M&A Banking Research. Mobile Device Management Market Update

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1 M&A Banking Research August 2013 Edited by Kirk Bloede Mobile Device Management Market Update Key Takeaways Mobile Device Management (MDM) is emerging as a top priority in the enterprise market as highly sensitive corporate information is now both accessible and resident on smartphones, tablets, laptops and other portable devices. The goal of MDM is to give enterprises visibility and control into all corporate information residing on any employee operated device. o Underlying MDM functions include user authentication, application management, data portioning and security, remote data protection and data wiping across any mobile platform. While billions have been spent over the past two decades to secure sensitive data on the network, the rapid introduction of smartphones and tablets, particularly those owned by employees, has added new complexities to this problem. Our research suggests that leading MDM suppliers Airwatch, MobileIron and Good all have seen strong business in the last several quarters as enterprises attempt to get some level of device management in place. While the number of large ($1M +) deals remains small, enterprise spending is accelerating for average deal sizes of $50k to $100K. We believe many enterprises are dabbling less, moving away from evaluations to more comprehensive purchases for their longer term needs. The challenge for buyers is that no clear leader has emerged to establish direction for the space. There remains a continued lack of clarity on both approach and function as it relates to MDM, and in addition, we now believe enterprises are increasingly interested in an overarching solution to mobility, that includes device management, content protection, and subscriber, device and applications policy. To this end, we are seeing changes in MDM supplier behavior: o MDM suppliers are now competing based on their application ecosystem and ability to protect enterprise information, while leaving alone the subscriber s native information and applications such as , social media, etc. We see a move towards advanced security techniques that utilize tunneling, apps wrapping and now embedded secure apps support developed in concert with device manufacturers with Samsung leading the market on the device side. o MDM suppliers are expanding their product portfolios and technology Industry Research from Woodside Capital Partners 1

2 partnerships with WiFi access suppliers, handset suppliers, and extending to Next Generation Firewall (NGFW) suppliers to address this broader enterprise mobility requirement. For evidence of this shift in strategy, a leading MDM supplier, MobileIron, now markets itself as a Mobile IT supplier. We believe MDM sales momentum could slow over the next few quarters (as was seen in the transition to new NGFW architectures) as enterprises take a step back and plan a more comprehensive mobile architecture, but the total multi- year revenue opportunity should be larger. We expect to see a significant shake out in the space in the next 18 months, which we plan to follow closely. We see additional strategic M&A occurring as companies look to fill out their enterprise mobility product portfolios, VCs push for liquidity events for heavily funded private suppliers, and expect some vendors to be marginalized. Company Update AirWatch Privately held Airwatch remains the leading MDM provider with over 6500 customers, adding nearly 100 new customers per month. Following MobileIron s (Airwatch s largest competitor) playbook, Airwatch is now aggressively partnering with wireless carriers such as AT&T (T) and Verizon (VZ) to extend its sales reach through a carrier managed service channel. In addition to extensive partnerships with WiFi, NGFW, Malware and handset suppliers, we believe that Samsung and Airwatch are co- developing embedded application support on Samsung devices. In our opinion, we believe Airwatch not only maintains a strong market share position, but also a leading technology position over its rivals. In our discussions with Airwatch management, we believe the company plans to utilize the additional $200M in debt it raised at the end of 2012 to significantly ramp operations and R&D spending in an attempt to further distance itself from the competition. Company management continues to reaffirm that Airwatch will remain a standalone company, with an IPO likely to occur in MobileIron Privately held MobileIron is another leading MDM supplier with over 4500 customers. Early on, MobileIron developed a significant sales channel strategy with mobile carriers as part of a mobile carrier managed service offering. Currently, we believe MobileIron sees over 60% of its total revenues through the mobile carrier channel, especially through T. We believe company management wants to remain a standalone entity with an IPO sometime in 2014, however we see a high likelihood of MobileIron being acquired. We believe with the significant venture money into MobileIron, its valuation is at or above $1B, limiting the acquirer pool to much larger vendors such as: Cisco (CSCO), Oracle Industry Research from Woodside Capital Partners 2

3 (ORLC), SAP, IBM, and others. We believe if MobileIron is acquired, it will most negatively affect its primary competitor Airwatch. Good Technology Privately held Good Technology has been in the MDM business for over 12 years and is considered another leading supplier. To expand its product portfolio, it offers Good for Enterprise (GFE), which is a more comprehensive solution that includes MDM, security, and content management. Good delivers an overlay containerized approach to managing enterprise content on mobile devices. While we believe this is an effective method to employ security across multiple devices and operating systems, our partner discussions lead us to believe that many end users are somewhat unhappy with the approach which forces users to run all applications, including both enterprise and some personal applications, such as personal , through the Good client. Citrix Citrix (CTXS) acquired privately held Zenprise for an undisclosed price, which we believe could be a few hundred million dollars. CTXS claims that with Zenprise, it will have the first integrated mobile solution across devices, apps, and data. In our opinion, CTXS is building a strong story in mobile, but this acquisition may take a while to fully integrate into an overall solution. Our research suggests that Zenprise is based on older technology and that the company effectively re- launched in late 2011 with a focus that shifted away from device management to application management. Over the longer term, we believe that CTXS is well positioned to emerge as a leader in the category due to the company s strategy of a single platform to manage all devices, from desktops through smartphones. Final Thoughts Our research with customers suggests two key factors: 1) buyers are frustrated with the lack of a dominant vision for MDM implementation; and 2) poor integration with existing enterprise security infrastructure. Currently we believe that CTXS is the only large, influential company with a credible vision for MDM, but it is still a year away. We believe that the greatest challenge in the space is balancing the need to secure sensitive data while not making a particular device too hard to use a common complaint surrounding much of present day technology. Industry Research from Woodside Capital Partners 3

4 Companies Mentioned Citrix (CTXS), Oracle (ORCL), SAP (SAP), IBM (IBM), AT&T (T), Verizon (VZ), AirWatch, MobileIron, Good Technology Software and Internet Services Team Kelly Porter / Co- Head [email protected] Ron Heller [email protected] Tricia Salinero / Co- Head [email protected] Indu Navar [email protected] Hardware and Semiconductors Team Rudy Burger [email protected] Greg Mischou [email protected] Mike Powell Shusaku Sumida [email protected] [email protected] Kirk Bloede Director [email protected] Special Situations Jon Thomas [email protected] Industry Research from Woodside Capital Partners 4

5 An M&A International Inc. firm Disclaimer: The Information and opinions in this report have been prepared by International, LLC and are published solely for informational purposes, and are not to be construed as an offer to sell or the solicitation of an offer to buy any security in any state where such an offer or solicitation would be illegal. Other than disclosures relating to International, LLC the information herein is based on sources we believe to be reliable but is not guaranteed by us and does not purport to be a complete statement or summary of the available data. Any opinions expressed herein are statements of our judgment on this date and are subject to change without notice. Periodic updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any other publicly available information Important Disclosures: International, LLC is not a market maker in any securities mentioned in this report. International, LLC and its officers and employees may from time to time acquire, hold, or sell a position in the securities mentioned in this report. International, LLC compensates research analysts for activities and services intended to benefit the firm's investor clients. Compensation determinations for research analysts, including the author(s) of this report, are based on a variety of factors, and may include the overall profitability of the firm and the revenues derived from all sources, including revenues from investment banking. Industry Research from Woodside Capital Partners 5