Infinera Investor Day - May 19, 2021

[Music] [Music] hello and welcome to infinera's 2021 invest today my name is amitha pasi head of investor relations at infinera we're excited to host you today in what we hope will be an informative and insightful day with a great lineup of speakers as you can see from the agenda we're going to kick off the day with david hurd ceo of infinera who'll speak to you about the market opportunities in front of us as well as our strategic priorities and why we believe this is an exciting time to be a differentiated vendor of optical technology following david we will have party kandapan cto of infinera parthi will cover some of the technical advantages of our i6 embedded optical engine as well as a unique differentiated capabilities in vertical integration partly will also give you a glimpse into our road map beyond ice six parthi will then pass over the baton to dave welch co-founder and chief innovation officer of infinera who will cover our plugable strategy as well as the new multi-billion dollar market opportunity with our xr optics technology we'll then take a short break before coming back with glenn laxdale our head of product management glenn will walk you through our open optical portfolio as well as the much anticipated update on our i6 program and then we'll finally conclude the formal part of our presentations today with nancy erba our chief financial officer who'll walk you through the financial roadmap to our target business model throughout the day you'll also get to hear from some of our customers on infiner's unique value proposition and the progress we're making with some of our next generation solutions after the formal presentations we will save some time for q a but we are time constrained so we're going to limit the live q a portion to just our cell site analysts but for everyone else listening in please feel free feel free to submit your questions at any time during the day and we'll try to either address them during the presentation or address them at a later time as a reminder this presentation contains forward-looking statements that are subject to risks and uncertainties as detailed in our safe harbor statement contained in today's presentation materials infiner assumes no obligation too and does not currently intend to update any such forward-looking statements and with that let's jump in i'd like to invite david hurd our ceo of friend fenera david hello my name is david hurd and i am the ceo of infinera and i'm very pleased to be with you here today outside of the normally quarterly earnings calls that we do today i'm going to take a bit of a different approach talk to you about why i came to infinera the market opportunity in front of us the strategic vision that the company has our core competencies our execution plans to get to our target business model for those of you that are unfamiliar with the company i thought i'd give you a bit of a glance at infinera of who we are what markets we serve and who our customers are we're in the optical networking space about a 10 billion dollar space the company was founded in 2000 on the operational in in technological principles that optical networks would be driven by the vertical integration that controls the bill of materials just similar to computer processing that the optical network is controlled by the vertical integration that makes the similar moore's law effect of price performance in the optical network you can see our relative size we have many patents that are driving this optical innovation we have over a thousand customers around the world that we intend to grow 3 000 very dedicated employees that are very customer focused and out there to really drive innovation that matters for our customers and we're in over 45 countries around the world so truly a global company who do we service you know why do we matter to our customers our customers fall in three uh traditional categories uh communication service providers so those are the typical verizons and ats and telefonicas of the world that typically makes up 74. of the market spend that's out there today internet content providers those are the typical amazons and facebooks and apples that are out in the marketplace they're typically 14 of the market and then enterprises and governments that are also running a tremendous amount of traffic across their their networks that's about 12 percent of the market today you can see we're very well positioned within those service providers we're in nine out of the top 10 service providers typically out of the top 50 service providers they make up about 75 percent of the overall spend within that service provider category we're within five of the top six uh icps we intend to change that to make that six of the uh six of the six and we've got global presence again in those 45 countries around the world why do our customers uh buy from infinera why do they engage with infinera why do they believe we're thought leaders in the industry our ability to take that vertical integration and drive down capital costs to really get to the lowest cost per bit more traffic on an existing fiber to really accelerate the performance or that moore's law impact across the network is profoundly important to the environment they're operating in because we're all consuming traffic at an unbelievable pace my kids in an astounding pace especially during covid but at 30 35 percent uh per year growth they've got to be able to take that traffic in and service you and they can't increase your bill every year by 35 so they've got a big problem ahead of us we hit their capital costs with that technology that matters and from an operational cost perspective we make technology that's easy to use we make technology that's agile that allows you to shift traffic with demand and if there's something we learned over this period of covid it's how important that is for our clients so again hopefully that gave you a bit of color of who infinera is for those of you new to the story if you think about our conviction here at infinera i think it's a really good example to give you why did i come to infiner i've been in the communications industry for over 30 years and when i look at the future that we face as a company boy we're in an unbelievable spot in terms of favorable market dynamics and i'll walk you through just the the compounding effect that those have on the opportunities that are in front of us not only is it good to be swimming where the current with the current going with you but having a winning strategy is super important to be to be very focused and again to have the core competencies in terms of vertical integration and the technology to make that happen profoundly important and the last element you have to execute and in order to execute you have to have a team that's very focused on execution and that's that's showing you the milestones and delivering the milestones along the way towards this path so i'm very excited i've been here four years now i'm more excited now than i was the first day i've joined because each and every one of these categories has improved so let's hit the first there's four key market drivers that we really look for the first i gave you a little bit of color with my children uh talking about that the relentless demand for capacity continues i'm talking to our customers around the globe on a daily basis and their ability to predict where traffic is going to come from and in what format it's going to be is is profound uh the increasing market for coherent helps them with that so as they think about their network they think about their network from long sub-sea routes underneath the water to super long-haul routes interconnecting data centers around the planet to metro networks and trying to move traffic around in between the data center infrastructure and the csp infrastructure that's out in the marketplace as well as the new network edge and with 3g moving to 4g and 4g moving to 5g and no doubt 6g moving out to the market with the video consumption that's out there there's never been a bigger demand for coherent technology coherent optical technology allows them to deal with that unprecedented uh traffic growth as well as the unpredictable market growth by using performance and the power of this capacity to make things easier for them to deal with in an unplanned world we see three big sub dynamics in that market for coherent a huge push to 800 gig in those core networks and those subsidy networks we'll talk to you about that a lot today i'm sure you're very interested in that uh a move in the metro networks to 400 gig and the re-architecture that has to happen in the network that's an insertion opportunity for us as well as some profoundly new technology some unbelievable technology on the edge of the network we see 100 gig i never thought i'd say that in 30 years 100 gig on the edge of the network to be able to to keep up with this demand for 5g the tablet the video growth the mobile edge compute growth that's going out over our network so again huge dynamics uh market dynamics that are driving a need for coherent optical technology and there aren't many of us left out here that specialize in this technology it's nice to have a market with you know maybe not as much furied competition and we've got a period now and this doesn't often happen in one's career where the number one player in the market who is huawei is is not participating in many of the markets that you know we were participating in for the last decade or so and that gives us a wonderful opportunity when the 30 ish market share player is uh has got to take a proverbial knee in the market and so that gives us another market insertion opportunity as well as an opportunity to be able to gain share grow our company drive scale and player for radar technology and then lastly insertion opportunities especially with a lot of these consume these communication service providers in the world they take time these back offices have been complicated over my 30-year history a move to open you see it happening with open ran you've seen it happen in the cable industry you're now seeing that happen in the optical industry with open line systems and compact modular systems allows us to take what used to be a two three four year technology introduction cycle and shrink that down into six months and really important if you're a company like ours and part of your strategy that i'll talk about is gaining share so four really key fundamental market drivers that we're focused on here at infinera that again get me very excited so that market opportunity when you think about it the overall market this will will confuse some uh has been growing at two to three percent but yet those open categories that we focused our research and development on and we focused our recent strategy over the last three years on is a field of open optical networking solutions that are growing at three to four times that market big piece of our strategy is focusing on where the market's growing the most and ensuring we have the right technology to be able to meet that market demand when you think about the sub elements of that market you can see that the overall market share in that compact module is just one example that market's going to be roughly a three to three and a half billion mark dollar market by 2025 and grow at a cager of 16 percent making up a big portion of that blue line down there we believe that market's going to grow at three to four uh three to four times the average market and we intend to take share in that period and you'll see that in our target business model that i'm going to review and then nancy will take it from powerpoint uh to excel these coherent optical solutions you'll see are also growing and will be 85 to 90 percent of the overall optical solutions market so if you're a specialist in that domain that's good news as well as when we look at what makes up the bill of materials for what we sell as well as what powers the performance of our customers networks that bill of material in an embedded solution for example for subsea or for a long haul or for metro core 60 to 70 percent of the solution is that vertical integration or think of that as that optical processor that we talked about in a plugable solution that we'll talk about in the metro and on the edge of the network is 40 of the network super important to be able to not only own that to be able to source it yourself especially in times like this but as well as to be able to drive the performance of that and own all the critical elements that make that come together it's also very effective for our business model as you'll see by our increase in vertical integration as we go from 2021 to 2022 through 23 4 and beyond so great market opportunity but how do you turn that into an effective strategy that you can execute well you need a couple key ingredients you