Winning Through Disruption In The Transport Market - Investor Overview March 2017
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Winning Through Disruption In The
Transport Market
Investor Overview
March 2017
1 | © 2017 Infinera
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 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. 2 | © 2017 Infinera
Optical Transport – Where it Plays in the Network
Core Routers Routers inter-connect over transport systems
Routing:
Switching:
Edge Routers
Optical Transport:
Metro Transport
DCI Transport
Data Center #1 Data Center #2
DC Edge Router Spine Switch
Spine Switch DC Edge Router
Leaf
Leaf
Switch
Switch
Long-haul Transport
DCI Transport DCI Transport
3 | © 2017 Infinera
Optical Transport Industry Overview
Systems Vendors Components Vendors
Optics:
Coherent DSPs:
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
4 | © 2017 Infinera
Technology Leadership
Infinera Uniquely Delivers Massive Scale
Conventional Approach The Infinera Approach
Vertically Integrated
Photonic integrated circuits Significant Barriers to Entry
Coherent optical engine
• Hundreds of millions of
dollars spent over the
years to build indium
phosphide PIC factory
Intelligent Electronics/ • 15+ years of experience
software Vertically ASICs
Integrated
Industry’s only large-scale • More than 450 patents
photonic integrated circuit covering IP
Moore’s Law-like for Optical
5 | © 2017 Infinera
Infinera: A Differentiated Optical Systems Company
The most vertically integrated optical Photonic Integrated Circuit FlexCoherent®
transport systems company (PIC) Electronics
• Unique technology innovation with PIC
• Vertical integration drives superb reliability and
differentiated cost structure
XTM/XTG Series
• Best-in class systems with automation, XT-3600
convergence and scalability
Industry leading global service and support Cloud Xpress 2
XT-3300
Right tools for right job
Focused on customer success Cloud Xpress XT-500
DTN-X
XTC Series
Enabling An Infinite Pool of Intelligent Bandwidth
6 | © 2017 Infinera
An End-to-End Portfolio to Serve an
Expanding Market
7 | © 2017 Infinera
Long-haul: Infinera’s Heritage
2000: Infinera 2007: 10G wave 2012: Shipped 500G
founded, promises to market leader (47%)*, PIC-based DTN-X
do the impossible: completed IPO
PICs
2004: 2008: #1 market
Introduced share in NA
industry’s first Long-haul* DTN-X Fuels Infinera’s Growth
large scale PIC
… … … …
2012-2015 Revenue CAGR
2000 2004 2005 2007 2008 2010 2012
Infinera: 26%
2005: Shipped
10G PIC-based
2010:
Leapfrogs
Worldwide Long-Haul: 8%**
DTN, rapidly 40G, invests
reaches $100M in 100G
* Dell’Oro DWDM Long Haul Reports **Average of projections from Dell’Oro, Ovum, IHS
8 | © 2017 Infinera
Long-haul: Established Leader
Long-haul Market Leadership*
DTN-X Family
Last 4 quarters average Market Share:
37% North America; 13% Worldwide
Q3-16: #2 North America, #5 worldwide
XT-3600
Technological Differentiation
XT-3300
Operational simplicity
Terabit-class PIC-enabled scalability XT-500
Sliceable photonics
Power/space network efficiency
XT Series XTC Series
* Based on average of latest quarterly reports from Dell’Oro, Ovum, IHS
9 | © 2017 Infinera
Infinera Instant Bandwidth
Industry’s first software-activated bandwidth delivery solution
Flexible infrastructure: optimize network, Hardware Innovation
meet variable needs of customers WDM Line Card
One-click capacity: rapid deployment
500G Super-channel
accelerating time-to-revenue
Customer adds capacity
