Woodside Capital Partners SDN Seminar 6.19.13

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As networks demand more programmability, flexibility and agility, Software-defined networking is emerging as an important step in transforming data centers and service provider wide area networks. This presentation covers how SDN is emerging as a viable network architecture and includes a market outlook, long-term implications and recent M&A activity in the SDN space.

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Woodside Capital Partners SDN Seminar 6.19.13

  1. 1. Software Defined Network (SDN) Market Overview Woodside Capital Partners Sean Blakley, Tricia Salinero, Marshall Senk June 19, 2013 CONFIDENTIAL
  2. 2. Contents I. SDN Overview II. SDN Market Update III. Recent M&A Activity IV. Q&A
  3. 3. SDN OVERVIEW
  4. 4. The Next Generation “Data Center” Traditional Data Center Hybrid Cloud Public Cloud 3
  5. 5. Traditional Networking No Longer Solves the Problem  Today’s network — — Built on monolithic devices, proprietary hardware and software Static configuration, very slow to provision  To meet the needs of this increasingly applications centric model, networks must become more programmable, flexible and agile — — — — De couple hardware from software Speed up new feature development cycle Greatly improve network responsiveness and provisioning time Lower OPEX and CAPEX 4
  6. 6. SDN is Emerging as a Viable Networking Architecture  The Software Defined Network (SDN) is emerging as potential network architecture to satisfy the new network paradigm: Software Defined Network Architecture Programmability Enable Innovation Accelerate New Features Centralized Intelligence Simplify Provisioning Optimize Performance Granular Policy Abstraction Source: ONF.org Decouple: HW and SW Physical and Virtual Control plane and Forwarding 5
  7. 7. Companies in the SDN Sector Software Defined Network Applications Visibility / Management Orchestration / Controller Services Physical / Virtual Network Element Silicon Software Defined Storage Storage / Backup and Recovery 6
  8. 8. OpenDaylight – Major New SDN Open Source Initiative  OpenDaylight is an open source software project that is not a standards body, but is about delivering production grade code for use in the SDN OpenDaylight Scope Source: Opendaylight.org 7
  9. 9. OpenDaylight – Significant Member Base OpenDaylight Platinum Members Gold Members Silver Members Source: opendaylight.org 8
  10. 10. SDN MARKET UPDATE
  11. 11. SDN Market Outlook  SDNCentral, a leading independent SDN community recently predicted a bright future for SDN — — — “The SDN market is expected to surpass $35 billion in the next five years, far higher than previously reported. Almost by an order of magnitude.” “Adoption of SDN technology has accelerated in recent years from sales of $10 million in 2007 to $252 million last year. Companies are turning to new softwarecentric approaches to control their computer networks as they move beyond traditional network infrastructure that wasn’t designed for today’s cloud computing.” “The emergence of the software-defined networking market is supported by growth in venture capital investment in SDN-focused companies. Venture capital funding of SDN-related companies rose from $10 million in 2007 to $454 million in 2012.” Source: sdncentral.com 10
  12. 12. SDN Market Outlook  We see SDN as a key initiative for many vendors and we see no slowdown in the vendor SDN development or M&A velocity over the next couple of years — Open based software development environment and increasing use of off the shelf hardware should help reduce the cost and time to develop new features  However, we see a more gradual ramp in SDN deployments in the next few years as the market continues to mature — — Can not totally disrupt production enterprise and service provider networks New technology introductions always take longer than expected 11
  13. 13. SDN Deployments  Initial SDN deployments have been limited to focused use cases within large service providers — Google data center interconnect network • WAN based implementation of SDN • OpenFlow based • New networking device • Much more efficient use of 100G interconnection links and streamlined operations — Google expanding its use of SDN within the data center — Verizon now trialing targeted network bandwidth application  Very limited use cases and implementations in enterprise data center applications 12
  14. 14. SDN Solutions Vary  The SDN marketplace is filled with vendors offering pieces of the SDN network  There are many implementation models being proposed — — Pragmatic approaches of enabling current base of networking equipment to open up APIs, become more programmable Overlay solutions on top of existing physical networks or in new greenfield applications using white box networking infrastructure  Larger, more extensive product portfolio and services companies are moving towards offering complete solutions — We see this is as a key step forward to offering complete solutions, that work, and are purchasable by the general enterprise market 13