need some high high growth segments so hopefully you saw by the the display of the open optical market that i just went through to the overall market we're focusing on things that are three to four times the average growth in the market and we're really well positioned to hit the timing the meat of the market when those technologies really hit whether it's 800 gig in the core 400 gig in the metro or 100 gig changing the landscape of the access edge we want to focus on our customers largest cost items and performance items you know often when you talk to customers and when i talk to customers the first question i say is what are the biggest challenges i can help you with and it's really that focus on the cost items in their network to drive more performance again if i can get more bandwidth over existing infrastructure that's the best form of cost savings that i can get for them uh you do that again by increasing processors uh technology right increasing the performance of what you do we're in our fifth generation we founded the company in 2000 um this is what we do for a living we've our core competence has really come home to roost we needed the scale as a company to be able to get out into those large service providers and icps and enterprises around the globe and to get that customer count uh to a thousand now we can take this technology and deliver it in scale to be able to gain share and then we want to maximize these insertion opportunities these four essential ingredients are present today and that's why i'm so excited about our path forward as we march through the next few years you got to execute to make that happen but our strategy is taking those four ingredients you know executing with laser focus no pun intended and driving market share gains and growth as a result which you're going to measure us on every day and again i'm sure that drives shareholder value so from a company's standpoint 800 gig we're going to talk a lot about today parthi our cto and glenn are going to talk about how we see that scaling what percentage of our revenues we view that will be in the short term and in the long term uh why we believe our performance in 800 gig is actually industry leading and why we have some knobs to be able to even tune it up a bit more it's a good field to be in because there's few suppliers because this isn't easy this vertical integration that we founded the company on developing a botanically integrated circuit it's it's not easy to do and we're really taking our craft and now we've got it aimed at the right uh portion of the market in that core 800 gig growth in the metro for the first time we're able to not only use our platforms to be able to get out into those markets our wonderful software our services and the platforms that we have to insert into a new market opportunity for 400 gig but we also have plans and developments underway to be able to own our own vertical integration in that domain not only do we think that'll drive great performance enhancements for our customer but we think it'll have great margin impacts for our company and for our shareholders and then lastly we've been investing over the last 18 months in another groundbreaking technology dave welsh is going to talk to you about a technology called xr optics that's point to multi-point optics that is a game changer and as you know i will tell you i've worked with a lot of really smart technical people in my 30-year career i've never worked with any that have founded two multi-billion dollar public optical companies and this is the most excited dave has been about a ford technology so i can't wait for you to hear from him from the horse's mouth on where this technology is going and how it will impact our customers and ultimately our shareholders so with those market insertion opportunities we're going to gain share and drive scale it's clear that ice 6 is rolling out right now commercially available and scaling glenn will give you all of the gory details that you've been looking for over the last earnings call or two in that domain we'll talk more about the huawei opportunity how that can be again a billion or greater opportunity by 2025 and how we plan to take our fair share of that again because there's very few coherent optical players positioned with the right architecture the right vertical integration and the right team to be able to execute we expect you know we we expect this new technology of xr optics to open up new tam completely new tam in the marketplace the company when it developed its first botanically integrated circuit made what many said was impossible not only probable but actual and we intend to do the same in point-to-multi-point optics every other network has gone point to multipoint so this is not a matter of if it is a matter of when and it will open up a one to two billion dollar market opportunity and while we do that we've planted lots of seeds and lots of green shoots with lots of customers around the planet you'll hear about some nice design wins you'll hear about initial pos you'll hear about again some you'll even hear from our customers and testimonials about new technologies that we've introduced and tier one service providers that top 50 around the world we intend to increase our wallet share over this period of time to be able to gain and drive scale lastly execution is key it's what you hold us accountable for it's what you hire us for as as shareholders and boards of directors we'll talk to you about our target business model for 2023 that nancy and i and the rest of the team are absolutely committed to i think you you've seen a lot of progress over the last 24 months towards that target business model and we feel very good about our investment strategy and our progress towards making sure that that's achieved in 2023 and then we put the next milestone up on the table and with that that'll improve our capital structure so lastly that target business model over that period given all of the market dynamics i just gave you and all the opportunity look i expect the company to be driving eight to twelve percent growth top line revenue growth over that period that's much faster than the market growth which says we'll be gaining gaining share and driving scale we expect that today we're roughly at about 40 percent vertical integration across our platforms roughly plus or minus we expect to take that to 60 and ultimately to 70 percent vertical integration but in 2023 when this business model we expect to achieve will be eight to twelve percent top line sixty percent vertical integration we expect that margin accretion that you've been seeing over the last uh last year and a half to continue to get to the mid 40s and that'll drop double-digit operating income while we continue to invest in these game-changing innovations that create new total addressable market for the company so looking ahead how does all of this fit kind of in powerpoint nancy and i have talked to many of you both in the public earnings calls as well as in our after calls as well as investor meetings about this is a very foundational year for the company we're introducing 800 gig technology we're deploying lots of new line systems those are lots of seeds out there with those top 50 service providers to be able to grow over the last three quarters near record line system deployment there'll be a little bit of a margin challenge as we get into q2 and q3 or it'll provide a little bit of offset that we've talked about and built into our guidance but we're continuing to drive deal structure and cost reduction to be able to offset that and drive new vertical integration with 800 gig introduction that's much more profitable for the company versus buying merchant optics in 2022 as we plant those seeds both in terms of line systems and new technology development and that the huawei bids for replacement that we're currently answering begin to show show financial returns in terms of deployments out in the marketplace you'll see those competitive displacements aggregate with you know a very large portion of new winds in 800 gig together with that re-architecture of the metro driving a real growth year for the company in terms of growth and insertion so 2022 is really about growth and insertion and then and then and then driving that vertical integration through the bottom line so that 40 continues to move up as we get into 2023 then you're going to see vertical integration get taken to the next level with our intelligent plugable of xr optics it will decrease our overall bill of material our cost basis for our metro solutions which will drive margin accretion in the business which nancy will talk through and will continue to drive 800 gig is going to be a very very long cycle we feel very very good about our existing performance and the performance knobs that parthian glenn will talk about that we are even going to tune up as we go forward over time so again we then open up in xr optics a new tam that again will start to introduce new plugables in the end of 2022 but really from a revenue standpoint you can expect that beginning to make an impact in 2023 but really starting to scale as you get into 2024 and beyond really changing the profile of our business model as a company so it really is about us leveraging those uh core competencies with a customer base that that we're embracing and very attuned to what their needs are it really is that the service provider market and their architectures are very much kind of uh coming together with the architectures of the internet content players uh you're seeing a data center infrastructure no longer a big monolithic switch architecture it's really being placed with a very nimble moving from net ops to devops environment and when that happens the key processing capability that you have inside of those compact modular platforms is really what's going to drive the performance over the last three years we've increased our investment in this category by 20 percent while we integrated a company and continue to drive costs down to the bottom line so by concentrating on those optics those dsps and the packaging of those together which when you're getting to over a hundred gigabyte in terms of performance that's where the magic happens that's how you're able to deliver the price and performance now all of that sounds like wonderful technology but for folks that are economically driven if you're attacking 70 percent of the bill of material of an embedded subsea deployment which you know we've seen a 150 percent growth in over our last quarter and we see more growth ahead of us or you're in the metro where it's 40 percent of the bill of material where we can replace merchant optics that we currently buy with the margin stack today of 45 on them with our own that we manufacture and make in our own fab that every time we double the capacity the cost basis goes down this is a model i really like so you marry that foundational technology that again optical processing technology with those economics and put them into platforms that again allow us to deliver an agile and agile and open service to our customers for easy insertion no longer waiting three years but again able to insert in a few months that allows us to be able to innovate and take share and if you see you know we were innovators we created the first compact modular platform in the cloud express we've now created the compact modular platform that integrates both service provider needs as well as icp needs in the same platform it's great timing because those architectures are coming together i love a strategy that leverages your core competence so it is about execution it is about execution and you know over the last two years you've seen we went through an integration to drive the scale to drive the customer mix that we needed to be able to deliver these new solutions we we tried to put together the again a very focused investment model that you're seeing now begin to pay off in both this vertical integration and these open optical categories while we did that we were driving you know 400 points of gross margin accretion and a thousand basis points of operating uh income improvement pretty substantial from the team we've improved our cash flow in that period by over 100 million dollars which was a big working capital improvement more importantly we doubled the size of our customer base and our reach so these new technologies with less competitors greater reach better financial performance pretty solid foundation we did that while we increased our investments in i6 xr optics our gx compact modular platform as well as our entire open optical software suite and services we increase that by 20 while we achieve this we did this with a great team that you're going to hear from today so hopefully i covered for you why i believe why i'm more excited today than the time i stepped into infinera about the markets in