Lower Opex: Minimize planning, via software licenses
engineering, truck rolls, & cabling
100G Latent
100G Latent
100G Latent
100G Latent
100G ACTIVE
10 | © 2017 InfineraPortfolio Expansion Increases TAM Opportunity
Optimized Solutions
Increased Share
Metro
Long-haul1 Compact DCI2
Aggregation1
3x TAM Expansion
2016 LH Only = ~$5B
2016
TAM ($M) $5.1B $0.2B $6.1B
2016: LH/DCI/Metro = ~$10B
2020
TAM ($M) $6.0B $1.1B $8.4B 2020 Overall = ~$15B
4-yr CAGR 4% 54% 8%
Market share includes China
1: Average of latest projections from Ovum, IHS, Dell’Oro, Cignal AI, ACG
11 | © 2017 Infinera 2: Average of latest Cignal AI and Ovum “Compact” or “Small form factor” DCI forecastsDCI: Cloud Architecture Drives Network Demands
Search Query 1500 Miles
HTTP request 930x Network Traffic
Cloud Data Center Network
12 | © 2017 Infinera
sources: google.com, facebook.comDCI: Infinera Cloud Xpress Family
Cloud Xpress Cloud Xpress 2
500 Gb/s super-channel line 1.2 Tb/s super-channel line in 1RU
10/40/100 GbE clients 100 GbE clients
16QAM
Hyperscale Density Low Power Instant Bandwidth Simple Operation Automation Built-in Security
13 | © 2017 InfineraMetro: Solutions From Core To Access
1G to 100G packet-optical
100G at Layer 1 and Layer 2 P-OTS
16QAM applications with XT-3300 Cloud Xpress Family
and XT-3600
Multi-service, access to core
Low power and latency, high- XT-3600
density design
XTM/XTG Series XT-3300 XTC-2/2E
Building a differentiated portfolio from core to access
14 | © 2017 InfineraMetro: A Significant Market Expansion Opportunity
• Strong customer base and reputation in metro edge/access
• Power-efficient and purpose-built products
Differentiated Approach
• Early technology leadership in emerging applications like mobile
fronthaul and Remote PHY
• High capacity solutions for metro core upgrades to 100G
Vertical Integration • Over time, lowers cost structure and enhances technology
differentiation
• Long-haul customer base upgrading to 100G metro
Customer Base
• Strong presence in metro-heavy cable vertical
Infinera Current Metro Market Share: 3% Worldwide*
Significant opportunities to grow!
15 | © 2017 Infinera *Average of latest projections from Ovum, IHS, Dell’Oro and ACGInfinera Unified End-to-end Portfolio
INFINERA XCEED SOFTWARE SUITE AND DNA
METRO LONG-HAUL / SUBSEA XTC-10
Mobile ACCESS AGGREGATION REGIONAL CORE
Front/Backhaul
XTC-4
Triple Play
XTC-
2E
XTG Series TM-3000 XTC-2
Cable NID TM-301
EDU TM-102
Broadband
XTM Series DTN-X Family: XTC Series
Business
XT/S-3600
CX CX2 XT-500 XT/S-3300
Ethernet
Cloud Xpress Family DTN-X Family: XT /S Series
Data Center DC INTERCONNECT
INFINERA OPEN FLEXIBLE GRID LINE SYSTEM
$15B* (2020) – Transport Market
16 | © 2017 Infinera *Average of latest projections from Ovum, IHS, Dell’Oro and ACGMarket Expansion
Bandwidth Explosion & Evolving Network
Architectures Create Opportunities
17 | © 2017 InfineraExplosion Of Bandwidth-hungry Applications nd Devices
By the end of the decade*
IoT ▪ 11.6B devices
Mobility
▪ Traffic >30 exabytes/month
Cloud
Video ▪ 80% global internet usage = video
Video
▪ 11x more mobile video traffic than 2015
Mobility
Cloud
▪ Public cloud services: 19.4% CAGR from 2015
to $141B (2019)
Internet ▪ > 24B networked devices
of Things ▪ 42.5 Mb/s avg fixed broadband speed, 2x 2014
Infinera well-positioned to address bandwidth explosion
*Source: TeleGeography Global Bandwidth Forecast Q3 2016
18 | © 2017 InfineraThe Dismantling of Status Quo Networks is Underway
NFV/Software pressuring traditional router infrastructure
