Winning Through Disruption in the Transport...
Transcript of Winning Through Disruption in the Transport...
1 | © 2016 Infinera
Winning Through Disruption in the Transport Market
Investor Overview
August 2016
2 | © 2016 Infinera
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 www.infinera.com and the SEC’s website at www.sec.gov. 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.
Safe Harbor
3 | © 2016 Infinera
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: A Differentiated Technology Company
Enabling An Infinite Pool of Intelligent Bandwidth
DTN-XXT
DTNCloud Xpress
DTN-X XTC
Photonic Integrated Circuit (PIC)
XTM/XTG Series
4 | © 2016 Infinera
Global Customer Base
Over 600 customers
spanning six continents
3 of the top 4Internet Content
Providers
Six of the top seven
global cable operators
Leading North America and
Pan-European wholesale operators
17 Tier 1 operators globally
5 | © 2016 Infinera
Infinera Differentiators
PIC-enabled Technology• PIC enables scalable, intelligent
functions: SDN, integrated switching, sliceable bandwidth
• High capacity applications: Long-haul, Metro Cloud, Metro Core
Infinera differentiates due to its technology, market expansion opportunities and vertically
integrated business model
Infinera PIC Fab
Vertical Integration • Lower cost structure
than competition• Supply chain control
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*
Cloud Xpress XTM-SeriesXTC-SeriesXT-Series
* Based on average of latest forecasts from Ovum, IHS, Dell’Oro and ACG
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-25%
0%
25%
50%
75%
100%
125%
150%
Jun '12 Dec '12 Jun '13 Dec '13 Jun '14 Dec '14 Jun '15 Dec '15 Jun '16
INFN
CIEN
JNPR
CSCO
ADV
Revenue Growth: Quarterly Trailing 12-month revenue
141%
DTN-Xfor 100G
Long-haul
Cloud Xpressfor 100G DCI
41%
3x faster growth than
closest competitors
Outpacing Other SP Networking Players
New Metro portfolio introduced
55%
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Disruptive Technology Innovation: The Infinera Way
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The Infinera ApproachConventional Approach
ASICs and coherent
Intelligentsoftware
Photonic integrated circuitsCoherent optical engine
VerticallyIntegrated
Vertically Integrated
Technology LeadershipInfinera Uniquely Delivers Massive Scale
Moore’s Law-like for Optical
Industry’s only large-scale photonic integrated circuit
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Up to 2.4T PIC
Sliceable 600G – 2.4T
10 Channel100G ULH PIC
500G PIC
10 Channel100G PIC
Unmatched Capacity per Line Card/Chassis
Infinera PIC-based Optical Engines
2004 2009 2012 20162015
2 Channel100G PIC
Infinite Capacity Engine Metro PIC
Future Metro PIC
Cap
acit
y
Future
Optical Functions Integrated ~1000
Fiber Connections Eliminated >250
Future Long-haul/DCI PIC
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A Quantum Leap in Optical Transport to Terabits
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
Better Sliceable photonics, 53% lower TCO
Advanced coherent, 40-60% improved capacity-reach performance
DSPPIC
Advanced electronics (DSP/ASIC): Next-gen FlexCoherent™ processor
Cutting-edge photonics: Fourth-gen Photonic Integrated Circuit (PIC)
The next step function in optical with Infinite Capacity Engine
Infinera Infinite Capacity Engine
Industry’s first 2.4 Tb/s transport technology
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Market Expansion Opportunities
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Well positioned to grow and win in Optical
• Worldwide Bandwidth Explosion• Server-to-Server traffic driving growth of private backbones
Positive Macro Drivers
• Diversified, high growth customer base• Solid Long-haul + high growth Metro and DCI
High Growth Customers and End
Markets
Grow faster than market, achieve best-in-class profitability, build a diversified optical transport business
• High capacity, low cost of ownership, unmatched reliability• Vertical Integration enables advantageous cost structure
Structural Technology Advantage
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Explosion of Bandwidth Hungry Applications and Devices
Mobility
Video
Cloud
IoT
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 (2019), from $70B in 2015.