front of us the fact that we have a winning strategy the fact that we are going back to our core competence which is more relevant now than it was 20 years ago in terms of the success of our customers networks and the benefits it provides to our shareholders and lastly i'm really proud of the global team to execute it's a challenging market to execute in today with covid uh pandemic raging uh with uh social unrest uh with what we're facing as a general supply chain today every day there's a new challenge this team faces and that's what we do that's what you pay us to do another challenge comes ahead it's another challenge this team has knocked down on an on a global basis i'm really proud of the infinera team my thoughts and prayers are with the india team right now that we have because they're facing a really tough challenge that we're rallying behind them uh on so i know it's all about execution and i'm i'm really pleased that the team that's executing is here in front of you you hear from nancy and i a lot uh it's going to be really great for you to hear about the details of each of these categories from the team members party will talk to you about those high-capacity engines the performance and where it's going dave welsh again he's more excited than he's ever been an industry icon that's come up with another winning hit in xr optics and opening up a billion dollar opportunity glenn will give you all of the details you need on wins design wins pos backlog and and where we see i6 and 800 gig technology going you've been asking for it we need to deliver it glenn will deliver it and then nancy will wrap that all up in a nice excel bow to talk about our target business model and the milestones that you can expect from us uh on an annualized basis as we go from now to our target business model in 2023 so with that i'm going to hand you over to parthi thank you again for your support and we look forward to talking to you in the q a good everyone i'm party kandapan the cto of infinera and it's my pleasure to join you in sharing our optical engine technology and innovation roadmap so let's dive right into it conquering technology is what we want to talk to you today about it's been it was developed to drive capacities and reaches for long-haul and subsea market but today we see as we get into 5g and increase capacity in the axis and edge coherent technology is moving from its historic markets into the edge and the cable access markets and so on so 5g is a huge driver for this one of the things that we see very clearly is that it's not a displacement of the long-haul capacities into the edge but it's the growth of the edge that's also taking up the long-haul market so we believe based on all industry analysis that by the year 2025 85 to 90 percent of the total optical networks are going to be driven by coherent technologies this is going to be a massively increased edge in access driven by cochrane technology but a simultaneous growth of the historic embedded market and that is what makes us all quite excited now why is it that we think this market is going to drive into the edge why is coherent technology with all its complexity going to drive it's about the capacity you are moving from southavers that was quite happy with one gigabit of total capacity to individuals getting one gig data rates into their new phones or into their homes and that ability to drive the huge capacity is made possible by taking coherent technology into the edge direct detect will have a place in the network for very short reach capabilities and so on so we see this total cost of the network being brought down by cochrane technology for lower capacity but higher rates in the edge and higher capacity for a total fiber utilization in in the long haul and so on and this quick this is going to be made possible by a combination of embedded technologies which drove the long-haul capacity total capacity but pluggables are into the access and edge markets because of power and space considerations one of the key things we want to bear in mind is that it's not a very defined plugables at the edge and embedded at the in the long haul there's going to be some bleeding driven by pluggables used in low capacity long haul and high capacity metro making use of the embedded capabilities so that combination the total solution is going to be made possible by a combined cochrane technology solutions that we drive at infinera i will talk to you about embedded technology dave welch our co-founder will follow up with more details and all the innovation we are driving in plugables but remember this is a seamless solution space that is going to be driven by common technologies so let's look into embedded technologies a little more clearly there is a dramatic increase in capacity in capacity reach and as we get to 5 gig we are able to provide unheard-of reach capacity to the market but the associated complexity of making these technologies and bringing them to the market has essentially reduced the number of suppliers to effectively two players infinera being one of them in the non-chinese market we believe that there are four capable suppliers who have the underlying capability but today in the market there are only two of us who are real players and as we go to 800 gig which is what is made possible in the fifth generation we see a dramatic increase in the total market remember this is not replacement of the embedded with plugables but a significant growth of the embedded along with the associated growth in the plugables and we believe that by the year 2223 800 gig would be driving a total of 2 billion dollars and by twenty twenty five four billion dollars the point being a significant growth a large market that is served by a very small number of capable players that's a key point to bear in mind so why is this performance why is this really important to us as you look at the capabilities we go from second generation to the fifth generation the total capacity is gone up that's made possible by spectral efficiency so we've gone from 200 gig to 800 gig but it's also important to realize that it's not about capacity alone it's about how long that capacity can take can take you i call that the reach capacity matrix many of us make the mistake of looking at it and saying oh i can go 800 or i can go 400 gigs here or so on but the real question you have to ask yourself is how long can i take that 800 if the 800 can only go a couple of hundred kilometers your total cost of ownership hasn't gone down similarly if 400 gig can only go 400 kilometers and in order to go to 1500 2000 kilometers you have to drop down to qpsk you reduce the total reach capacity so it's very important to not look at just the capacity and the spectral efficiency but to look at a combination of reach and capacity that combination is the true comparison and that combination is what brings down the total ownership cost so to give you an example a lot of our customers csp so on have essentially deployed third generation and earlier to drive 200 gig and 300 gig now so on that is also associated with a total capacity of about 20 plus terabytes so on as they start deploying the fifth generation the total capacity goes up 70 percent when you go from 200 to 800 that's a significant capacity increase their fiber capacity almost doubles as these fibers are very difficult to deploy the total fiber plant is also complex and that's one of the reason for disaggregated they want to utilize these fiber plants over multiple generations our open optical transponders in the fifth generation really make this possible and that total reach capacity contribution brings down the total cost of ownership and we are able to maintain amid all the complexity a consistent 30 to 40 percent total cost of ownership so remember it's the reach capacity matrix that's able to drive the total cost of ownership and essentially two players making that possible in today's market so how is infinite able to provide this market leadership uh it's not purely about the technology but leveraging the technology to really bring the products to marketplace now typically when we talk about optical uh innovation and optical transport optical engines we primarily look at two things we look at the optical front end what we used to call the aco in olden days and the dsp that made coherent technology possible and we look at these two pieces but it's not as simple as buying an aco and buying a dsp and slapping them together you get the best of breed in both but the sum of the products is not as good by owning both pieces and owning the vertical integration infinera is able to trade off the right optimal requirements on the optics and the dsp and bring together a technology integration that's a critical piece we have to bear in mind why are we able to have a similar dsp and optics to our competitor but essentially have two plus db performance improvement over them at 800 gigabits that's driven because what we call the total implementation penalty and the penalty is driven significantly by our integration capabilities that is the primary value we bring about having the total vertical integration so if you look at this this total vertical integration is made possible a slew of technical advances that we bring together that enables us to make the optimization across each piece of the total solution and that results for infidera an industry leading performance that we can provide control of our destiny by having a significant say on the supply chain and bringing a lower cost structure which results in good margins for us but at the same time we are able to satisfy what matters to our customers the highest capacity per fiber with a superior operational models because less number of transponders fewer regeneration sites so on brings not only that capex cost but their opex cars and complexity lower and we're able to do all of this at the lowest cost per bit per kilometer remember the metric you have to look at it is not just lowest cost per bit but cost per bit per kilometer and that is made possible by the vertical integration which we have driven for more than two decades now if you look at the optical innovation center it's not centered at one side it's actually a total capabilities of the company driven at three different sites sunnyvale pennsylvania and ottawa there's an important point that i like to make in this world of geopolitics and supply chain uncertainty so on by having this distributed across the north american continent but contained within north america we are able to give our customers both a guarantee of supply chain but also control over the supply chain in uncertain times and that's a very big distinction we bring over anybody else in this industry now one question that we get asked is okay you're looking at embedded and you're looking at plugables is that two different investments is that two different cycles so on the answer simple answer is no if you look at how xr was made possible it was leveraging technologies we invented for the embedded subcarrier technologies that was that allowed us to make a very differentiating disruptive plugables a lot of the techniques we invent for the plugables in terms of size and power reduction are fed back into our embedded to reduce the total size and power of our embedded so that we can increase the capacity while keeping the volumes lower so it's a very virtuous cycle that allows us to leverage 80 percent of the technology that we reuse with common dsp techniques with a common fab with a common process flow so on and that's what we call leveraging a common platform but packaging them into different configurations and that results in a truly virtuous cycle where we can spread our total cost across multiple segments of the market leverage a larger market to keep our fab fully occupied and that brings both our cost structure down as well as the total cost of ownership to the customers and it's truly a benefit that we see as we expand our market space now all this is made possible as i talked about the infinera innovation center the optical innovation center we have had a leadership in bringing new technologies to the market a wide range of technologies this is not a one-shot wonder it's a continuous integration and we are able to build on top of each technologies each generation is not about a brand new technology or innovation we collect those and we leverage them so we are on our second generation of subcarrier technologies we've done gain sharing for quite a bit of time so on and all those results in technologies that have left our customer base absolutely delighted you've seen press releases from verizon and winstream we have run a large data center operator in north america all of them have looked at us and said you are really a generation ahead of anybody else in the high capacity market and the last one we've done is a facebook trial on maria we