Routers need Transport systems to connect Pressure to break
Routing
(L3)
X X Proprietary OS, Slow
Innovation
X X
X “LAYER T”
Transport Transport Becomes
(L0-L2) More Capable with
More Intelligence
Intelligent Transport increasingly capable of substituting for many router functions
Intelligent Transport shifting $$ away from Routing
19 | © 2017 InfineraNetwork Transformation: The New Layers T & C
Old Model New Model
Firewall
Layer C:
Every possible SBC Cloud Services
LAYER C network function L3 – L7
B-RAS NFV Apps
runs in cloud
CPE SDN Control
Open APIs
Open packet Packet
Layer T: Intelligent
LAYER T optical, move bits L0 – L3 OTN
Transport
DC-DC, DC-user WDM
Appliance per function, Shared infrastructure,
Rigid, $$$, Closed Agile, Open, $
Layer T powers hyper scale cloud networks – positive for Infinera
20 | © 2017 InfineraLayer T Traffic Patterns Changing
175
Private: 58% CAGR
150 Mostly DC to DC 100G: 75% CAGR
125
100 Internet: 21% CAGR 10G: 16% CAGR
Tb/s
75 Mostly user-to-content
50
25
0
2012 2013 2014 2015 2016 2017 2018 2019 2020
Trans-Atlantic Bandwidth Mix 100G Services Are Surging
Source: Telegeography Q3-2016 Global Bandwidth Forecast Service Source: Ovum Ethernet Services Forecast Report: 2015–20
21 | © 2017 InfineraHyperscalers Increasingly Dominate Cloud Services
Top Four Providers: 77% Market Share by 2020
IaaS + PaaS Estimated Revenue
$100.0 77% 100%
68% 74%
$80.0 62% 80%
55%
$60.0 48% 60%
31% 35%
$40.0 40%
$20.0 20%
$- 0%
2013 2014 2015 2016 2017 2018 2019 2020
Amazon Microsoft
Google IBM
Big 4 Combined Mkt Share%
22 | © 2017 Infinera Source: Cloud market share from UBS report, 5/9/16, “Is the Sky the Limit for Cloud Computing”From 4G to 5G – What Can We Expect?
2008: LTE (R8) 2013: LTE-A (R10/R11) 2016: LTE-A (R13) 2020: 5G
4G 5G • 1000x bandwidth per unit area
• Bandwidth 50x over 3G • New apps/MEC - 1 ms latency
• 10ms latency • Fiber everywhere possible, MFH
• Fiber MFH w/CPRI emerges Industry & MBH merge
• Ethernet Backhaul expects 4G • Cloud RAN pervasive
• Central RAN emerges co-existence as • Fully open & RAN vendor
• Early open environment 5G emerges agnostic
Bandwidth explosion further “densifies” the network, creating significant opportunities
23 | © 2017 InfineraMetro: Layer T Architectural Shift, Fiber Deeper Into Metro
Fiber Deep Opportunity Packet Optical Requirements
CPE
Metro Biz Services
Fiber to the business
CPE
MEF CE2.0 Services
Flexible Configs
Fiber to the tower Mobile
Fronthaul BBU
100G Mobile
Backhaul
Low Latency
Superior Sync
Low Space, Power
Hardened Systems
Fiber to the node
Deep CCAP 100G
fiber Backhaul
access
B’cast
24 | © 2017 InfineraSignificant Inflection Point for Cable/MSO
All-IP
Vision
Video
MSO Objectives On demand, OTT
Ubiquitous Access Software Delivery Fiber Deep
• Countering competitive fiber BW Growth
initiatives from Tier 1s
50-100
• Running out of bandwidth for homes/node
broadband and Over-the-top #10G
access
(“OTT”) services links
Remote Phy Devices N+0
N+1
400-500
• Need to reduce power homes/node N+2 N+#amps on coax
N+3 Node Split – Fiber Deep
N+4
N+5
2017 2018 2019 2020 2021
25 | © 2017 InfineraMarket Expansion
How Infinera Wins
26 | © 2017 InfineraInfinera’s Journey – Seizing and Creating Market Inflections
2000: Infinera 2007: 10G wave 2012: Shipped 2016: Infinera validates
founded, promises to market leader (47%)*, 500G PIC- interoperability with white box
do the impossible: completed IPO based DTN-X open line system
PICs
2017: Expect to introduce several
