May 2015 High Performance Data-Path Processing Solutions 1
Safe Harbor Statement This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements that are not historical facts and may include financial projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations with respect to future operations, products and services, and statements regarding future performance. These statements are only predictions based on chip's current expectations and projections about future events based on its current knowledge. There are important factors that could cause chip's actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forwardlooking statements. Those factors include, but are not limited to, the impact of general economic conditions, competitive products (including in-house customer developed products), product demand and market acceptance risks, customer order cancellations, reliance on key strategic alliances, fluctuations in operating results, delays in development of highly-complex products, the integration of Tilera s business and other factors indicated in chip's filings with the Securities and Exchange Commission (SEC). For more details, refer to chip's SEC filings and the amendments thereto, including its Annual Report on Form 20-F filed on March 31, 2015 and its Current Reports on Form 6-K. chip undertakes no obligation to update forward-looking statements to reflect subsequent occurring events or circumstances, or to changes in our expectations, except as may be required by law. 2
chip Overview q Fabless semiconductor company, NASDAQ listed (CH) q Leading provider of processors for carrier and data center networks q NPUs (Network Processors) q Multicore CPUs q Intelligent network adapters and network appliances q chip is a strategic supplier of NPUs to Tier-1 networking vendors and the highest placed and fastest growing NPU vendor q chip is targeting the new SDN/NFV market with the large service providers and data center operators as direct customers q chip's next gen NPU, the NPS, and the entry to the multicore CPU market through the Tilera acquisition expand chip s TAM six fold by CY17 q Founded in 1999; 280 employees, over 200 in R&D q Global offices in Israel (HQ); San Jose, CA; Boston, MA; and China q Strong financial model; $184M in cash, no debt 3
Product Lines Network Processors Multicore Processors Intelligent Network Adapters & Network Appliances 4
Roadmap Carrier Edge & Data Center Layers 2-7 C-Programmable Data plane NPU Network Processors Multicore Processors Data Center & Cloud Enhanced multicore arch. Network processing acceleration Data & control planes CPU 2014 2015 2016 2017 2018 5
chip: Leapfrogs the Competition NPS C-programmable 400Gbps NPU 256 processors, 4096 virtual processors on one chip L2-7 support Serves both edge router markets and new data center opportunity TILE-Mx Highest core-count multicore 100 ARM cores Highest performance through integrated network accelerators Lowest power Focused on network centric functions, not compute With technology sharing across both product lines: Market leading traffic management technology Large set of hardware and algorithmic network accelerations Common software environment 6
Markets & Applications Carrier Routers Data Center & Enterprise Appliances NFV & SDN Enterprise Routers & Video A Data Plane 400Gbps-800Gbps Data and Control Planes 100Gbps-200Gbps 7
chip s Current & Target Customers Networking Vendors Service Providers & Data Centers Operators 8
Networking Industry Mega Trends Projected Increase in Global IP Traffic CY13-CY18 Global IP Traffic could see 21% CAGR Driven by increased users, faster broadband speeds, and increased video viewing Internet of Things (IoT) $1.7T opportunity for service providers over the next decade Will require investment in network infrastructure to manage M2M data SDN/NFV Disrupt SP & DC Networks SPs and DCs transition to direct merchant silicon customers, bundling third party SW, to build white boxes AT&T: over 75% of its network using the new architecture by 2020 Verizon: plan to also incorporate commodity hardware and many nontraditional vendors in the effort as well Source: 2014 Cisco Visual Networking Index, Cisco VNI Shines Light on Mobile Offload, Light Reading, Carrier SDN and NFV Hardware and Software, 9
New Products Target SDN & NFV global carrier SDN and NFV hardware and software markets are projected to reach $11B in 2018 up A from less than $500m in 2013. 10
chip Growth in Edge Routing chip is the NPU market share leader In customer s newest fast growing products Sales customer platforms More line cards vs. chassis shipments VS. Higher ASPs (from NP-3 to 4 to 5 to NPS) NP-3 NP-4 NP-5 NPS 11
chip s TAM Network Processors (NP, NPS) chip s NPU Revenues (including Marvell) 2014 Actual $367M $123M 2017 TAM $0.5B Multicore Processors (NPS, TILE-Gx, TILE-Mx) NA $1.3B Intelligent Network Adapters and Appliances NA $0.4B chip s Total TAM chip s NPU Revenues (including Marvell) $367M $123M $2.2B Tilera acquisition & NPS increase chip s TAM six fold by 2017 Sources: Infonetics Research, The Linley Group and chip, July. 2014 12
Multi-Year Revenue Opportunity +NPS-1000 +TILE-Mx +NPS-400 Legacy Products Current Products Future Products +NP-4 +NP-5 +TILE-Gx Total Revenues NP-2/3, NPA 2010 2015 2020 13
chip is #1 in NPU Market Share chip Intel PMC LSI Others Marvell Broadcom AMCC 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 6.7% 6.6% 7.0% 6.0% 5.0% 5.0% 4.0% 3.0% 5.0% 5.0% 16.2% 5.0% 8.8% 7.9% 5.0% 8.0% 17.0% 10.0% 6.0% 3.0% 7.4% 8.8% 5.3% 8.3% 14.0% 14.0% 15.3% 14.1% 11.0% 16.0% 16.9% 15.0% 9.0% 17.0% 16.0% 15.8% 15.6% 19.4% 15.4% 27.0% 37.0% 29.0% 22.6% 35.0% 11.0% 14.0% 19.0% 22.0% 23.4% 31.6% 33.9% 2008 2009 2010 2011 2012 2013 2014 Dune added LSI added 70% of High Speed NPUs Source: The Linley Group, Communications Semiconductor Market Share and chip, July 2014 *In 2012, Others includes AppliedMicro, Exar (Hifn), Mindspeed, Netronome and Vitesse. chip includes Marvell. *In 2013/14, Others includes AppliedMicro and Netronome. chip includes Marvell. 14
Non-GAAP Operating Model 2011 2012 2013 2014 Q1-2015 Revenues $63.5M $54.7M $70.9M $84.0M $26.9M Gross Margin 77.9% 83.9% 83.4% 80.4% 74% OPEX $20.1M $21.3M $25.6M $32.1M $12.7M Operating Margin 46% 45% 47% 42% 27% Net Margin 49% 49% 50% 44% 28% EPS $1.09 $0.92 $1.18 $1.19 $0.24 Cash $184M, no debt (March 31, 2015) Note: Values are non-gaap. 15
Summary Market Carrier, DC, SDN & NFV networking equipment Customers Major networking vendors, SPs & DC operators Revenues Growing with the NP & Gx lines; expected to accelerate with NPS and TILE-Mx Technology NPS and TILE-Mx are highly differentiated next-gen processors for networks TAM 6X increase (2017) with the NPS and Tilera acquisition Financials Strong operating model, high profitability and cash 16
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