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.

1. Software Defined Network (SDN)
Market Overview
Woodside Capital Partners
Sean Blakley, Tricia Salinero, Marshall Senk
June 19, 2013
CONFIDENTIAL

2. Contents
I.
SDN Overview
II.
SDN Market Update
III.
Recent M&A Activity
IV.
Q&A

3. SDN OVERVIEW

4. The Next Generation “Data Center”
Traditional Data Center
Hybrid Cloud
Public Cloud
3

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. 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. 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. 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. OpenDaylight – Significant Member Base
OpenDaylight
Platinum Members
Gold Members
Silver Members
Source: opendaylight.org
8

10. SDN MARKET UPDATE

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. 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. 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. 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. 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. 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. 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. RECENT M&A ACTIVITY

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. 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
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21. Q&A

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. 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. Sean Blakley, Managing Director
Communications and Networking Infrastructure Analyst
Research Coverage Focus:

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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:

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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. Tricia Salinero, Managing Director
Investment Banking
Most recent engagements:
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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:
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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:
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
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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. Marshall Senk, Managing Director
Cloud and Enterprise Software Analyst
Research Coverage Focus:
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
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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