2004: 2008: #1 market next generation products
Introduced share in NA powered by new optical engine
industry’s first Long-haul* (“ICE4”) and deliver upgrades to
large scale PIC XTM Metro Portfolio
2000 … 2004 2005 … 2007 2008 … 2010 … 2012 2013 2014 2015 2016 2017
2005: Shipped 2010: 2014: 2015: Infinera enters
10G PIC-based Leapfrogs Introduced Metro; Acquires
DTN, rapidly 40G, invests Cloud Xpress Transmode
reaches $100M in 100G for DCI
* Dell’Oro DWDM Long Haul Reports
27 | © 2017 InfineraA Significant Market Expansion Opportunity
$16 INFN Revenue $2,000
China
$14 Compact DCI $1,750
• Prior to 2015, Infinera only addressed
the long-haul market (~$3.5B ex-China)
Metro
$12 Long-haul $1,500
• Expansion into Compact DCI and Metro
Billions (Market Sizing)
Millions (INFN Revenue)
$10 $1,250 expands TAM 3x to ~$12B ex-China by
INFN CAGR 2020
$8 19% $1,000
$6 $750 • Infinera well positioned to outgrow the
overall market through 2020
$4 $500
Market CAGR
$2 $250
7% Expected Overall Market
$0 $0 CAGR (2016-2020) = 9%
2012 2013 2014 2015 2016 2017 2018 2019 2020
- Market sizing based average of latest forecasts from IHS, Cignal AI, Ovum, Dell’Oro, ACG; China data from IHS, Compact DCI from Cignal AI
28 | © 2017 InfineraGlobal, Fast-Growing Customer Base
Over 600 Three of the Leading North Six of the
17 Tier 1
customers top four America and top seven
operators
spanning six internet content pan-European global cable
globally
continents providers wholesale operators operators
29 | © 2017 InfineraInfinera 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 XCEED SDN
Rich set of open application programming Netconf/YANG, REST, XML, OpenFlow,
interfaces (APIs) and cloud automation OVSDB, OpenConfig, gRPC
Industry’s most widely deployed flexible grid FlexILS™
open line system (OLS)
Scalable capacity over any line system, Open ICE
successful interop testing with Lumentum OLS
30 | © 2017 InfineraOur Strategy: How Infinera Wins
Deliver
Lead in Open:
Building Differentiated Increase Cadence
Open APIs,
Blocks Next-gen Platforms of Optical Engine
Open Line Systems
in 2017
Disaggregated and
Balanced Portfolio – Grow Faster than
Integrated Solutions
Markets Optimized per
LH/SS/Metro/DCI the Overall
(End-to-end) Optical Market
Customer
Help Customers Transition to “Layer T”
and Win in Their Markets
31 | © 2017 InfineraDifferentiated Financial Opportunity 32 | © 2017 Infinera
A Structure to Deliver Differentiated Financials
Long-haul Instant
Gross DCI
Bandwidth
Margin Metro
Unique pricing
High scale integration Fixed cost leverage structures
R&D = long-term target 20% of revenue
Operating G&A grows slower Success based
than revenue S&M investment
Expenses
Structured long-term financial model Financial discipline
33 | © 2017 InfineraSustained Success and a Setback… Long-Term Targets Intact
$1,000
$888 $871
49%
$800
Solid Balance Sheet
48%
48% $360M cash and investments
$668 $210M net cash (cash and
investments less face value of
$ (Millions)
$600 $544 44% convertible debt)
44% 13% Last four quarters cash flow from
$438 operations = $38 million
$400 42% 8%
6%
39%
Q4 ‘16 Performance
1%
$200 38% $181 million revenue
41.8% gross margin
-9.2% operating margin
-9%
$0 34%
FY12 FY13 FY14 FY15 FY16
Revenue Gross Margin Operating Margin
Balance sheet as of the end of Q4 ‘16; P&L-related figures are non-GAAP
34 | © 2017 InfineraFY17 – Paving the Path to Profitable Growth
2H 2017
1H 2017
End of 2016 Entering 2018
with a new
+ XT/S-3600 product portfolio