  15. 15. SDN Will See An Incremental Deployment Approach  The network will change, but not overnight — — Although it is incredibly painful to provision networks today and network operations do not match server/applications velocity, we will likely see an incremental approach over the next few years In 2013, trial and use cases will grow within the large service providers and Web 2.0 companies • • — China Telecom, Google, Verizon all have SDN initiatives in place Use cases emerging around: security, virtualization, chaining, etc. in wireline and wireless deployments Mainstream enterprise applications may start to ramp in 2014 14
  16. 16. Longer Term Implications of SDN  We see no immediate pricing impacts from SDN, but do believe pricing pressures will continue to intensify on all suppliers — We see a long term threat to established networking suppliers in price and margin  In the next couple of years, lower throughput/lower performance requirement switching (top of rack) and on premises devices may be increasingly implemented in software  We do not see high throughput/high performance devices such as aggregation switches or routers in the enterprise or service provider networks being implemented in software — — Too many performance hits, not necessarily more cost effective ASIC based designs will remain for cost and performance advantages 15
  17. 17. Longer Term Implications of SDN May Be Disruptive  Network Functions Virtualization (NFV) and the general move towards virtualizing L4-L7 functions is gaining significant traction and traditional hardware based solutions are now being increasingly sold as virtual solution — Application Delivery Controllers, Wan Optimization, Next Generation Firewall equipment suppliers seeing increasing sales of virtual editions  5+ years, with advances in multi-core processing, we see the market will increasingly see deployments of virtual switches and routers 16
  18. 18. RECENT M&A ACTIVITY
  19. 19. SDN M&A Opportunities  We see the emergence of many new start ups in the SDN market and believe that the majority could be acquisition targets by larger public companies — In 2012 and early 2013, large public companies were acquiring SDN technologies at a fast pace; This trend is likely to continue • Must have SDN Story – defensive or offensive • Build out product portfolio and services portfolio  We see the following potential deals making sense: — Traditional networking hardware suppliers: Alcatel Lucent, Arista, Brocade, Cisco, Dell, Ericsson, Juniper, HP, Huawei and other suppliers such as EMC and Oracle acquiring: • — Virtual networking companies: Midokura, NoviFlow, Pica8, Pluburis, Plumgrid, Vello Traditional networking hardware suppliers: Arista, Brocade, Dell, Ericsson, Huawei and other suppliers such as EMC and Oracle acquiring: • Controller companies: Bigswitch, Embrane, Plexxi, Vello 18
  20. 20. M&A Accelerating in the Sector Transaction EV/Revenue Value ($M) Multiple (x) Target Business Description 04/25/13 $120.0 NA Aepona Ltd provides cloud computing and network services. It offers network and API monetization services, such as API monetization platform, agile service enablement, mobile cloud computing, payments and settlement engine, and OPENIN products; and cloud services aggregation and merchandizing solutions, such as services aggregation and merchandizing platform, and cloud services brokerage. 2) 04/22/13 $42.0 NA Nolio Ltd. provides application service automation solutions for managing data center applications. It offers Automation Center, a data center product that provides deployment and change automation, failure and recovery automation, and auditing automation solutions; and Nolio ASAP 3.0, a software platform to enable information technology operations and development teams to achieve application release with visibility and control, as well as enables application deployment. 3) 02/11/13 $125.3 NA LineRate Systems, Inc. develops and sells software defined network service solutions for packet core operators, and cloud and Web service providers. 4) 12/12/12 $200.0 NA Contrail Systems Inc. designs and develops software-defined data centers. 5) 11/29/12 $141.0 NA Cariden Technologies, Inc. provides design, planning, and operational automation intelligence for managing networks. It offers MATE software that provides IP/MPLS traffic management solutions, which include maintenance planning, congestion mitigation, troubleshooting, and network look-ahead; what-if analysis, design verification, and strategic traffic engineering; and new-customer impact and capacity planning capabilities. 6) 11/18/12 $1,200.0 NM Meraki, Inc., a cloud-based wireless networking company, deploys wireless network infrastructures. The company’s products include Enterprise Cloud Controller, which provides wireless access to corporate LAN for offices, industrial firms, retailers, educational institutions, and multi-site locations; indoor and outdoor routers, repeaters, and access points; outdoor and solar antennas; and solar accessories, as well as power accessories for indoor and outdoor applications. 7) 11/05/12 $45.0 NA Vyatta, Inc. provides network routing and security software and hardware appliances. It offers an enterprise-class network routing, security, and traffic management software solution that enables network administrators to leverage the performance of Intel/AMD hardware, as well as run in VMWare, Xen, and Hyper-V virtual environments. 