ran 100 gigaboard running enormous capacity across more than six thousand kilometers so the sum result is we've taken an optical innovation center we've taken generations of technology building on top of each other to delight our customers and you don't have to listen to me i would like to share with you a couple of testimonials from our customers who are actively engaged in deploying i6 i'd like to share the testimonials with [Music] you hi my name is andy lumson i'm the head of engineering and operations for telstra international over the past 18 months we have seen a surge in demand for connectivity globally and the pandemic is an undeniable impact telstra is seeing traffic growth of approximately 35 as the world embraces a more digital way of living and working to support our enterprise carrier and ott customers as well as to assist in their business expansions a big focus for us is to continually invest in and enhance our network and cater to our customers growing demand for connectivity after evaluating the various options in the market infinera's isic solution has been a good fit integrating with telstra's existing international network and migrating from the current is4 solution it enables us to meet the demands of rapid bandwidth growth by providing the greatest capacity with the greatest reach resulting in a better yield low cost per bit and a high spectral efficiency the solution offers flexibility for us to rapidly increase move and retire transmission capacity as and when required so we're midway through our validation of i6 with proof of concepts evaluating its performance on our network and all being well we will start deployment in early in our early financial year hi everyone this is carlos dasi telco cto i hope everything stays safe and good on your side on this pandemic with a global increase in demand for reliable high-capacity network connectivity providing robust and diverse network solution is key for enterprise customers to be able to respond effectively to today's evolving digital requirements as global network traffic continues to search outwards driving by new technologies such as 5g and artificial intelligence and the increased reliance on cloud-based applications and connectivity tulsius continues to expand and evolve its network infrastructure a good example of this is that in the last few months we have opened for business tonight as part of our transatlantic proposition together with maria and on those days we will put in open for business to tanat on the atlantic coast of latin america this year we also expect him to have the mutual submarine cable ready for service this is a project that runs along the latin american pacific coast linking up guatemala ecuador peru and chile and offering the lowest latency between guatemala and chile to be able to do all this essential to have partners you can trust in whom commitment is not an extra and where passion for technology is part of their day and a these are the main reasons why chelsea's have been trusting in finra for more than 15 years the latest infinite regeneration ic6 based on 64 qim modulation has allowed us to obtain in the test carryout on brussa about 20 percent more capacity moving from 20 terabytes per fiber to 23.6 based on this better performance and more spectral grand variety celsius has made the decision to start deploying i6 on brussa and very soon on our new cable in the pacific misread as i said before delsius continues to expand and evolve this network infrastructure and infinera and i6 will continue being part of it thank you very much for your attention and have a nice information investor day i know you're all interested in figuring out where are we in terms of our deployment of ice6 glenn lexton our svp of plm will be following we'll talk to you in great detail about the initial shipments we have done and aboard our ramp that has got all of us excited i will concentrate on talking to you about the technology and glenn will fill you in on more of those details now talking about the embedded roadmap itself if you look at the bottom of this graph i show you actual pictures of the five generations of pick and dsp technologies that we put together they are really to scale the point being that from gen 1 to gen 5 you are roughly looking at the same footprint roughly the same footprint but in 15 years we've gone from 100 gig technology to two channels of 800 gig that's 1.6 so in 15 years we have gone 15x capability in roughly the same footprint that's what we promised two decades ago when we say we will bring the moore's law technology capabilities into optics and we've delivered on those and that's something we are very excited about and we believe we have the capability to extend that you will see incremental additions on fifth generation where we as i said we talked about maria demos we've run 100 gigabyte we intend to bring that to the market very soon following up after a ramp of i6 and that will provide an additional cost and rich benefits to our customers we are very excited about making that possible as a mid-life kicker to our customers and as i told you we expect the 800 gig fifth generation market to have a long lifetime and therefore we intend to bring incremental capacity about it the other point that we we are very aware of is it's not enough to bring leadership to the market we want to bring that earlier to the market so one of the things we've done is even before we started shipping ice ice6 we started investing in i7 we've got many of the technologies already in progress our engineers are all ramping over to design i7 there's a great excitement and energy in the company we strongly believe that we will be able to maintain that greater than 30 percent total cost of ownership and as i told you before technology is not about technology's sake it's about truly serving our customers how do you get them greater capacities at a lower cost we will leverage technologies the appropriate technologies our goal at this point is to go greater than 140 gigabyte we will use five nanometer three nanometer as appropriate we are not passionate about having a religion about technology we will use the appropriate technology to get the best solution to the market and we want to bring it at the right time to market so i'd like to summarize by talking to you about the key takeaways embedded market is not being displaced by plugable embedded market is growing symbiotically as the axis grows and edge grows the backbone is also growing to serve all those ages so it's a large market we are serving a significant portion of that market and we essentially have only two players in the market we clearly have an industry leading technology and as the testimonial showed you we not only bring the reach capacity we also bring an ease of use and our customers are delighted in using our technology we have proven our leadership and we intend to keep that leadership in fifth generation by introducing 100 gigabot and so on as mid-life kickers and our sixth generation is orderly underway our goal is to reduce the chip to ship time that it takes and bring the right product at the right time to delight our customers thank you for the opportunity and i'll now like to hand over to dave walsh to talk to you about plugables have a nice day [Music] welcome thank you guys for uh taking the time uh to spend with infinite today we're very excited about some of our opportunities going forward i also want to thank party party did an excellent job of putting together uh how we view the optical markets and why the these embedded optical engines which have been here for several decades will continue to move forward what i want to talk about today is advancements in coherent pluggable uh products and infinite entree into that and and i have to start the conversation by sharing with you a little bit of my history uh i've been in the business uh optical business for 40 years this is my 40th year as a matter of fact and and i have shared uh uh watched and shared in the development of some major technological breakthroughs some of the first ones uh worked with were with uh lone noise pump lasers for edfas and the transitions of the world from sonnet into edfa based dwdm systems been involved in the aspects of the development of roadms i've been involved in the aspects of development of photonic integrated circuits over the last actually decade now been involved in the advancements of coherent technologies the next generation of optical technology that we're going to talk about here i believe has greater impact than most of those types of optical transitions because it transforms optics from that of just a transport but into a real functional thinking block within the optical network and as a result it makes dramatic changes to the efficiencies uh to the economics and uh ultimately to the revenue streams that our customers can participate in so we'll get into that uh as you go forward i and i i'm just extremely passionate about what uh what's going on here today and i hopefully i can express that to you guys party talked about uh this um marketplace uh from subsea and long haul and metro and how we're uh the embedded engines they're all will always be a high-end embedded engine because it drives the best uh net dollar per gigabit for the customer set out there but as that coherent technology develops what we're finding is coherent in a plugable format are starting to replace some of the plugables that have been around for years that are a non-coherent based technologies and so it's carving out the places of the market in the metro uh types of areas and if you look at the dollar opportunity for that the leading market uh organizations have put together they've come up with the good sizes for different opportunities but they're really looking at the world uh constrained to optics utilized in point-to-point applications what i want to talk about and augment that conversation is is the use of optics in point-to-multi-point applications point the multi-point is a superset and it includes that of point-to-point applications and it's most obvious where point the multi-point applications play in the access network but really they play throughout the entire network inclusive of the data center uh network so we're going to spend some time talking about that point to multi-point and the impact that it has throughout these plugable metro and access applications so let's start with the thought process here and this is what are you trying to do with optics well i i'm trying to get information from its origin and i'm trying to move it to a place where i can interrogate the bits in that data stream if i look at my networks and again i'm going to initially start talking about access light networks the application begs for the movement of data from many locations and aggregating it into a centralized location this is done all day in radio networks whether it's an fm radio whether it's a cellular tower whether it's a wi-fi antenna point to multi-point is natural in their thought process optics however haven't been developed that way optics has been developed as a point-to-point technology i.e i put information on one end of that fiber and i take it out of the other end of fiber as a matter of fact if i put it in in the form of 10 gigabits well i have to have a 10 gigabit transceiver at the other end of that fiber if i put it in at 25 well i have to have a 25 at the other end and 100 to 100 and a 400 to 400 what optics never has implemented at for networks with high capacity needs is the ability for low-speed transceivers to talk to high-speed transceivers and because of that optics doesn't naturally fit a point to multi-point type of application so the world of uh telecommunications engineers said okay i've got optics they do point to point very well but my problem is i need to do point the multi-point so i'm going to start utilizing other elements at my disposal specifically electronic switches i and so i take this point to multi-point configuration where i've got high capacity at the hub i got low capacity out at the edge of my network i and so because the only tool i have is a point-to-point technology i'm going to go from the edge i'm going to get to a certain point where i feel i can aggregate those those sources and then i'm going to transform all these low speed interfaces electronically using tdm or time division multiplexing into one higher speed interface which i can then take to my hub location okay so for every optical link i need two transceivers n optical links i need two end transceivers i've got my 10 gigabit talks my 10 gigabit i transform that into 100 or 400 gigabit my 400 gigabit talks to my 400 gigabit at the other end and i have to have an electronic multiplexing element based on time division multiplexing technologies in order to make that point the multi-point network work if however i can make my optics