winning through disruption in the transport market · * ased on average of latest quarterly reports...
TRANSCRIPT
1 | © 2017 Infinera
Winning Through Disruption In The Transport Market
Investor Overview
March 2017
2 | © 2017 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 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 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 | © 2017 Infinera
Optical Transport – Where it Plays in the Network
Routing:
Routers inter-connect over transport systemsCore Routers
Edge Routers
Metro Transport
Long-haul Transport
DCI Transport
Switching:
Optical Transport:
DC Edge Router Spine Switch
Leaf Switch
DCI Transport
DC Edge RouterSpine Switch
Leaf Switch
DCI Transport
Data Center #2Data Center #1
4 | © 2017 Infinera
Optical Transport Industry Overview
Systems Vendors Components Vendors
Systems vendors typically buy optics from 3rd parties and may in- or out-source DSPs.
Infinera predominantly makes and designs its components in-house.
Infinera disrupts the traditional optical model
Optics:
Coherent DSPs:
5 | © 2017 Infinera
Technology LeadershipInfinera Uniquely Delivers Massive Scale
The Infinera ApproachConventional Approach
Electronics/ASICs
Intelligentsoftware
Photonic integrated circuitsCoherent optical engine
VerticallyIntegrated
Vertically Integrated
Moore’s Law-like for Optical
Industry’s only large-scale photonic integrated circuit
Significant Barriers to Entry• Hundreds of millions of
dollars spent over the years to build indium phosphide PIC factory
• 15+ years of experience
• More than 450 patents covering IP
6 | © 2017 Infinera
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
Infinera: A Differentiated Optical Systems Company
Enabling An Infinite Pool of Intelligent Bandwidth
Cloud XpressDTN-X
XTC Series
Photonic Integrated Circuit (PIC)
XT-500
XTM/XTG Series
Cloud Xpress 2
FlexCoherent® Electronics
XT-3600
XT-3300
7 | © 2017 Infinera
An End-to-End Portfolio to Serve an Expanding Market
8 | © 2017 Infinera
Long-haul: Infinera’s Heritage
* Dell’Oro DWDM Long Haul Reports
2005: Shipped 10G PIC-based DTN, rapidly reaches $100M
2007: 10G wave market leader (47%)*, completed IPO
2000: Infinera founded, promises to do the impossible: PICs
2004: Introduced industry’s first large scale PIC
2008: #1 market share in NA Long-haul*
2010: Leapfrogs 40G, invests in 100G
2012: Shipped 500G PIC-based DTN-X
…2000 2004 2005 2007 2008 2010 2012…… …
DTN-X Fuels Infinera’s Growth
2012-2015 Revenue CAGR
Infinera: 26%
Worldwide Long-Haul: 8%**
**Average of projections from Dell’Oro, Ovum, IHS
9 | © 2017 Infinera
Long-haul: Established Leader
* Based on average of latest quarterly reports from Dell’Oro, Ovum, IHS
Long-haul Market Leadership*
Last 4 quarters average Market Share:
37% North America; 13% Worldwide
Q3-16: #2 North America, #5 worldwide
XTC Series
XT-500
XT-3600
XT-3300Technological Differentiation
Operational simplicity
Terabit-class PIC-enabled scalability
Sliceable photonics
Power/space network efficiencyXT Series
DTN-X Family
10 | © 2017 Infinera
Infinera Instant Bandwidth
Industry’s first software-activated bandwidth delivery solution
Flexible infrastructure: optimize network, meet variable needs of customers
Lower Opex: Minimize planning, engineering, truck rolls, & cabling
One-click capacity: rapid deployment accelerating time-to-revenue
Hardware InnovationWDM Line Card
500G Super-channel
Customer adds capacity via software licenses
100G ACTIVE
100G Latent
100G Latent
100G Latent
100G Latent
11 | © 2017 Infinera
Portfolio Expansion Increases TAM Opportunity
Long-haul1 Compact DCI2 Metro Aggregation1
2016 TAM ($M)
$5.1B $0.2B $6.1B
2020TAM ($M)
$6.0B $1.1B $8.4B
4-yr CAGR 4% 54% 8%
Market share includes China1: Average of latest projections from Ovum, IHS, Dell’Oro, Cignal AI, ACG2: Average of latest Cignal AI and Ovum “Compact” or “Small form factor” DCI forecasts
Optimized SolutionsIncreased Share
