Winning Through Disruption in the Transport Markets21.q4cdn.com/892601718/files/doc_presentations/2016/sept/Infinera... · Winning Through Disruption in the Transport Market ... business

1 | © 2016 Infinera

Winning Through Disruption in the Transport Market

Investor OverviewSeptember 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, 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

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


Global Customer BaseOver 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


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


-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%


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

Infinite Capacity Engine Metro PIC

Future Metro PIC

Capa

city

Future

Optical Functions Integrated ~1000

Fiber Connections Eliminated >250Future 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 performanceDSP

PIC

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


Well positioned to grow and win in Optical• Worldwide Bandwidth Explosion• Server-to-Server traffic driving growth of private backbonesPositive 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


Explosion of Bandwidth Hungry Applications and Devices

Mobility

Video

Cloud

IoTBy 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


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%


CY12 CY13 CY14 CY15 CY16 CY17 CY18 CY19

400

350

300

350

200

150

100

50

0

Port

s (Th

ousa

nds)

Infinera Ready for 100G Coherent Metro Ramp

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

100G starting to ramp, rapidacceleration

46%CAGR


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


Infinera Unified End-to-End Portfolio

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

$15B* (2020) – Transport Market


$-

$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


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


Long-haulAdding new tools to solve customer needs


Established Long-haul Leader

Operational simplicity Terabit-class PIC-enabled scalability Power/space network efficiency

40.1%

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


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


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 FamilyXT-Series


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


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


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-4100G

100G100G

100G

XTC-2100G

Common Hardware, E2E Network Management & Automation


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

Packet-Optical Switching Access & Aggregation

Infinera DNA

XTM 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


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

*Source: Ovum “Mobile Backhaul and Fronthaul Forecast Report: 2015-2020 (September 2015)


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 technologyVertical Integration

• Long-haul customer base upgrading to 100G Metro• Combined strength in Metro-heavy Cable/MSO verticalCustomer 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 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


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


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


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 futureLong-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%+


Thank Youwww.infinera.com

http://www.infinera.com/


GAAP to Non-GAAP Reconciliation(In millions, except percentages and per share data)(Unaudited) Q2'16 Q3'16

Actual OutlookReconciliation 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 CommonShare - 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.

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Winning Through Disruption in the Transport Markets21.q4cdn.com/892601718/files/doc_presentations/2016/sept/Infinera... · Winning Through Disruption in the Transport Market ... business