Sean Blakley 707.570.6512 sean.blakley@woodsidecap.com Ryan Koontz 415.847.2843 ryan.koontz@woodsidecap.com techview: Analysis July 12, 2013 Hot Networking and Infrastructure Private Company Preview Key Takeaways Below we summarize some of our top private companies in the networking and infrastructure sector that we believe will see a successful IPO or acquisition in the next 12 months, due to underlying technology or market position. A10 Networks Founded in 2004 and shipping its first products in the 2009 timeframe, A10 has established itself as a meaningful supplier of network IPV4 to IPV6 migration solutions and application delivery controller (ADC) solutions to service provider and enterprise customers. A10 competes with incumbent ADC suppliers F5 (FFIV), Cisco (CSCO) and possibly Citrix (CTXS) as the CSCO / CTXS partnership continues to flourish. Relative to its primary competitor FFIV, we view the advantages of the A10 platform as being compact and scalable, no feature licensing fees, and built of state of the art multi core architecture that provides good throughput performance and multi-tenancy support for high scale virtual applications. In our discussions with customers and channel partners, it appears A10 is also benefiting from its ecosystem partnering strategy with Imperva (IMPV) for security, Infoblox (BLOX) for DNS management, and Arista (private) for data center switching infrastructure. We estimate that A10 has over 450 employees. We believe it has been profitable for nearly 3 years, and that it continues to see strong sales growth (estimated to be ~20% q/q). A10 derives nearly 40% of total sales from telco accounts in the US, Japan and Europe. We believe much of A10s sales are through telco channel partners, most notably Ericsson (ERIC), where A10 is now significantly challenging FFIV. Although its enterprise sales are growing rapidly, we believe this is an area that will require much deeper channel partners to further exploit. Due to its sustained revenue growth and momentum, we believe A10 is planning for an IPO early to mid-2014 and will continue to monitor this company in more detail. techview: Institutional Research from Woodside Capital Partners 1
Plexxi Founded in 2011, Plexxi launched its next generation data center infrastructure products earlier this year. Plexxi competes with traditional data center infrastructure suppliers CSCO and Arista with a differentiated software defined network (SDN) solution that provides not only real time, on-demand network bandwidth but granular application visibility and policy control. The solution is built on dynamic meshed optical networking platform with an applications aware network controller. Although just out of the gates, Plexxi has successfully leveraged the SDN market hype and has raised nearly $50M in venture funding and has over 50 employees. We believe that Plexxi is on a solid growth trajectory of about $1M/ qtr run rate today, potentially growing to $10M / year by the end of 2013, with a high likelihood of attaining significant additional rounds of venture funding in the next few quarters. We believe the Plexxi networking solution is unique in its approach to making networks much more dynamic and applications aware, but we are unclear if Plexxi will ever take meaningful market share on its own. If it can show sustained revenue growth and attain some larger customers, we see a strong likelihood that Plexxi is acquired by a larger ecosystem supplier in 2014. Cumulus Networks Nexenta Founded in 2009, Cumulus has recently come out of stealth mode and announced its disruptive Linux based operating system software solutions for network switching. We view Cumulus as the RedHat of networking, offering a subscription based service that includes software license, support and maintenance that is interoperable with standard multi core servers and merchant silicon. Over the next few years, we see software only switching solutions like Cumulus increasingly taking share from legacy switching suppliers and driving further price disruption in the market. Cumulus has partnered with OEM suppliers Acton, Quanta, component suppliers Broadcom (BRCM) and Finisar (FNSR), SDN supplier VMWare (VMW), and is integrated with open source tools such as OpenStack and Chef. We believe Cumulus is in the early stage of revenue growth with initial traction at some notable Web 2.0 companies (likely AWS) and is seeing increasing interest from enterprise data center operators. We believe that customers are using the Cumulus solution not as a rip and replace, but rather as a low cost augmentation strategy in existing switching infrastructure buildouts. We also believe that the Cumulus networking solution offers some operational benefits with its standard Linux based provisioning interfaces. Cumulus has raised nearly $15M in venture funding and has slightly over 35 employees. We believe it will look for additional venture funding in 2014 and is a likely acquisition target for a non-traditional networking company such as RedHat (RHT), Oracle (ORCL), and others. Founded in in 2004 and shipping products since 2008, Nexenta offers a disruptive software based operating system for storage solutions. Similar to how Cumulus has extracted the operating system from the physical device, Nexenta offers an open standard storage operating system that can be run on standard multi core servers. Similar to the RedHat model, Nexenta monetizes solutions through maintenance and support fees. We believe that developing a standalone storage operating system remains difficult, and techview: Institutional Research from Woodside Capital Partners 2