excuse me my optics think and point to multi-point which is like a cellular tower i'm going to have a high bandwidth antenna and i'm going to go communicate to many low bandwidth antennas uh uh you know i love the analogy uh that uh people have brought up where you know uh if you got a 100 cell phones and you're trying to all talk to the to the radio or the cellular tower together the cellular tower isn't made up of 100 cell phones on its end it's made up of a single radio unit right well in optics that's what we need to transform to and if i can create a high band with the antenna and optics that's capable of receiving from many low bandwidth antennas optical antennas uh at the edge well then i don't need two end transceivers i need n plus one transceivers uh and that i've cut my transceiver count by fifty 50 and then i realized hey i no longer need that tdm device which uh integrated my uh bitstream whether that was a layer one or an otn switch or whether as a layer two uh packet switch in that i don't need that because i've actually done the aggregation in the optical realm and i've done it using frequency division multiplexing instead of tdm and the benefit is i don't need the this intermediate box in here i don't need the electronics for that i need a very simple optical splitter which is a passive lope zero power uh device that can sit anywhere out in my fiber plant and now all of a sudden i truly have reduced the number of transceivers by fifty percent and have i eliminated a significant piece of electronics in that system uh and as a result uh the net is i can get get as much as a 70 reduction in the capex and then in the opex of that system uh just by transforming the optics so that the optics can talk low speed the high speed point to multi-point uh configuration okay so excuse me let's take a look at what that what's that mean for a network this is a a particular network configuration of of a customer and he's looking at a 5g uh network so you've got at the top of your uh antenna i'm sorry at the top of your cellular tower you've got your radio unit that's takes the the cellular signal and transforms it onto an optical transceiver that transceiver goes through the base of the tower it'll either go through some optics possibly some electronics down there that'll go off into towards your central office go through a variety of elements there switch it leaf switches spine switches routers etc and eventually i go through a series of stages and eventually i get out to my regional data center that signal from the radio unit had to go through 52 transceivers 19 switches and routers and eight transport boxes in order before it got to the regional data center and all you were trying to do was take the information from that radio unit you're going to access the information two spots one a local area to interrogate the bits and one at the regional data center that's all i was trying to do but it cost me 52 transceivers 19 switches and routers and eight transport boxes that's because you built a network around the need for utilizing point-to-point optics as soon as i start utilizing optics which can go where my low-speed interface can talk directly to my high-speed interface well then i transform that equation and then i can dramatically reduce the amount of infrastructure necessary to perform my function and my function again is just taking the information generated at the radio bring it to a low latency or an edge data center where i can interrogate that information and maybe in the future i will have a significant amount of caching there or some compute or cloud infrastructure at that edge location then i want to send the rest of the information on up to my regional data center when i do that utilizing point-to-multi-point optics that are sized right for the application those 52 transceivers reduce down to seven majority of those transceivers that go away are gray optics uh in between my leaf and spine switches and my spine and my router infrastructure my switches and routers they reduce from 19 down to four and ultimately my transport boxes reduce from eight down to zero radical simplification of the network with the reduction of that gear also becomes an increase in reliability because i got less stuff in a network that can fail there's less stuff in a network that i need to upgrade uh in that process and uh i've created an opportunity for that edge traffic to be managed in a much more efficient way and and understand the next transformation uh the next layer of bandwidth uh infrastructure that's going to go on in a network and we've watched this for years you know the network it cracks me up uh the network used to remember not too long ago was all voice and the busiest traffic day of the year was mother's day well that's gone from voice to data to a big data center and now you're going to get prep yourself for the iot traffic and and the rapid expansion of edge traffic uh the next wave will be how do i accommodate that hedge traffic which is going to force the network architects to think more efficiently and more efficiently mostly about point to multi-point networks okay with that in mind understand that we've talked about transforming optics so it can do point to multi-point applications but it doesn't and i've got my 400 gig pluggable up here at the hub it doesn't mean that i can't talk and point the point uh applications so point to point is just a subset of point to multipoint i can take these 400 transceiver 400 gigabit transceivers and talk to 400 gigabits and as we've shown in all of our prior ice engines often the performance is better because of the use of these subcarrier configurations so all of a sudden i have one technology that can talk point to multi-point and can operate software configurable however i want to operate it i can operate it in a 25 gig to 400 gig connectivity i can operate it in a 100 gig to 100 gig connectivity 200 to 200 100 to 400 400 to 400 in the future from 100 to 800 and i've created a language that all of my optical transceivers now can operate around and it's called the the utilization of uh digital subcarriers that the dsp defines and that language is is um stable across my network and it is up the software now to just allocate how many of those frequency channels i want to deal with so we've done a lot of studies uh of the use of point the multi-point technologies across a variety of networks uh and it's uh uh whether they be point-to-point networks point the multi-point networks working with a customer to go figure out how much value uh it adds for them uh in that i and we've had a number of announcements about that and happy happy to get into that uh these in deep detail uh whether it was with uh early demonstrations with virgin media where we utilized the technology across their pond infrastructure or across their road and based infrastructure we showed it to work on single fiber as well as dual fiber infrastructure which means that all the stuff that they put into the ground that they can put our transceivers on top of that infrastructure and use the configurability of that transceiver to optimize its operation we work with british telecom british telecom wanted to look at an economic analysis across uh the wide extent of their uh aggregation ranks uh and there they had uh a hundreds uh approaching a thousand aggregation rings they evaluated it they put on their certain amount of bandwidth expansion over the coming years and their conclusion was by adopting a point to multi-point architecture that they could drop the cost of their infrastructure by 76 percent it's a factor of four lower cost infrastructure the opex dropped [Music] similarly due to the power reduction in the space reduction required for that network recently we had an announcement with american tower and uh in their facilities in colombia is actually a wonderful exchange with american tower where they asked to have the trial run multiple times in order to make sure that all their executives could participate in it there we demonstrated the ability to uh use point-to-multi-point optics across their existing infrastructure so that they could upgrade the capabilities of their uh connectivity to the cellular towers we worked with a diverse set of customers over time and each of them have come off with a substantive savings most recently not discussed in a slide here was nbn we had a press announcement about the last week uh so with that let's let's move and start hearing from the customers directly and let's hear what they have to say [Music] hi andrew lord here i'm senior manager of optical research at british telecom and um i have been involved with infinera over a long period but specifically on xr optics for the last year and a half i'm really impressed by this technology i think it's going to go a very long way i think the whole concept of point to multi-point really fits chimes well with the kind of network structures that we're seeing which are very hubbed we're seeing um capacity coming from multiple points hubbing up to a single a single data center and to to find a an optical solution that mirrors that i think it's got a lot of a lot of potential i'm really also impressed by the professionalism of infinera who've been working with us on the the modeling simulation side as well as the uh actual demonstration proof of concepts of the technology right the way up to the top actually we've had uh very good access to to um infinera and um we've really stuck to some some pretty hard simulations and some hard discussions uh between the two sides so really want to commend um infinera and and certainly around xr optics the potential of this i think it's very exciting going forwards and highly looking forward to seeing the product emerge so thank you very much uh thank you andrew i very much appreciate your commentary and your interest in xr and how it helps solve british telecoms problems going forward the commentary that andrew shared with us is common of what we see across the customers that we've engaged in we've engaged with almost 150 service providers across the world to date and their response is uh very interesting how they both see xr being able to fit into the sockets that they have for point-to-point technology but the advancement for point the multi-point technology to be able to drive the cost structures down the conversations that we have with our end customers also include their interest in creating a multi-source ecosystem around xr with that in mind we formed what we call openxr forum openxr forum is a vehicle that is the originally being founded by service providers of which infiner participates in uh but will expand out to include both service providers as well as oem equipment manufacturers as well as component technology manufacturers and infinera's commitment to that ecosystem is we will make uh the various layers of technology available to both the msa partners and to the service providers so that the server service providers can create a new msa driven standard for point the multi-point and point-to-point technologies uh going forward the initial founders that have signed the collaboration agreements uh and we have five service providers plus ourselves so six uh founding members to date uh and they include uh top tier service providers in europe top-tier service providers in north america we expect to expand uh shortly that list of supporters from asia to include asia more participants in north america more participants in europe and also as it impacts the rest of the world in that space look for that over the next couple of few weeks as we will be rolling out that those sets of agreements once the service providers launched this process then the the next phase is engaging with all the oem manufacturers which we have been doing over the last uh uh three to six months as well as engaging with the component manufacturers which we've actually had relationships over the past year for that in order to make the technology available from a multi-sourced environment with a technology that is not just compatible in point-to-point mode but is compatible in point the multi-point mode where 25 gig can talk to 100 can talk to 400 talk to 800 and and throughout that whole chain creating a communication pathway where all of your optical transceivers going forward can communicate uh as i've indicated we've talked with about 150 customers to date uh we believe we've executed a good number of trials uh with those customers responses have all been good and we've been able to demonstrate the technology fitting into their existing footprint so that the transition to this point to xr as both a point to point and a point the multi-point technology will be relatively straightforward for our customers to achieve we've also won several innovation awards from the industry because the industry sees this as a shifting event within the technology and it allows