear and non-linear transmission impairments Practical mitigation techniques Transmission Expertise Company Confidential 26

27 Thank you