+ XTM 400G
Revenue Current + CX2 attacking a broad
+ XTC-10/4 1.2 Tb/s market
Growth Products + XT/S-3300
Drivers
Planned
Follow-on expansion of
Improving IB licenses
Fixed cost
yields
gross margin
Fewer leverage as begins 2017;
investment volumes grow
More
deals continues
Margin Integration purpose-built in 2018
drives lower products
Expansion costs
35 | © 2017 InfineraGross Margin: Investments today drive value tomorrow
Short-term margin impacts Strong return on investment
Pre-deployment of bandwidth Well positioned with a strong customer
Long-haul at next-gen pricing base and growing IB license stream
Investing to earn incumbency Market transition from 10G to 100G
Metro and footprint packet optical creates great opportunity
Pricing pressure increasing; Emergence of cloud architectures should
DCI Bridging key customers to CX-2 drive tremendous growth
Near-term margins compare well to industry: Low to mid 40s GM% anticipated for next few quarters
GM% is non-GAAP
36 | © 2017 InfineraGrowth in All Markets: Building a Diversified Company
LH/Metro, Networks
blur between high
Today 2020 and low capacity
Long haul Metro DCI Long haul LH/Metro Metro
Subsea Services DCI Subsea Services
Long-haul outgrows market; DCI and Metro expected to fuel
growth and increase as percentage of revenue mix
37 | © 2017 InfineraKey to Long-Term Differentiation – Cost Structure
Typical Systems Vendor Cost Structure Infinera Cost Structure
System INFN aspires to achieve a significant gross margin
advantage over closest competitors
Margin System
manufacturer
System Margin
Cost
ASICs/DSP Margin Silicon
Cost manufacturers Vertical
Cost Integration
Optics Margin Component ASICs/DSP Cost
manufacturers
Cost PICs Cost
38 | © 2017 InfineraThe Future is Bright: Infinera’s Ultimate Opportunity
Long-haul/subsea return to growth;
DCI and metro = high-growth opportunities
Long-term Goals Intact
Photonic integration and pricing strategies • Outgrow Market
enable differentiated cost model • 50% Gross Margin
• 15% Operating Margin
Balancing technology investments with
disciplined expense management
Gross margin and operating margin targets are non-GAAP
39 | © 2017 InfineraThank You
www.infinera.com
40 | © 2017 InfineraCustomer Example
Large European Tier 1: WDM in the Access
Used by Tier 1 “internally” for:
• DCN
• Indoor and outdoor DSLAMs/MSANs
approx. 27.000 links • FTTC/Vectoring
approx. 135.000 wavelengths
• Mobile stations
• FTTH
• Business customers
• Mobile Backhaul for T-Mobile
41 | © 2017 InfineraCustomer Example
Large European MSO: Mobile Backhaul Wholesale
Number
of sites: x2000+ x300 x40 x24
GbE Other metro sites
GbE POP 1
10G
GbE 2xGbE
EMXP22 ▪ Colorless / EMXP80
directionless
ROADMs EMXP80
GbE ▪ Used for
business
services also nx10G
POP 2 RNC
EMXP80
GbE
EMXP22 EMXP80
GbE
Other metro sites
Mobile operator Ethernet wholesale operator Mobile operator
42 | © 2017 InfineraCustomer Example
Hutchison: First to deploy Infinera Mobile Fronthaul
Hutchison Global Communications Limited
(HGC) First to Deploy Infinera for Mobile
Fronthaul across Hong Kong
• New revenue opportunity - Wholesale CPRI as a Service to
3 Hong Kong and other operators
• Supporting Cloud-RAN architectures
• Better network economics for 2G/3G/4G immediately
• Paves the way for LTE-A and 5G where fronthaul is
mandatory
• Active WDM based mobile fronthaul from Infinera
• Ultra-low latency and Superior Synchronization
• Supporting all CPRI v6.1 rates, including 12G
43 | © 2017 InfineraYou can also read