optics to bring to the fiber optic realm what has existed in the radio realm for years and that is the ability for transceivers to communicate and point to multi-point and ultimately multi-point to multi-point configurations the markets that xr optics applies to as we pointed out earlier well it obviously applies to the point-to-point markets whether it's 100 gig point to point or 200 gig point point or 400 gig point point and in the future 800 gig point to point but it's also in the transformation of those markets uh into point-to-multi-point markets that we think we can expand the uh accessibility another one to two billion dollars by 2025 because what as you absorb the aggregation functionality into the optics what you're doing is your transitioning uh value from that of the switching the digital switching layer and moving it to the optical aggregation layer uh for that so if i look at the 2025 we think this is about a five and a half billion dollar opportunity uh in uh the development of these plugable uh optical technologies big opportunity a big transformation because of the ubiquitous nature of xr optics across both the point to point and the point to multi-point applications excuse me okay so to build it the building technology well it just utilizes all the things we've done in the past right now all the things that party talked about it takes our uh high-end front-end uh technology our optics uh takes our dsp and uh uh design capability it takes our packaging technology and our manufacturing technology but it reshuffles them into a different way now i'm going to go make a plugable transceiver i'm going to go make a qsfp style transceiver uh and that and the dsp well it's going to do what the dsp does but it's going to take and manage these independent frequency channels as opposed to the alternative dsps which is managing single channel technologies so the dsp is has unique math in it but it's about the same size piece of silicon and therefore the manufacturing cost is comparable we take our technologies our leadership and in the phosphide technologies and we apply it to the t rosa and we make a monolithic integration of the laser the modulator the photodetectors etc and we also on a separate chip we monolithically integrate all the analog electronics i got two chips uh one package technology one cooler et cetera in order to put that into a common t-rosa uh for that going forward excuse me uh because of that we can make very small low power lower power than alternatives in the technology higher optical power because it's based on indian phosphide technology and ultimately lower manufacturing costs because it's based on monolithically integrated capabilities excuse me we integrate that all into a common package type uh and in that net result is better performance superior network performance and it's now software configurable as a separable element it is much more akin to an intelligent uh piece of communications technology as opposed to a point-to-point optical pipe so i look out to the future and say where's this going okay we're going to create flexible subcarriers and build that into our the electronic management of these transceivers they'll be implemented into a variety of technologies the initial products that will come out are going to be 100 gig and 400 gig uh products and when i say 100 i mean up to 100 so that would be four 25 gig sub carriers into 100 gig or 16 25 gig sub carriers for 400 gig and they will be coming out in products of the cfp2 and qsfpdd and those will come out in 22. as we look at the forward road map we'll take the same uh basis of the optical engine we'll build 100 gig specific products including qsfp28 products because we can take advantage of a much lower power uh plugable transceiver make higher density products uh at the edge uh we'll have our 400 gig products and then we're going to start with our 800 gig products what's unique in the industry is all those products can talk to each other they all talk on a multiple of nyquist sub carriers 25 gigabit sub carriers and therefore my 100 gig can talk to my 400 gig into my 800 gig and my 200 gig it doesn't matter the communication language is common across that uh and therefore i've got one element one manufacturing infrastructure that i can go apply across the board uh to a diverse set of network applications okay so to wrap it up uh here we are uh multi-point coherent optics and multi-point inclusive of point-to-point is a big deal you can measure that by the type of support that we're getting around the open xr forum which again we've got a number of uh high quality tier ones uh across the globe and you'll continue to see that expanding overcoming time it expands our tam right because the aggregation in the optical domain replaces aggregation in the electronic domain then you the dollar opportunity is greater that also infers that xr addresses a much larger volume than strictly point-to-point optics because of that volume it will also drive manufacturing costs down the elements are the same volume is greater manufacturing cost should be much less for xlr in that transition i and that we've talked about what products infinera will be making and you'll see those products hitting the marketplace in 22. that thank you guys very much for your attention uh go back to my original statement i've looked at a lot of technologies over 40 years in this industry uh participated in many that were transformative uh and this point the multi-point uh is truly transformative in the way the network will play itself out over the coming years thank you thank you dave we're going to take a quick short five minute break and when we come back we'll resume the program with glenn laxdahl hi my name is glenn laxdahl i'm the head of product management infinera i want to talk to you today about the uh uh end-to-end portfolio strategy and how we uh integrate the optical engines that dave and parthi just talked about into an end-to-end portfolio strategy so with that let's get going it starts with the key market trends that david had referred to earlier in the presentation but i want to pick up on some of the key themes because they're really important to us in terms of setting the framework for our portfolio strategy going forward as we have discussed coherent is moving to the access edge of the network with the upgrade to 100 gig in the metro aggregation and regional networks those networks are upgrading to 400 gig which drives a 400 gig coherent overlay with 400 gig coherent overlay you need to upgrade the metro line systems to accommodate 400 gig in the long haul network we see we're at the beginning of a long term shift toward the introduction of 800 gig across the those networks on the competitive side we see a significant competitive disruption with the situation in huawei being removed from the european and asia operator networks over the course of the next two years to five years type time frame and we see a long-range long-term shift toward open optical open networking so that operators can uh improve the velocity of introducing new technologies into their market so let's just drill down now on open network nothing new here we've seen over the last 10 to 15 years this shift toward open typically what happens is we introduce new technologies in the data center and then those new technologies propagate from the data center out into the operator networks let's take network function virtualization where we separate the network function from the underlying hardware that that network function uh operates on uh the migration toward sdn uh in in uh data center uh networks both of those uh ended up propagating themselves into the operator network and we see a similar trend today in the shift toward open optical there's a broad-based support of open and the shift to open across the operator community and there's many forums that have been established to enable the momentum and the initiative behind open the open networking forum the open roadm telecom the tip project the own app all of these have significant market momentum customer momentum behind them and customers get significant value out of this uh not only does it reduce their vendor lock-in but it uh uh it provides them the opportunity to introduce the next generation technologies into the network very quickly so what is optical networking there's really two dimensions to it one is the separation uh or the opening of the interface between the transponder and the line system line systems send the optical signals to their destination they're amplified and sent through rotom uh infrastructure to do the wavelength switching the transponders provide the capacity the bandwidth 100 gig 200 gig 400 gig the line systems when they're introduced into a customer network they tend to stay there for a long period of time these are eight to ten year investments the transponders on the other hand they end up being introduced much more quickly in the operator network so when we open the interface between those two we create new insertion opportunities on the right-hand side of the chart you can see the the system that we're using the compact modular system that we're using in in open optical uh it's it's compact it's chassis based we can introduce new transponder sleds into this chassis based compact modular system much more quickly the chassis stays in place the the sleds are are are introduced into the chassis it's modular it's modular by design and it's open by design we use open software we use standardized data models to be able to program that compact modular infrastructure the combination of these two delivers significant benefits to the to the customer to the operator community reduction in vendor lock-in improvement of the speed to introduce new technologies the ability to introduce new innovations uh into the network that weren't contemplated before all uh play a significant role in enabling the operator to reduce the cost per bit and to deliver next generation services so let's talk about the size of the open optical market the transport market is a 10 billion dollar market today about 30 percent of that is open optical comprised of the compact modular system which is a little bit less than two billion dollars today and the open line system which is a little bit more than one billion dollars today over time we see that growing uh to over 40 percent of the total transport market and the most significant growth driver is really coming from compact modular compact modular will grow to uh over three billion dollars by 2025 a 16 growth rate as the industry shifts toward this new building practice this new way of deploying networks infinera has a strong market position a number two market share within uh compact modular today and we want to be able to exploit that market capability going forward we also see an industry shift within compact modulator from the data center building practice to this technology being embraced by service providers we already see significant traction within service providers of the compact modular uh form factor and so that we see compact modular being used to deploy across both service provider footprint as well as data center provider footprint so let's look at infinera's flagship compact modular platform our gx platform we are really designing this platform to accommodate both service providers and data center providers there are capabilities that service providers are looking for like redundancy uh uh uh on the controller uh like multi-chassis capability to be able to scale up uh to a very high capacities using a compact modular footprint we also want to introduce open into the gx product platform it's open by design we use open and standardized data models so that you can program the gx portfolio or gx platform from an sdn controller our gx platform is multi-service by design we're introducing not not just transponder cards but switching capabilities and line system capabilities within the the the gx chassis which gives the operator maximum deployment flexibility to be able to mix and match what functionalities they want inside this chassis and reduce the cost of deployment on the software side we've got a common network manager framework a transport sdn cloud native transport sdn controller to to to program the infrastructure and from an operating uh system perspective we have a single converged os that cuts across the entire gx platform that is microservice based uh containerized infrastructure so now how does this gx platform uh reside within the rest of the uh infinera networking capabilities starts with the optical engines on the embedded side we have the i6 digital coherent optical engine the dco that gets integrated into a line card that then gets integrated into a gx chassis on the plugable side we have the 100 gig 200 gig 400 gig point to point and point to multi-point plugables the interface into modules that