3x TAM Expansion
2016 LH Only = ~$5B
2016: LH/DCI/Metro = ~$10B
2020 Overall = ~$15B
12 | © 2017 Infinera
DCI: Cloud Architecture Drives Network Demands
sources: google.com, facebook.com
Search Query
930x Network Traffic
Cloud Data Center Network
1500 Miles
HTTP request
13 | © 2017 Infinera
Cloud Xpress Cloud Xpress 2
DCI: Infinera Cloud Xpress Family
500 Gb/s super-channel line10/40/100 GbE clients
Hyperscale Density Simple OperationLow Power Automation Built-in SecurityInstant Bandwidth
1.2 Tb/s super-channel line in 1RU100 GbE clients16QAM
14 | © 2017 Infinera
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, high-density design
Metro: Solutions From Core To Access
Cloud Xpress Family
XTC-2/2E
Building a differentiated portfolio from core to access
XTM/XTG Series
XT-3600
XT-3300
15 | © 2017 Infinera
Metro: A Significant Market Expansion Opportunity
• 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
Differentiated Approach
• High capacity solutions for metro core upgrades to 100G• Over time, lowers cost structure and enhances technology
differentiationVertical Integration
• Long-haul customer base upgrading to 100G metro• Strong presence in metro-heavy cable 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
16 | © 2017 Infinera
Infinera Unified End-to-end Portfolio
XTM Series DTN-X Family: XTC Series
Cloud Xpress Family DTN-X Family: XT /S Series
XTG Series
XTC-10
XTC-4XTC-2E
XTC-2TM-3000
TM-301TM-102EDUNID
CX CX2 XT-500 XT/S-3300XT/S-3600
DC INTERCONNECT
LONG-HAUL / SUBSEAMETROACCESS AGGREGATION REGIONAL CORE
INFINERA XCEED SOFTWARE SUITE AND DNA
MobileFront/Backhaul
Triple Play
Cable Broadband
Business Ethernet
Data Center
INFINERA OPEN FLEXIBLE GRID LINE SYSTEM
$15B* (2020) – Transport Market
*Average of latest projections from Ovum, IHS, Dell’Oro and ACG
17 | © 2017 Infinera
Market Expansion
Bandwidth Explosion & Evolving Network Architectures Create Opportunities
18 | © 2017 Infinera
Explosion Of Bandwidth-hungry Applications nd Devices
Infinera well-positioned to address bandwidth explosion
*Source: TeleGeography Global Bandwidth Forecast Q3 2016
Video
Cloud
Mobility
IoT
By the end of the decade*
Mobility▪ 11.6B devices
▪ Traffic >30 exabytes/month
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
19 | © 2017 Infinera
The Dismantling of Status Quo Networks is Underway
Transport Becomes More Capable with More Intelligence
Intelligent Transport shifting $$ away from Routing
Pressure to break Proprietary OS, Slow
Innovation
Routing (L3)
Transport(L0-L2)
Routers need Transport systems to connect
XX
XX
X
NFV/Software pressuring traditional router infrastructure
Intelligent Transport increasingly capable of substituting for many router functions
“LAYER T”
20 | © 2017 Infinera
Network Transformation: The New Layers T & C
Open packetoptical, move bitsDC-DC, DC-user
Every possiblenetwork function runs in cloud
Layer T: IntelligentTransport
New Model
NFV Apps
SDN Control
Layer C:Cloud Services
Firewall
SBC
B-RAS
CPE
Packet
OTN
WDM
L0 – L3
L3 – L7
Old Model
Open APIs
Appliance per function,Rigid, $$$, Closed
Shared infrastructure, Agile, Open, $
LAYER C
LAYER T
Layer T powers hyper scale cloud networks – positive for Infinera
21 | © 2017 Infinera
0
25
50
75
100
125
150
175
2012 2013 2014 2015 2016 2017 2018 2019 2020
Tb/s
Layer T Traffic Patterns Changing
Private: 58% CAGRMostly DC to DC
Internet: 21% CAGRMostly user-to-content
Trans-Atlantic Bandwidth MixSource: Telegeography Q3-2016 Global Bandwidth Forecast Service
100G Services Are SurgingSource: Ovum Ethernet Services Forecast Report: 2015–20
100G: 75% CAGR
10G: 16% CAGR
22 | © 2017 Infinera
Hyperscalers Increasingly Dominate Cloud Services
Source: Cloud market share from UBS report, 5/9/16, “Is the Sky the Limit for Cloud Computing”
Top Four Providers: 77% Market Share by 2020
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%
23 | © 2017 Infinera
From 4G to 5G – What Can We Expect?
