Winning Through Disruption In The Transport Markets21.q4cdn.com/892601718/files/doc_presentations/2016/oct/Infinera-Investor-Deck_Nov...Sources: loud market share from US report, 5/9/16

1 | © 2016 Infinera

Winning Through Disruption In The Transport Market

Investor Overview

November 2016


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, 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; 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; 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; 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

http://www.infinera.com/

http://www.sec.gov/


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

Cloud Xpress 2

FlexCoherent® Electronics


Infinera’s Journey

* Dell’Oro DWDM Long Haul Reports

2005: Shipped 10G PIC-based DTN

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: Introduced Sliceable Photonics

Infinera acquires Transmode

2016: Introduction of Infinite Capacity Engine

Introduction of Cloud Xpress 2 with Infinite Capacity Engine

Infinera validates industry’s first transport platform interoperability with white box open line system

2008: #1 market share in NA LH*

2013: #1 in 100G WDM, ex China*

2010: Leapfrogs 40G, invests in 100G

2012: Shipped 500G PIC-based DTN-X

…2000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016


Global 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

18 Tier 1 operators globally


Infinera Differentiators

PIC-enabled Technology• PIC enables scalable, intelligent

functions: SDN, integrated switching, sliceable bandwidth

• High capacity applications: Long-haul, Cloud/DCI, 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 2 for DC Interconnect• XT-Series for Long-haul• XTM Series & XTC-2 for Metro• TAM expansion to $14B in 2020*

Cloud Xpress 2 XTM SeriesXTC-SeriesXT-Series

* Based on average of latest forecasts from Ovum, IHS, Dell’Oro and ACG


-20%

0%

20%

40%

60%

80%

100%

120%

140%

160%

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 129%

DTN-Xfor 100G

Long-haul

Cloud Xpressfor 100G DCI

2x faster growth

than closest competitors

Outpacing Other SP Networking Players

New Metro portfolio introduced

55%

Xceed software suite and Cloud

Xpress 2 introduced


Disruptive Technology Innovation: The Infinera Way


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


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

Future Metro PIC

Cap

acit

y

Future

Optical Functions Integrated ~1000

Fiber Connections Eliminated >250

Future Long-haul/DCI PIC


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


Market Expansion Opportunities


Explosion Of Bandwidth Hungry Applications And Devices

Infinera well-positioned to address bandwidth explosion

*Source: TeleGeography Global Bandwidth Forecast Q3 2015

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


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%


Infinera Unified End-To-End Portfolio


$-

$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 ascend over time


Fully Addressing The Optical Transport Market

* Long-haul and Metro forecasts are average of latest projections from Ovum, IHS, Dell’Oro, ACG, and Cignal AI. Forecasts include China, which is currently the fastest growing geography and is not addressed by Infinera** DCI based on latest projection from ACG. Small Form Factor CAGR is 58% ($294M in 2016, $1.8B in 2020). Portion of DCI likely also included in long-haul and Metro projections.