interface into a gx uh chassis the gx chassis is multi-service by design so transponders switching line system capability within the gx chassis we also are calling out here that we have three different families of gx product the g40 product optimized for long haul and subsea the g30 and the g60 product optimized for metro and metro aggregation metro access and we have the xtm product that i want to call out here because we've seen dramatic growth in the xtm in particular from metro access and metro aggregation capabilities over the last two years and will continue to deploy the xtm footprint or the xtm product in conjunction with gx over time gx will absorb the functionality of the xtm product so now let's look at the software that i talked about earlier on it starts with the converged os software it's extensible it's micro service based it's containerized we can take advantage of open source software to accelerate our development and we get significant development leverage by having one common next generation operating system across the entire gx product portfolio on the network management side we similarly are really focusing our network management and our sdn controller domain controller on delivering automation capabilities into the operator we want to be able to deliver real-time planning and provisioning zero touch commissioning uh network optimization and bandwidth on demand we have a very uh extensible approach to delivering to pre-delivering capacity into a customer network and then enabling them to light up 100 gig channels as they need that capacity so we're focused on automation with respect to our software platform and so with that i want to turn our attention now to some of the application spaces that we're focusing on the long haul and subsea networks uh opportunity we've got a very strong market position in subsea number two market position in subsea and we've got a number two market position in long haul in north america so we see we're building off of a very solid platform for growth within within long haul how is the market uh being characterized the market is going through the we're at the beginning of a long term shift toward 800 gig in long haul operators need to maximize their fiber assets they need to maximize the reach performance of their uh of their of their transport networks in order to get down the cost curve and so they need to deploy the next generation technology when it's available in venera our key strategy our key capability here is that we've got an industry-leading 800 gig product with industry-leading reach and performance we have significant market momentum building with uh uh with with our 800 gig um and i'll talk to you about that here just in a minute but significant market momentum building that we feel really good about our our position we have the lowest cost structure where we're introducing the i6 capability in conjunction with our g40 compact modular system an industry leading cost structure to create flexible deployment options for the operator and finally we're delivering all that on the c plus l-band flex ils we've been deploying c plus l flex ils for the last two years um and and certainly in the last two quarters we've seen a significant increase in demand for the flex ils system in preparation for the deployment of the ic6 optical engine on top of that flex ils let's talk a little bit about the life of a coherent optical engine if it follows a remarkably consistent path 100 gig 200 gig 400 gig followed this same path the first two years of the of the market introduction of the new technology operators are taking the time uh to test the technology to look at the performance of the technology to prepare their networks for that technology and then around the year two we start to see an inflection point where volume starts to grow um on that next generation technology um and so we're seeing that same pattern unfold on 800 gig uh what we're seeing is that as long as you have as a vendor you're producing the product at volume when you hit the inflection point you're in a good position to take advantage of the long-term growth cycle that's in front of us on on 800 gig the first two years after market introduction operators are testing the technology in advance of the deployment of the technology where are we in terms of 800 gig well we're in the first half of 2021 um we uh are facing the inflection point the knee and the curve of volume on 800 gig uh heading into the 2022 time frame and we see ourselves also going after a really significant market opportunity in fact the analysts have actually increased their market size projections now three to four billion dollars for 800 gig by 2025 with further revenue growth beyond that um and so we we really feel good about our position it's a two horse race um and when you're in a two horse race um with a market opportunity like this um i i think that we all have a pretty good reason to feel optimistic about where we stand i want to turn our attention now to the market momentum that we've been able to drive across the g40 and an i6 solution to date we've received 22 design wins of those 22 design wins we have 13 customer orders in-house we've signed up for 57 customer trials we're undertaking customer trials in q1 q2 q3 q4 as customers are testing out the technology and looking for the opportunities to deploy the technology we have a very global footprint as you can see from the map of these both customer wins as well as customer trials and we see the ramp phase really happening in the second half of 2021 and we want to be at volume as we head into 2022. based on the visibility that we have today we feel comfortable saying that 20 to 25 percent of our revenue of our product revenue is going to be coming from this i6 optical engine in the 2022 time frame so we feel pretty good about our position and we think there's lots of opportunities in front of us on 800 gig let's turn our attention now to metro networks and and and really the the in the metro is where we see the most significant disruption uh going going forward a tremendous data growth uh from 5g from distributed access cable architectures from enterprise bandwidth growth um and that that growth in the in data traffic is really driving uh this this move of of of coherent optics the metro the metro aggregation and regional networks are being upgraded from 100 gig and 200 gig to 400 gig that upgrade to 400 gig will drive a necessary upgrade of the line system from the existing fixed grid 50 gigahertz fixed grid infrastructure to a flex grid infrastructure so a significant investment is required to enable the migration of 400 gig we also see 100 gig moving out and coherent moving out with 100 gig to the very access edge of the network and we see uh insertion opportunity from the competitive displacement of huawei in europe and asia the infinera strategy is clear we're going after this opportunity with our multi-service gx based compact modular product platform we're delivering our high performance uh point to point and point to multi-point optical engines in 100 gig 200 gig 400 gig and with the introduction of the point to multi-point optical engine we really see an opportunity to increase the tab that we're going after it's a new market it's being created by the disruption in the access networks in particular with 5g and daa and this creates a a new way of of networking we also want to deliver an automation framework across both the point-to-point and the point-to-multi-point network infrastructure that will that we'll be deploying so with that i want to uh segue over to a customer testimonial from eu networks hi there i'm andrew holder cto of eu networks as a company we concentrate on delivering bandwidth services in western europe we want to be the category owner for bandwidth infrastructure services for our true fans by consistently over delivering on one or two key benefits and in order to do this we need to be flexible responsive and innovative when providing solutions and services infinera is one of eu network's key technology partners that allow us to serve customers that are consuming multi-terabits in capacity and keep pace with big content icp customers that are seeing bandwidth doubling every year from a network operator perspective every platform decision is a commitment for many many years the expansion of open optical networking decouples vendor decisions from lock-ins allowing us to select vendors that are at the forefront of technology innovation this allows us both to be early adopters of new technology and to serve our customers needs bringing a mix of economic and performance considerations or in simpler terms a greater value proposition to our customers infinera's silicon photonic integration in their ice dsps are now in their fourth generation in the eu networks network we're about to test the performance of the latest ice six 800 g generation on our new european ultra low loss terrestrial and subsea routes connecting ireland the uk and the european continent a key decision a key decision-making criteria when doing this is infinera's commitment to open architectures which includes the use of the newest ice technology and interworking with our existing photonic systems the use of infinera's own c l band flex ils system in open line system solutions and the openness of interfaces into infinera's dna management system for process automation with our customers allows us to develop apis and embed ourselves in some of our key customers environments as we grow meaningful partnerships with our true fans the pace of change in transponder technology continues to increase all the time and working with an innovative partner as infinera that is willing to accept and embrace this point is fundamental to how we keep growing successfully together finally infinera's investment in the life cycle management and operation of these environments is one that is so often overlooked but it's key when planning deployment deploying and in-life service management is so vital to maintaining the necessary service responses to our customers i want to shift gears now and talk about our go to market we've talked about our portfolio strategy now how are we going to get that portfolio strategy to market first it starts with global presence we have local presence in more than 30 countries globally where we have services operations to maintain and manage customer networks and there's um a focus that we're going to be putting across certain areas of the of the customer space starting with the top 50 service provider customers the top 50 service provider customers spend 75 percent of the capex we want to increase our focus on those top 50 and continue to grow our share within the within the top 50. we want to increase our focus and grow share within the data center operator space and we think we have the technology to enable us to do that we want to take the 800 gig optical engine and grow share within uh long-haul and subsea markets we want to grow our wallet share in europe and asia from the competitive disruption of huawei and we think that we've got a strong portfolio to enable us to do that and we want to use our transformative point-to-multi-point solution to go after the disruption that's happening in the access networks from 5g and daa the global presence enables us to go after a global market opportunity to take advantage of the product capabilities that we're developing and ensure that we can insert those product capabilities broadly and globally across the networks so let's just summarize now i've covered the open optical portfolio the i6 program update the customer traction that we've been driving and i really just want to summarize quickly we're focusing on the transformation to open and open optical we're focusing on taking our next generation compact modular portfolio and driving it that multi-service portfolio and driving it across long-haul subsidy metro and metro access networks we want to focus on exploiting that that open optical uh networking portfolio we see the ramp of i-6 in particular in long-haul and subsea networks and we're on the beginning of a long cycle of ramping uh i6 we want to win share in long haul and subsidy as well as in metro networks and we want to really focus our go to market to enable us to win in those in those key areas that we've discussed so with that i'll hand it over to nancy [Music] thanks glenn i'm nancy erba and i'm the chief financial officer at infinera and i'm pleased to be speaking with you today about the financial roadmap for the company you've heard from david from party dave and glenn about the really exciting opportunity in front of the company right now we are seeing very strong underlying demand we are in a position with our new product introductions that position us really well for the very unique competitive landscape that we are currently operating in we have shown um in the