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*Source: TeleGeography Global Bandwidth Forecast Q3 2015
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Poised to Benefit from ICP-driven Bandwidth Demand
Sources: Cloud market share from UBS report, 5/9/16 “Is the Sky the Limit for Cloud Computing”; Private vs. Internet bandwidth from TeleGeography
Top 4 Cloud & Content Providers:77% market share by 2020
Private backbones replacing Internet transit (i.e., massive server-to-server traffic growth)
Private
Internet
Trans-Atlantic Bandwidth
31% 35%48%
55%62% 68% 74% 77%
0%
20%
40%
60%
80%
100%
$-
$20.0
$40.0
$60.0
$80.0
$100.0
2013 2014 2015 2016 2017 2018 2019 2020
IaaS + PaaS Estimated Revenue
Amazon Microsoft
Google IBM
Big 4 Combined Mkt Share%
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CY12 CY13 CY14 CY15 CY16 CY17 CY18 CY19
400
350
300
350
200
150
100
50
0
Po
rts
(Th
ou
san
ds)
Infinera Ready for 100G Coherent Metro Ramp
Source: 2015 IHS 100G Coherent Optical Equip Ports Mkt Fcst
100G starting to ramp, rapidacceleration
46%CAGR
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Market Inflections
Building on Long-haul leadership in DCI and Metro
• Networks Simplifying to New Model of Cloud Services and Intelligent Transport
Building a diversified optical transport business
100GLong-haul
2012
100G Metro Cloud
2014
100G Metro Aggregation
2016
• Scalable Optics and Integrated Packet-Optical Key for Simplification
Accelerated 100G uptake & 40G decline
1st to market with purpose-built solution
Infinera Core + Transmode
portfolio
17 | © 2016 Infinera
Infinera Unified End-to-End Portfolio
* Based on average of latest forecasts from Ovum, IHS, Dell’Oro and ACG
$15B* (2020) – Transport Market
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$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
Infinera’s Ascending Global Market Position
Source: Dell’Oro2Q 16 DWDM Market Share report (Q3-15 to Q2-16).
Cross-selling and revenue synergies createopportunity to continue to ascend
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Fully Addressing The Optical Transport Market
- 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)
Long-haul
DCI
Metro
Forecasts
$4.9B
$1.6B
$6.3B
$6.0B
$4.3B
$8.5B
20202016
5%
29%
8%
CAGR
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Long-haulAdding new tools to solve customer needs
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Established Long-haul Leader
Operational simplicity
Terabit-class PIC-enabled scalability
Power/space network efficiency40.1%
33.8%
13.4%10.5%
North America Long-haul Market Share Q1-16**
* Source: IHS (Ovum ranks Infinera #3, Dell’Oro #4)** Average of Dell’Oro, Ovum, IHS (as of Q1-16)
XTC-4XT-Series XTC-10XTC-2 XTC-2E
14%
DTN-X Family
#1 in North America market share#2 Worldwide market share*
Long-haul
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Data Center Interconnect Capturing emerging cloud infrastructures
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Cloud Architecture Drives Network Demands
sources: google.com, facebook.com
Search Query
930x Network Traffic
Cloud Data Center Network
1500 Miles
HTTP request
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Purpose-Built Metro and Long-haul DCI solutions
Hyper-Scale Density Simple OperationMinimal Power
Optimized Solutions for DCI
CX 10E CX 40E CX 100E
Cloud Xpress Family
XT-Series
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The Metro MarketA new market for Infinera as 100G Metro begins to ramp
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Metro Solutions from Core to Access
1G to 100G Packet-Optical
All metro/regional Layer T applications in a single platform
Application specific characteristics
XTM-Series
XTG-Series Passive CWDM, DWDM and
WDM-PON access infrastructure
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XTC-2 Extends DTN-X to Lower Capacity Sites
Spokane Boise Salt Lake City
XTC-10
Seattle Las Vegas
E.g. Right-sized DTN-X XTC for Smaller Cities
500G Super-channels
XTC-4
100G100G
100G100G
XTC-2
100G
Common Hardware, E2E Network Management & Automation
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XTC-4
XTC-10
Pan-European Network 500G
Super-channels
Large LH Core
Converged Packet Aggregation & OTN Switched Metro Core
Frankfurt Metro Area, Germany
XTC-2100G
XTC-10
XT-500
Point-to-Point Interconnect
Value of End-to-End
Mobile Front/ Backhaul
Business Ethernet
Triple Play Broadband
Cable Broadband
Packet-Optical Switching Access & Aggregation
Infinera DNA
TM-Series DTN-X Family
XTC-4
XTC-10
Pan-European Network 500G
Super-channels
Large LH Core
XT-500
Point-to-Point Interconnect
Frankfurt Metro Area, Germany
XTC-2100G
Converged Packet Aggregation & OTN Switched Metro Core
XTC-10
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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
Metro: Mobile Fronthaul Opportunity
Cell sitecabinet
RRH
RRH
RRH
RRH
RRH
RRH
D-RoFFronthaul Backhaul IP MPLS Network
Stacking of BBUsin Central Office
CO
CO
CO
COBBU
Central Office
Load
bal
anci
ng
RRH
RRH
RRH
Fiber all the way from antenna to Central Office
Cell sitecabinet
Cell sitecabinet
*Source: Ovum “Mobile Backhaul and Fronthaul Forecast Report: 2015-2020 (September 2015)
30 | © 2016 Infinera
Metro: How Infinera Wins
• Strong customer base and reputation in Metro Edge/Access• Power efficient and purpose-built products
• Early technology leadership in Mobile Fronthaul
Build on Transmode’s Differentiated Approach
• High capacity solutions for Metro Core upgrades to 100G• PIC + DSP lowers cost structure and enhances technology
Vertical Integration
• Long-haul customer base upgrading to 100G Metro• Combined strength in Metro-heavy Cable/MSO vertical
Customer Base
Infinera Current Metro Market Share: 3% Worldwide*
Significant opportunities to grow!