Long-haul

DCI

Metro

Forecasts*

$4.4B

$1.6B

$5.8B

$5.1B

$4.1B

$8.2B

20202016

4%

28%**

10%

CAGR


Long-haulAdding new tools to solve customer needs


Established Long-haul Leader

Operational simplicity

Terabit-class PIC-enabled scalability

Power/space network efficiency39.4%

36.2%

12.7% 12.6%

INFINERA CIENA NOKIA CORIANT

North America Long-haul Market Share Q2-16

* Based on average of Dell’Oro, Ovum, IHS, Cignal AI

XTC-4XT-Series XTC-10XTC-2 XTC-2E

DTN-X Family

#1 in North America market share#4 Worldwide market share

Long-haul*


Data Center Interconnect Capturing emerging cloud infrastructures


Cloud Architecture Drives Network Demands

sources: google.com, facebook.com

Search Query

930x Network Traffic

Cloud Data Center Network

1500 Miles

HTTP request


Cloud Xpress Cloud Xpress 2

The 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 clients16-QAM


The Metro MarketA new market for Infinera as 100G Metro begins to ramp


1G to 100G Packet Optical

100G at Layer 1 and Layer 2 P-OTS

Multi-service, access to core

Low power and latency, high density design

Metro Solutions From Core To Access

Cloud Xpress

XTC-2/2EXTM Series XTG Series

Source: 2015 IHS 100G Coherent Optical Equip Ports Mkt Fcst

Building a differentiated portfolio from Core to Access


XTC-4

XTC-10

DTN-X Family

500G

Converged Packet Aggregation& OTN Switched Metro Core

E.g. Frankfurt Metro Area, Germany

100GXTC-2

XTC-10

Value Of End-to-End

Triple PlayBroadband

BusinessEthernet

Mobile Front/Backhaul

Infinera Management (IMS) and Control (Xceed Software Suite)

XTM Series

Packet-Optical SwitchingAccess & Aggregation

CableBroadband

XT-500


Metro: How Infinera Wins

• Strong customer base and reputation in Metro Edge/Access• Power efficient and purpose-built products

• Early technology leadership in Mobile FronthaulDifferentiated 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


Differentiated Financial Results


Infinera – A Track Record of Profitable Growth

$544

FY13

$438

FY12

$668

FY14

44.0%

8.3%

41.6%

1.4%

-9.4%

37.9%

Revenue (in $m)

GM%:

OM%:

• * Estimated; based on Wall Street Consensus as of 10/27/16• All income statement figures are Non-GAAP. See reconciliation to GAAP on last page• All figures as of end of Q3-FY2016

Q3 ‘16 Performance $185 million revenue 49.2% gross margin 3.6% operating margin

Q3 ’16 Outlook $165 to $185 million revenue 40% to 42% gross margin (12)% to (8%) operating margin $(0.16) to ($0.12) diluted EPS

$888

FY15

13.1%

47.8%

Solid Balance Sheet $210M net cash (Cash less face value of convertible debt)

10 consecutive quarters of positive Cash Flow from Ops

Last 4 quarters Cash Flow from Ops = $69 million

FY16

48.1%

6.2%

$869*


Recent Revenue Decline: Drivers & Implications

What has 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 in FY17

3) Metro synergies delayedSynergies now expected to begin to take shape in 2nd half FY17; Pricing more aggressively to secure high quality Metro footprint


Long Term Opportunities Intact

DCI - Small form factor market leader

Long-haul - Continue to outgrow the market

Metro – Significant market share growth

Near-term outlook doesn’t 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 – Synergy opportunities with Infinera customer base

Track record of best in class profitability

•Margins currently low due to footprint investments

• Infinite Capacity Engine-enabled products should enhance cost benefits of vertical integration and Instant Bandwidth

Long Term Opportunities

Profitability – Restore and exceed recent levels


Thank Youwww.infinera.com

http://www.infinera.com/


GAAP to Non-GAAP Reconciliation(In millions, except percentages and per share data)

(Unaudited)

Note: Amounts represent the midpoint of the expected range.

Q3'16 Q4'16

Actual Outlook

Reconciliation of Gross Margin:

U.S. GAAP 45.6% 37%

Stock-based compensation 0.8% 1%

Amortization of acquired intangible assets 2.8% 3%

Non-GAAP 49.2% 41%

Reconciliation of Operating Expenses:

U.S. GAAP 101$

Stock-based compensation (9)

Amortization of acquired intangible assets (2)

Non-GAAP 90$

Reconciliation of Operating Margin:

U.S. GAAP (5.9)% (20)%

Stock-based compensation 5.5% 6%

Amortization of acquired intangible assets 3.6% 4%

Acquisition-related costs 0.4%

Non-GAAP 3.6% (10)%

Net Income per Common Share:

U.S. GAAP (0.27)$

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 (0.14)$

Documents

Winning Through Disruption In The Transport Markets21.q4cdn.com/892601718/files/doc_presentations/2016/oct/Infinera-Investor-Deck_Nov...Sources: loud market share from US report, 5/9/16