100G

Winning Through Disruption in the
Transport Market
Investor Overview
September 2016
1 | © 2016 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 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.
2 | © 2016 Infinera
Infinera: A Differentiated Technology Company
 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
Photonic Integrated Circuit
(PIC)
XTM/XTG Series
Cloud
Xpress
DTN
DTN-X
XT
Enabling An Infinite Pool of Intelligent Bandwidth
3 | © 2016 Infinera
DTN-X
XTC
Global Customer Base
Over 600
customers
spanning six
continents
4 | © 2016 Infinera
3 of the top 4
Internet Content
Providers
Leading North
America and
Pan-European
wholesale
operators
Six of the
top seven
global cable
operators
17 Tier 1
operators
globally
Infinera Differentiators
Infinera differentiates due to its technology,
market expansion opportunities and vertically
integrated business model
Cloud Xpress
PIC-enabled Technology
• PIC enables scalable, intelligent
functions: SDN, integrated
switching, sliceable bandwidth
• High capacity applications: Longhaul, Metro Cloud, Metro Core
5 | © 2016 Infinera
XT-Series
XTC-Series
XTM-Series
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*
* Based on average of latest forecasts from Ovum, IHS, Dell’Oro and ACG
Infinera PIC Fab
Vertical Integration
• Lower cost structure
than competition
• Supply chain control
Outpacing Other SP Networking Players
150%
125%
Revenue Growth: Quarterly
Trailing 12-month revenue
50%
New Metro
portfolio introduced
Cloud Xpress
for 100G DCI
100%
75%
141%
DTN-X
for 100G
Long-haul
INFN
55%
41%
25%
0%
-25%
Jun '12
6 | © 2016 Infinera
Dec '12
Jun '13
Dec '13
Jun '14
Dec '14
3x faster
growth than
closest
competitors
Jun '15
Dec '15
Jun '16
CIEN
JNPR
CSCO
ADV
Disruptive Technology Innovation:
The Infinera Way
7 | © 2016 Infinera
Technology Leadership
Infinera Uniquely Delivers Massive Scale
Conventional Approach
The Infinera Approach
Vertically Integrated
Photonic integrated circuits
Coherent optical engine
Intelligent
software
Industry’s only large-scale
photonic integrated circuit
Moore’s Law-like for Optical
8 | © 2016 Infinera
Vertically
Integrated
ASICs and
coherent
Infinera PIC-based Optical Engines
Unmatched Capacity per Line Card/Chassis
Optical Functions Integrated
~1000
Fiber Connections Eliminated
>250
Sliceable 600G – 2.4T
Future Long-haul/DCI PIC
Capacity
Up to 2.4T PIC
500G PIC
10 Channel
100G PIC
10 Channel
100G ULH PIC
Future Metro PIC
2 Channel
100G PIC
2004
9 | © 2016 Infinera
2009
2012
2015
Infinite Capacity
Engine Metro PIC
2016
Future
A Quantum Leap in Optical Transport to Terabits
Industry’s first 2.4 Tb/s transport technology
The next step
function in optical
with Infinite
Capacity Engine
 Advanced electronics (DSP/ASIC):
Next-gen FlexCoherent™ processor
 Cutting-edge photonics: Fourth-gen
Bigger
Photonic Integrated Circuit (PIC)
Smaller
DSP
PIC
Infinera Infinite Capacity Engine
10 | © 2016 Infinera
Better
 Multi-terabit super-channels,
up to 12x bigger
 Multi-terabit wire-rate L1 encryption
 One of world’s smallest multi-terabit
subsystems
 Lower power: 82%↓ vs. competition
 Sliceable photonics, 53% lower TCO
 Advanced coherent, 40-60% improved
capacity-reach performance
Market Expansion Opportunities
11 | © 2016 Infinera
Well positioned to grow and win in Optical
Positive Macro Drivers
High Growth
Customers and End
Markets
Structural Technology
Advantage
• Worldwide Bandwidth Explosion
• Server-to-Server traffic driving growth of private backbones
• Diversified, high growth customer base
• Solid Long-haul + high growth Metro and DCI
• High capacity, low cost of ownership, unmatched reliability
• Vertical Integration enables advantageous cost structure
Grow faster than market, achieve best-in-class profitability,
build a diversified optical transport business
12 | © 2016 Infinera
Explosion of Bandwidth Hungry Applications and Devices
IoT
Cloud
Video
Mobility
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
13 | © 2016 Infinera
*Source: TeleGeography Global Bandwidth Forecast Q3 2015
Poised to Benefit from ICP-driven Bandwidth Demand
Top 4 Cloud & Content Providers:
77% market share by 2020
Private backbones replacing Internet transit
(i.e., massive server-to-server traffic growth)
IaaS + PaaS Estimated Revenue
Trans-Atlantic Bandwidth
$100.0
$80.0
$60.0
$40.0
31%
35%
48%
55%
62%
68%
74%
77%
80%
60%
Private
40%
20%
$20.0
$-
100%
2013 2014 2015 2016 2017 2018 2019 2020
Amazon
Microsoft
Google
IBM
0%