8) 10/04/12 NA NA vCider, Inc. offers virtual cloud networking services. 9) 07/30/12 $220.0 6.3x Xsigo Systems, Inc. provides virtualized infrastructure solutions for cloud- optimized data centers in the United States and internationally. Its products include Xsigo I/O Director, a hardware and software solution that streamlines server I/O management; Server Fabric that connects virtual machines to data center resources; Xsigo XMS 3 management interface that enables customers to create, monitor, and manage network and storage connections across the servers; Xsigo I/O modules that provide network and storage connectivity to the Xsigo I/O Director; and Expansion Switch that offers scalable I/O virtualization connectivity for servers. 10) 07/23/12 $1,263.0 NM Nicira Networks, Inc. offers software that virtualizes the network. The company develops Network Hypervisor, a solution that transforms data center networks. Its solution reproduces the network service model in logical space for controlling logical networks. # Date 1) Acquirer Source: Capital IQ. Target 19
  21. 21. Q&A
  22. 22. Woodside Capital Partners Overview Representative Engagements  11 years old, 300+ transactions, $10 billion transaction value  25 professionals; offices in Palo Alto and London  1/3 of transactions are cross-border  Emphasis on quality and teamwork: entire software team incentivize to help on your needs  Senior level attention: senior partner is key contact, actively engaged  Best comp in banking: highly incentivized team 2012  2008 2007 2010 Licensed: FINRA / FSA broker-dealer 21
  23. 23. WCP Research Team WCP Research Team  Sam Skinner – COO and CCO — Formerly with IPR, M&C, Dakin, Paine Webber and Drexel Burnham  Sean Blakley – MD, Network Infrastructure and Services Analyst — Formerly with IPR, TLAB, AFCI, Harris Corp and HPQ  Marshall Senk – MD, Cloud Applications and Software Analyst — Formerly with IPR, Robertson Stephens, QSFT and ORCL  Ryan Koontz – MD, Network Infrastructure and Services Analyst — Formerly with IPR, TLAB, AFCI, ERIC and AT&T  Ed Bierdeman – MD, Cloud Applications and Software Analyst — Formerly with IPR, M&C, H&Q, SEBL, ORCL and Convergent Tech WCP Research Offering  Provide institutional investors with nightly research notes  Analyze market in Software, Telecom and Networking sectors  Analyze disruptive technologies, industry drivers and co–ecosystems  Support investment banking with analysis and thought leadership 22
  24. 24. Sean Blakley, Managing Director Communications and Networking Infrastructure Analyst Research Coverage Focus:      Software Defined Networking – panel expert and moderator at various public SDN seminars Network Functions Virtualization Enterprise and Service Provider Wireless, Wireline networking Optical networking Cable and video infrastructure Equities Coverage List:   JNPR, CSCO, FFIV, CTXS, BRCD, ARUN, RKUS, CIEN, ALU, ERIC, AKAM Additionally a large number of private companies Background:      Research Experience: 7 years equity research in communications and networking infrastructure Industry roles: 15 years senior management roles in sales, marketing, biz dev, and product management Industry focus: Routing, switching, optical transport, broadband access, wireless communications, wireless testing Companies: Tellabs, AFC, Globalstar, Harris Corp, HP, PG&E Education: MSEE / BSEE in Electrical Engineering 23
  25. 25. Tricia Salinero, Managing Director Investment Banking Most recent engagements:       LSF Network acquisition of eVisibility LSF Network acquisition of Geary Interactive Conformia sale to Oracle Syndera sale to Tibco Confidential sale to Google Cavium divestiture of Montavista Auto to Mentor Graphics Other representative engagements:       PhotoWorks sale to American Greetings Oerlikon Optics divestiture to Halma Be Here Corporation divestiture Vodium sale to Precision IR Mimio sale to Newell Rubbermaid SkipJam sale to NetGear Background:       Founder and Managing Director, Newforth Partners Principal, Broadview International Business Development, SuperMac Technology Bachelors Degree, University of California at Berkeley M.P.A., California State, East Bay Licensed with the Financial Industry Regulatory Authority (Series 24, 7, 79 and 63) 24
  26. 26. Marshall Senk, Managing Director Cloud and Enterprise Software Analyst Research Coverage Focus:        Cloud technologies and infrastructure Cloud Services (IaaS and PaaS) Open Source Big Data Cloud Applications Social/Collaboration Applications Security Equities Coverage List:   CTXS, RHT, VMW, ORCL, CRM, PANW, WDAY Additionally a large number of private companies Background:      Research Experience: 12 years equity research in software infrastructure and applications Industry roles: 10 years in a variety of staff and executive roles including product development, product management and corporate marketing. Industry focus: infrastructure software, enterprise and cloud applications. Companies: Oracle Corporation, Quest Software, Robertson Stephens Education: BA/MA in quantitative analysis 25

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