• Bandwidth 50x over 3G• 10ms latency• Fiber MFH w/CPRI emerges• Ethernet Backhaul• Central RAN emerges• Early open environment
• 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
4G 5G
2008: LTE (R8) 2020: 5G2013: LTE-A (R10/R11) 2016: LTE-A (R13)
Industry expects 4G
co-existence as 5G emerges
Bandwidth explosion further “densifies” the network, creating significant opportunities
24 | © 2017 Infinera
Packet Optical Requirements
MEF CE2.0 ServicesFlexible ConfigsLow LatencySuperior SyncLow Space, PowerHardened Systems
Metro: Layer T Architectural Shift, Fiber Deeper Into Metro
100G Mobile Backhaul
MobileFronthaul BBUFiber to the tower
Fiber Deep Opportunity
Fiber to the business
CPE
CPE
Metro Biz Services
100GBackhaul
Deepfiber
accessB’cast
CCAPFiber to the node
25 | © 2017 Infinera
Significant Inflection Point for Cable/MSO
VideoOn demand, OTT
BW Growth
Software Delivery Fiber Deep
All-IPVision
Ubiquitous Access
Remote Phy Devices
N+#amps on coaxNode Split – Fiber Deep
N+5N+4
N+3N+2
N+1
N+0
2017 2018 2019 2020 2021
#10G access links
400-500 homes/node
50-100 homes/node
MSO Objectives• Countering competitive fiber
initiatives from Tier 1s
• Running out of bandwidth for broadband and Over-the-top (“OTT”) services
• Need to reduce power
26 | © 2017 Infinera
Market Expansion
How Infinera Wins
27 | © 2017 Infinera
Infinera’s Journey – Seizing and Creating Market Inflections
* Dell’Oro DWDM Long Haul Reports
2005: Shipped 10G PIC-based DTN, rapidly reaches $100M
2007: 10G wave market leader (47%)*, completed IPO
2000: Infinera founded, promises to do the impossible: PICs
2004: Introduced industry’s first large scale PIC
2014: Introduced Cloud Xpress for DCI
2015: Infinera enters Metro; Acquires Transmode
2016: Infinera validates interoperability with white box open line system
2008: #1 market share in NA Long-haul*
2017: Expect to introduce several next generation products powered by new optical engine (“ICE4”) and deliver upgrades to XTM Metro Portfolio
2010: Leapfrogs 40G, invests in 100G
2012: Shipped 500G PIC-based DTN-X
…2000 2004 2005 2007 2008 2010 2012 2013 2014 2015 2016 2017…… …
28 | © 2017 Infinera
A Significant Market Expansion Opportunity
- Market sizing based average of latest forecasts from IHS, Cignal AI, Ovum, Dell’Oro, ACG; China data from IHS, Compact DCI from Cignal AI
• 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
$0
$250
$500
$750
$1,000
$1,250
$1,500
$1,750
$2,000
$0
$2
$4
$6
$8
$10
$12
$14
$16
2012 2013 2014 2015 2016 2017 2018 2019 2020
Millio
ns (IN
FN R
eve
nu
e)B
illio
ns
(Mar
ket
Sizi
ng)
China
Compact DCI
Metro
Long-haul
INFN CAGR19%
Market CAGR7%
INFN Revenue
Expected Overall MarketCAGR (2016-2020) = 9%
29 | © 2017 Infinera
Global, Fast-Growing Customer Base
Over 600 customers
spanning six continents
Three of thetop four
internet content providers
Six of the top seven
global cable operators
Leading North America and
pan-European wholesale operators
17 Tier 1 operators globally
30 | © 2017 Infinera
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
Netconf/YANG, REST, XML, OpenFlow, OVSDB, OpenConfig, gRPC
Industry’s most widely deployed flexible grid open line system (OLS)
Scalable capacity over any line system,successful interop testing with Lumentum OLS
Infinera Leads the Move To OPEN
XCEED SDN
Open ICE
FlexILS™
31 | © 2017 Infinera
Building Blocks
Markets