*Average of latest projections from Ovum, IHS, Dell’Oro and ACG
31 | © 2016 Infinera
Differentiated Financial Results
32 | © 2016 Infinera
Infinera – A Growth Story
$668
FY14
$544
FY13
$438
FY12
$888
FY15
44.0%
8.3%
41.6%
1.4%
47.8%
13.1%
-9.4%
37.9%
Revenue (in $m)
GM%:
OM%:
3 years of >20% revenue growth
All income statement figures are Non-GAAP. See reconciliation to GAAP on Slide 37.All figures as of end of Q2-FY2016
Q2 ‘16 Performance $259 million revenue (25% y/y growth) 50.4% gross margin 13.2% operating margin
Q3 ’16 Outlook $180 to 190 million revenue 45% to 49% gross margin (2)% to 2% operating margin $(0.02) to $0.02 diluted EPS
Industry leading profitable revenue growth
Solid Balance Sheet $226M net cash (Cash less face value of convertible debt)
9 consecutive quarters of positive Cash Flow from Ops
Last 4 quarters Cash Flow from Ops = $97 million
33 | © 2016 Infinera
Q3-16 Outlook – What Happened
What Happened Longer Term Impact
1) Subsea drop-offMultiple quarter impact; Infinite Capacity Engine technologies expected to improve situation
2) Long-haul footprint pauseTemporary impact; Certain customers currently prioritizing Metro over Long-haul spend; Long-haul market expected to resume growth
3) Metro synergies delayedSynergies now expected in FY17; Planning to offer more aggressive pricing to secure footprint
34 | © 2016 Infinera
Margin Growth Opportunity
$
$$
Margin Drivers
Though footprint investment could affect gross margin in the short term, long term margin drivers will still benefit Infinera
Vertical Integration Footprint vs Fill Instant Bandwidth Purpose-Built Products
Long-haul
$ $Cloud Xpress $Metro $$$
$
$$
Infinera PIC Fab
35 | © 2016 Infinera
Long Term Opportunities Intact
DCI - Small form factor market leader
Long-haul - Continue to outgrow the market
Metro – Significant market share growth
Disappointing Q3 outlook 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
GM% 50%+OM% 15%+
37 | © 2016 Infinera
GAAP to Non-GAAP Reconciliation(In millions, except percentages and per share data)
(Unaudited) Q2'16 Q3'16
Actual Outlook
Reconciliation of Gross Margin:
U.S. GAAP 47.8% 43%
Stock-based compensation 0.6% 1%
Acquisition-related deferred revenue adjustment 0.1% 0%
Amortization of acquired intangible assets 1.9% 3%
Non-GAAP 50.4% 47%
Reconciliation of Operating Expenses:
U.S. GAAP 98$
Stock-based compensation (9)
Amortization of acquired intangible assets (2)
Non-GAAP 87$
Reconciliation of Operating Margin:
U.S. GAAP 6.2% -10%
Stock-based compensation 4.2% 6%
Acquisition-related deferred revenue adjustment 0.1% 0%
Amortization of acquired intangible assets 2.5% 4%
Acquisition-related costs 0.2% 0%
Non-GAAP 13.2% 0%
Net Income per Common
Share - Diluted:
U.S. GAAP (0.13)$
Stock-based compensation 0.08
Amortization of acquired intangible assets 0.04
Amortization of debt discount 0.02
Income tax effects (0.01)
Non-GAAP 0.00$
Note: Outlook amounts represent the midpoint of the expected range.