Internet
Big 4 Combined Mkt Share%
14 | © 2016 Infinera
Sources: Cloud market share from UBS report, 5/9/16 “Is the Sky the Limit for Cloud Computing”; Private vs. Internet bandwidth from TeleGeography
Infinera Ready for 100G Coherent Metro Ramp
400
350
100G starting
to ramp, rapid
acceleration
Ports (Thousands)
300
350
46 %
200
CAGR
150
100
50
CY12
15 | © 2016 Infinera
CY13
0
CY14
CY15
CY16
CY17
Source: 2015 IHS 100G Coherent Optical Equip Ports Mkt Fcst
CY18
CY19
Building on Long-haul leadership in DCI and Metro
• Networks Simplifying to New
Model of Cloud Services and
Intelligent Transport
• Scalable Optics and Integrated
Packet-Optical Key for
Simplification
Market Inflections
100G
100G
Long-haul Metro Cloud
Accelerated 100G
uptake & 40G decline
2012
1st to market
with purposebuilt solution
2014
100G Metro
Aggregation
Infinera Core +
Transmode
portfolio
2016
Building a diversified optical transport business
16 | © 2016 Infinera
Infinera Unified End-to-End Portfolio
$15B* (2020) – Transport Market
17 | © 2016 Infinera
* Based on average of latest forecasts from Ovum, IHS, Dell’Oro and ACG
Infinera’s Ascending Global Market Position
$3,000
$2,500
$2,000
Cross-selling and revenue synergies create
opportunity to continue to ascend
$1,500
$1,000
$500
$-
Source: Dell’Oro2Q 16 DWDM Market Share report (Q3-15 to Q2-16).
18 | © 2016 Infinera
Fully Addressing The Optical Transport Market
Forecasts
2016
2020
19 | © 2016 Infinera
CAGR
Long-haul
$4.9B
$6.0B
5%
DCI
$1.6B
$4.3B
29%
Metro
$6.3B
$8.5B
8%
- 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
Adding new tools to solve customer needs
20 | © 2016 Infinera
Established Long-haul Leader
Long-haul
#1 in North America market share
#2 Worldwide market share*
North America Long-haul Market Share Q1-16**
40.1%
 Operational simplicity
 Terabit-class PIC-enabled scalability
 Power/space network efficiency
33.8%
13.4%
14%
10.5%
XT-Series
* Source: IHS (Ovum ranks Infinera #3, Dell’Oro #4)
** Average of Dell’Oro, Ovum, IHS (as of Q1-16)
21 | © 2016 Infinera
XTC-2
XTC-2E
XTC-4
DTN-X Family
XTC-10
Data Center Interconnect
Capturing emerging cloud infrastructures
22 | © 2016 Infinera
Cloud Architecture Drives Network Demands
Search Query
1500 Miles
HTTP request
930x Network Traffic
Cloud Data Center Network
23 | © 2016 Infinera
sources: google.com, facebook.com
Optimized Solutions for DCI
CX 10E
CX 40E
CX 100E
Cloud Xpress Family
Hyper-Scale Density
24 | © 2016 Infinera
XT-Series
Minimal Power
Purpose-Built Metro and
Long-haul DCI solutions
Simple Operation
The Metro Market
A new market for Infinera as 100G Metro begins to ramp
25 | © 2016 Infinera
Metro Solutions from Core to Access
XTM-Series
 1G to 100G Packet-Optical
 All metro/regional Layer T
applications in a single platform
 Application specific characteristics
XTG-Series
 Passive CWDM, DWDM and
WDM-PON access infrastructure
26 | © 2016 Infinera
XTC-2 Extends DTN-X to Lower Capacity Sites
E.g. Right-sized DTN-X XTC for Smaller Cities
Seattle
Spokane
100G
XTC-10
Boise
XTC-2
100G
100G
100G 100G
Salt Lake City
XTC-4
500G Super-channels
Common Hardware, E2E Network Management & Automation
27 | © 2016 Infinera
Las Vegas
Value of End-to-End
Packet-Optical Switching
Access & Aggregation
Converged Packet Aggregation
& OTN Switched Metro Core
Converged Packet Aggregation &
Pan-European Network
500G
Pan-European
Network
OTN Switched Metro Core
Super-channels
500G
Super-channels
XTC-2
XTC-2
28 | © 2016 Infinera
XTC-10
Frankfurt Metro Area, Germany
Frankfurt Metro Area, Germany
XTC-10
Large
LH Core
100G
100G
XTM Series
XTC-10
XTC-10
Large
LH Core
Point-to-Point
XT-500
Interconnect
XTC-4
Point-to-Point
Interconnect
DTN-X Family
XTC-4
Infinera DNA
XT-500
Metro: Mobile Fronthaul Opportunity
 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
29 | © 2016 Infinera
*Source: Ovum “Mobile Backhaul and Fronthaul Forecast Report: 2015-2020 (September 2015)
Metro: How Infinera Wins
Build on Transmode’s
Differentiated Approach
•
•
•
Strong customer base and reputation in Metro Edge/Access
Power efficient and purpose-built products
Early technology leadership in Mobile Fronthaul
Vertical Integration
•
•
High capacity solutions for Metro Core upgrades to 100G
PIC + DSP lowers cost structure and enhances technology
Customer Base
•
•
Long-haul customer base upgrading to 100G Metro
Combined strength in Metro-heavy Cable/MSO vertical
Infinera Current Metro Market Share: 3% Worldwide*
Significant opportunities to grow!