Our Strategy: How Infinera Wins
DeliverDifferentiated
Next-gen Platformsin 2017
Increase Cadence of Optical Engine
Lead in Open:Open APIs,
Open Line Systems
Disaggregated and Integrated Solutions
Optimized per Customer
Balanced Portfolio –LH/SS/Metro/DCI
(End-to-end)
Grow Faster thanthe Overall
Optical Market
Help Customers Transition to “Layer T”and Win in Their Markets
32 | © 2017 Infinera
Differentiated Financial Opportunity
33 | © 2017 Infinera
GrossMargin
Operating Expenses
A Structure to Deliver Differentiated Financials
Structured long-term financial model
High scale integrationUnique pricing
structures
InstantBandwidth
Long-haul
DCI
Metro
Fixed cost leverage
R&D = long-term target 20% of revenue
Success basedS&M investment
G&A grows slowerthan revenue
Financial discipline
34 | © 2017 Infinera
$438
$544
$668
$888 $871
38%
42%
44%
48% 48%
34%
39%
44%
49%
$0
$200
$400
$600
$800
$1,000
FY12 FY13 FY14 FY15 FY16
$ (
Mill
ion
s)
Revenue Gross Margin Operating Margin
-9%
1%
8%
13%
6%
Balance sheet as of the end of Q4 ‘16; P&L-related figures are non-GAAP
Sustained Success and a Setback… Long-Term Targets Intact
Q4 ‘16 Performance $181 million revenue 41.8% gross margin -9.2% operating margin
Solid Balance Sheet $360M cash and investments
$210M net cash (cash and investments less face value of convertible debt)
Last four quarters cash flow from operations = $38 million
35 | © 2017 Infinera
FY17 – Paving the Path to Profitable Growth
RevenueGrowthDrivers
CurrentProducts + XT/S-3300
+ CX2 + XTC-10/4 1.2 Tb/s
+ XT/S-3600
Entering 2018 with a new product portfolio attacking a broad market
Margin Expansion
End of 20161H 2017
2H 2017
More purpose-built
productsIntegration
drives lower costs
Fewer investment
deals
Improving yields
Follow-on IB licenses
Planned expansion of gross margin begins 2017; continuesin 2018
Fixed cost leverage as
volumes grow
+ XTM 400G
36 | © 2017 Infinera
Gross Margin: Investments today drive value tomorrow
Near-term margins compare well to industry: Low to mid 40s GM% anticipated for next few quarters
GM% is non-GAAP
Long-haul Pre-deployment of bandwidthat next-gen pricing
Well positioned with a strong customer base and growing IB license stream
MetroInvesting to earn incumbency
and footprint Market transition from 10G to 100G
packet optical creates great opportunity
DCI Pricing pressure increasing; Bridging key customers to CX-2
Emergence of cloud architectures should drive tremendous growth
Short-term margin impacts Strong return on investment
37 | © 2017 Infinera
Long-haul outgrows market; DCI and Metro expected to fuel growth and increase as percentage of revenue mix
Growth in All Markets: Building a Diversified Company
2020
Long haul LH/Metro Metro
DCI Subsea Services
Today
Long haul Metro DCI
Subsea Services
LH/Metro, Networks blur between high and low capacity
38 | © 2017 Infinera
Key to Long-Term Differentiation – Cost Structure
ASICs/DSP
Margin
Cost
MarginCost
Optics
Margin
Cost
System
Componentmanufacturers
Silicon manufacturers
System manufacturer
Typical Systems Vendor Cost Structure Infinera Cost Structure
ASICs/DSP
Cost
Cost
PICs
Margin
Cost
System
VerticalIntegration
INFN aspires to achieve a significant gross margin advantage over closest competitors
39 | © 2017 Infinera
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
Gross margin and operating margin targets are non-GAAP