that the barrier to entry remains high for new suppliers entering the market. Over the next few years, we see software only storage solutions like Nexenta s increasingly taking share from legacy appliance based storage suppliers and driving further price disruption in the market. Nexenta has an extensive integration and sales channel program with leading server hardware suppliers Dell (DELL), HP (HPQ) and CSCO. We believe Nexenta has over 200 employees and is on a strong revenue ramp with over 5000 customers and is taking share from both EMC (EMC) and NetApp (NTAP). While we see a good fit for a software based storage solution like Nexenta s to penetrate Web 2.0 companies, we believe that Nexenta remains focused on taking share in the tier 2 and tier 3 enterprise markets. Due to its disruptive nature and its strong partnerships with larger data center server and infrastructure partners, we see Nexenta as a prime candidate for acquisition by DELL, CSCO or HP that would benefit by combining the Nexenta software with their server products to offer storage solutions. BTI Systems Founded in 2000 in Ottawa, BTI develops and sells optical transport systems. Following its early years as a subcontractor to other OEMs such as Fujitsu (FJTSY), BTI developed a packet optical metro platform nearly a decade ago geared for tier 2 and tier 3 carriers. We believe the company has in recent years hung near break-even as revenues scaled and many of its larger competitors stumbled. In 2011 the company completely refocused to develop an entirely new data center WAN interconnect platform, initially targeting Web 2.0 companies such as Amazon (AMZN), Google (GOOG), Microsoft (MSFT), and Equinix (EQIX). Moving to leverage disruptive, new SDN architectures, our research indicates they have seen strong initial traction in this market. BTI competes head-to-head with Ciena (CIEN), CSCO, Alcatel-Lucent (ALU), Cyan (CYNI), and others. We believe BTI has over 250 employees and is targeting near $100M in revenues in 2013. BTI has raised over $30M since 2011, including $10M in 1Q13 lead by Bain Ventures. It is unclear if the company will aim for an IPO, but we believe the firm has secured sufficient critical mass to be of value to any of its competitors and adjacent players. Accedian Networks Founded in 2004 in Montreal, Accedian Networks develops and sells carrier Ethernet equipment and service assurance products to carriers. The company is a recognized technology leader in the fast growing market enabling carriers to deliver native Ethernet business services. The Accedian product portfolio spans service assurance management software to small form factor customer location (demarc) devices. Their hardware products are highly differentiated from competitors through their programmability and limited dependence on commercial silicon. Accedian s service assurance products compete with T&M suppliers such as JDSU, Spirent (SPT.L), and EXFO, while its demarc products compete with and often complement solutions from CSCO and CIEN. We believe Accedian has over 250 employees and is targeting near $60M in revenues in 2013. We believe Accedian, backed by U.S. and Canadian venture capital firms, has raised just over $30 million since it was founded in 2004. With very strong gross techview: Institutional Research from Woodside Capital Partners 3
margins in excess of 60%, we expect the company to target an IPO or acquisition in mid- 2014. Guavus Founded in 2006 in San Mateo CA, Guavus develops big data analytics solutions for service providers and enterprises. In recent years, the company has gained very strong traction and secured numerous contracts with a majority of U.S. tier 1 service providers, spanning mobile, telco, and cable. Guavus has leveraged its position as an independent analytics platform to develop data adapters for hundreds of embedded network products, spanning layer 0 to layer 7 and network core to customer premise. The Guavus network dashboard is frequently utilized by service providers to monitor network performance and guide capital and network planning. Guavus has raised over $80 in funding to date. Driven by explosive growth over the past 18 months, we believe Guavus is nearing 400 employees and likely surpass $100M in revenues in 2013. We see a strong likelihood of an IPO or acquisition by 1H14. We believe Guavus generally competes with custom engineered solutions from IBM and could fit well into the portfolio of many large companies. SpiderCloud Founded in 2007 in Santa Clara CA, SpiderCloud Wireless develops and sells Enterprise- RAN (E-RAN) products which expand mobile coverage in challenging indoor commercial environments. SpiderCloud believes its solutions reduce carrier capex by near 40% and offer a 50% improvement in spectrum utilization compared to alternate technologies. We believe SpiderCloud has seen strong interest with many global carriers, but suspect that operational challenges and rapid mobile network innovation may be slowing the commercial adoption of E-RAN products. SpiderCloud has raised over $100M in venture funding to date. We believe Spidercloud remains the technology leader in E-RAN, but we expect CSCO, its prime competitor, is quickly closing the technology gap and leveraging its vast portfolio to build commercial traction. While an IPO for SpiderCloud seems possible in 2014, an acquisition by an established RAN vendor such as ERIC or Nokia (NOK) could also make sense. See our February 21, 2013 techview research note for a detailed profile on Spidercloud. Companies Mentioned Cisco (CSCO), Dell (DELL), HP (HPQ), NetApp (NTAP), EMC (EMC), RedHat (RHT), Broadcom (BRCM), Finisar (FNSR), VMWare (VMW), F5 (FFIV), IBM (IBM), Imperva (IMPV), Infoblox (BLOX), JDSU (JDSU), Citrix (CTXS), Amazon (AMZN), Spirent (SPA.L), EXFO (EXFO), Ciena (CIEN), Ericsson (ERIC), Nokia (NOK), Oracle (ORCL), Google (GOOG), Microsoft (MSFT), Equinix (EQIX), Alcatel Lucent (ALU), Cyan (CYNI) Disclaimer: The Information and opinions in this research report, marketed as techview, have been prepared by Woodside Capital Securities, LLC. This research is for our clients only. This message is intended only for the personal and confidential use of the designated recipient(s). If you are not the intended recipient of this message you are hereby notified that any review, dissemination, distribution or copying of this message is strictly prohibited. techview is disseminated primarily electronically and, in some cases, in printed form. Research distributed electronically is available simultaneously to all Woodside Capital Securities, LLC clients. Further information on any of the above securities may be obtained from our offices. techview is published solely for information purposes, and is 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 Woodside Capital Securities, 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 techview: Institutional Research from Woodside Capital Partners 4
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