30 | © 2016 Infinera
*Average of latest projections from Ovum, IHS, Dell’Oro and ACG
Differentiated Financial Results
31 | © 2016 Infinera
Infinera – A Growth Story
Revenue (in $m)
3 years of >20%
revenue growth
Industry leading profitable revenue growth
$888
 $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
$668
$544
47.8%
$438
GM%:
37.9%
OM%:
-9.4%
44.0%
41.6%
13.1%
8.3%
1.4%
FY12
FY13
Q2 ‘16 Performance
 $259 million revenue (25% y/y growth)
 50.4% gross margin
 13.2% operating margin
Q3 ’16 Outlook
FY14
FY15
All income statement figures are Non-GAAP. See reconciliation to GAAP on Slide 37.
All figures as of end of Q2-FY2016
32 | © 2016 Infinera
Solid Balance Sheet




$180 to 190 million revenue
45% to 49% gross margin
(2)% to 2% operating margin
$(0.02) to $0.02 diluted EPS
Q3-16 Outlook – What Happened
What Happened
Longer Term Impact
1) Subsea drop-off
Multiple quarter impact; Infinite Capacity Engine
technologies expected to improve situation
2) Long-haul footprint pause
Temporary impact; Certain customers currently
prioritizing Metro over Long-haul spend; Longhaul market expected to resume growth
3) Metro synergies delayed
Synergies now expected in FY17; Planning to
offer more aggressive pricing to secure footprint
33 | © 2016 Infinera
Margin Growth Opportunity
Margin Drivers
 Vertical Integration
 Footprint vs Fill
 Instant Bandwidth
$
$
$ $
Long-haul
$$$$
Cloud
Xpress
Metro
 Purpose-Built Products
Infinera PIC Fab
$
$
$
$
Though footprint investment could affect gross margin in the short term, long term margin drivers will still benefit Infinera
34 | © 2016 Infinera
Long Term Opportunities Intact
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
35 | © 2016 Infinera
Long Term Opportunities
Long-haul - Continue
to outgrow the market
DCI - Small form factor
market leader
Metro – Significant
market share growth
GM% 50%+
OM% 15%+
Thank You
www.infinera.com
36 | © 2016 Infinera
GAAP to Non-GAAP Reconciliation
(In millions, except percentages and per share data)
(Unaudited)
Reconciliation of Gross Margin:
U.S. GAAP
Stock-based compensation
Acquisition-related deferred revenue adjustment
Amortization of acquired intangible assets
Non-GAAP
Q2'16
Actual
Q3'16
Outlook
47.8%
0.6%
0.1%
1.9%
50.4%
Reconciliation of Operating Expenses:
U.S. GAAP
Stock-based compensation
Amortization of acquired intangible assets
Non-GAAP
Reconciliation of Operating Margin:
U.S. GAAP
Stock-based compensation
Acquisition-related deferred revenue adjustment
Amortization of acquired intangible assets
Acquisition-related costs
Non-GAAP
$
$
6.2%
4.2%
0.1%
2.5%
0.2%
13.2%
Net Income per Common
Share - Diluted:
U.S. GAAP
Stock-based compensation
Amortization of acquired intangible assets
Amortization of debt discount
Income tax effects
Non-GAAP
37 | © 2016 Infinera
43%
1%
0%
3%
47%
Note: Outlook amounts represent the midpoint of the expected range.
98
(9)
(2)
87
-10%
6%
0%
4%
0%
0%
$
$
(0.13)
0.08
0.04
0.02
(0.01)
0.00