previous discussions the importance of vertical integration the importance of the investments that we're making in our technology and as a reminder the company was founded on the belief that vertical integration was key to success in the market in that it allows us to deliver a lower cost per bit to our customers and to deliver value to our shareholders in terms of the financial model it enables for us we're seeing an accelerated shift to open optical positioning us well as our product roadmap intersects and is aligned right now as we're entering into this really exciting and dynamic space and finally in the market you're hearing about and witnessing the scarcity of the technology that we are investing in and so all of this combined makes us as a team really excited and motivated to go out and win in the marketplace as i look at my priorities having been here now almost two years and what is enabling us to to generate improvements in our business model and to drive value i think of it in two parts the first is around financial fitness we've been working to strengthen our financial model we're doing this through people our team that we're building process improvements and increased automation we've been relentless in our focus on cost reductions particularly as we were moving through the integration of the korean acquisition and finally we've been focused on how we look at our deal structures when we're responding to bids from customers we want this to be a win-win we want it to be a win for our customer and we want it to be a win for infinera so there's more discipline in that process internally we are focused on being consistent and predictable in our execution for our customers in terms of the product commitments that we're making in terms of operationally making sure that we are really functioning as an excellent organization whether that's in our internal processes or externally as we're working in the market and then finally forecast accuracy all of this combines to make sure that we are providing broadly a consistent and predictable forecast for people to measure us against this all enables growth and then shareholder value we're focusing our investment opportunities in the areas you've heard about today we're investing in those key technologies that are going to enable us to make sure that we are have the the largest and maximized insertion opportunities and we're focusing these investments in the fastest growing segments of the market which is again aligned to our roadmap all of this leads to increased shareholder value we expect to be growing faster than the market we expect to continue to expand our gross margins and then of course to be utilizing our capital efficiently and i'll walk you through uh the next several years in terms of our approach there if i look at the progress that we've made in the last three years i'm very proud of the work that the team has done and i mean a combined team this is a truly cross-functional effort we have been measuring ourselves and looking at the trailing 12-month improvement in terms of gross margin operating margin and cash flow from operations all of these bars are up and to the right which is positive but we're not done in terms of the metrics for any of these if i look at gross margin we are on track to achieve 300 to 400 basis points improvement in 2021 versus 2020. if you look at this chart uh in 201 in q1 of 20 there was a dip in our gross margin and those of you who have been with us will recall we had won a very large subsea deal in that quarter and that had um a challenge to our margin as we were laying footprint but we are now filling that footprint and the margin associated with that deal is above our corporate average and most importantly you see the upward and to the right trend similarly on operational on operating margin we have now shown three consecutive quarters of non-gaap operating profit but we want to do more we want to continue to have that sustained profitability we want to continue to be generating cash on a consistent basis we are going to look at cost reductions as we do on an ongoing basis always focused on how do we do more how do we do better to drive that margin improvement and on cash flow we have seen substantial improvement year-over-year on our cash flow from operations 2020 was a year where we had over 80 million dollars in one-time cash outflows that were associated with the integration work we had done in 2019 those are now behind us and at the same time in 2020 we focused on our working capital we improved our working capital metrics in ar ap as well as in inventory and we are on a path to continue to drive cash through working capital this is all work to establish a pattern again of consistent execution of improvement year-over-year and to show steady progress toward our target business model the gross margin and operating margin shown here are non-gaap and we will have a gap to non-gaap reconciliation with the slides that we post this financial progress can also be seen in our stock performance so this graph shows uh this the infinera stock versus our peers starting in q4 of 2018 which was the first quarter of the combined infinera and quariant team we have outperformed our peer index we've done it in a period of a pandemic which was very challenging for the entire industry and the entire global community and although we're pleased that we outperformed we're not done here either we are still moving forward to our target business model and what i'll talk to you about next is not just that model but what we have beyond that in terms of outside opportunity as we look at creating additional shareholder value so david opened our meeting today and he shared our target business model and he stated and i'm confirming here that we are on track to achieve our target business model in 2023 that includes growing faster than the market at eight to twelve percent that includes increasing our vertical integration to approximately sixty percent in this period of time that includes gross margins that are in the mid forties and double digit operating margin we've been sharing with you um pretty consistently our view that this is a target that we should be able to achieve we are now confirming uh our belief that it will be in 2023 and i'm also going to talk to you about what's beyond this as well so if i start with revenue and our approach and and looking at the market to grow it three to four times the current market forecast i'll start with services um the the baseline here in the in the orange bar services represents about 20 of our revenue and it's consistent in its growth at approximately five percent a good steady strong business for us glenn shared with you the breadth of our service offerings and the complexity of the of the challenges that we're facing globally in this current environment but we're really pleased with the work that's been done there and that steady baseline for us the next bar is the metro market and we've talked quite a bit today about the opportunities that we have in this space that we are going after we've announced our 400 gig product and this is one of the key areas where we see the ability for us to gain share with the current competitive disruptions in the market the blue on the top is our long haul and subsea and glenn shared with you our approach and where we are in terms of i6 and the launch in on this chart i've highlighted for you a representation of the product revenue associated with 800 gig we've been really consistent in our comments that we believe the ramp of this product will begin in the second half of this year and it will continue to grow from here so i have included in 2022 you can think about 20 to 25 of our product revenue coming from 800 800 gig in 2022 and then continuing to grow from there the purple on the very top of this bar chart represents the point to multi-point xr opportunity and dave welch shared with us his view and our team's view on the opportunity that this market could represent for us i've chosen to take a pretty conservative view here in terms of xr so i would say there there is upside from here what i've done and i believe what you want me to do is we have built this model uh from the bottom up meaning we're looking at where we are today and our outlook for the next couple of years by program by customer by region and that is what this revenue growth is built off of so there is good growth eight to 12 percent on a keger um and that is three to four times the market as i mentioned but it does not um i would say it is a baseline view that i feel is achievable and that we've built from the bottom up moving now to gross margin we've talked today quite a bit about vertical integration one of the founding principles of the company and today um as as we sit we're at about 40 percent of our products being vertically integrated we expect to end the year in the 40 to 45 percent range as i look forward by 2023 i would see that at about 60 percent and beyond that in 2025 70 or higher this is key as it is one of the prime drivers for the expansion and gross margin that we are expecting to see we started uh this year exiting 2020 at 33.8 percent and we have um been consistent in our message that we expect that to grow 300 to 400 basis points this year on this chart you see the the balance of gross margin right it's pluses and its minuses it's the benefit of increased vertical integration it's the benefit that we see from the cost reductions that we have been able to achieve it's the benefit in the operating leverage in our model and that's balanced with challenges as well at any period in time right now we have supply headwinds that we are facing as an industry and certainly at infinera which we have talked about additionally as you have a higher weighting of line systems deployed in a quarter that puts pressure on your margin so these 300 to 400 basis points improvements year over year from 20 to 21 and all the way through 23 are a balance and a mix of the revenue build that we should that i showed in the last slide what's beyond the mid 40s i get asked quite a bit about that it's like so you hit the 40s then what um first and foremost this team you're hearing from us today and the broader infinera team we are focused on getting to our target business model in 2023 but what i want to also show is that beyond that there is opportunity drivers for this upside are things like increased market share versus what i have built in here um an increase in the level of vertical integration that we see in the metro market an increase in in the achievability and the growth that we see in the xr space all of these will contribute to us moving beyond the mid 40s in terms of our gross margin to the high 40s and approaching 50 percent bringing this together now to an operating model we've talked about revenue and the revenue growth of eight to 12 percent again three to four times the market growth we've talked about gross margin and the step function improvements that we anticipate making from 2020 at 33.8 percent to 2020 in the mid-40s and then beyond that as we are able to execute on the upside opportunities that i referenced if i roll in opex and i look at 2023 as our target model i see r d in the 18 to 20 percent range allowing us to continue to invest in our key technologies and make sure that we are intersecting the market at the right time that we are bringing to our customers products that um give them a lower total cost of ownership and allow for us to be able to generate double-digit operating margin as i look to 2025 i've pulled i have not included any additional operating leverage that would come from a higher revenue base and a higher margin base and here i show mid-teens in terms of opportunity beyond our double-digit operating margin so this model that we are driving is consistent with what we have been speaking to you about it generates a good strong cash flow giving us the ability to continue the the investments that we need and create options in terms of our capital allocation and it also shows that we have upside from this point and with the strong drivers that we see in the market we are excited about this opportunity and we are driven as a team to go out and win so my key takeaways um certainly compelling growth drivers in the market you've heard about it from every single one of us today we're excited about the market opportunity it is a unique time and place in the optical market and one in which we plan to go out and um and execute upon and to drive further growth further profitability and further value to our for our shareholders we have planned to achieve our our target business model in 2023 with upside from there and we um we are excited about and motivated by the work that's being done at infinera every single day so i want to thank you for joining us today thank you for for your support as our investors as analysts who follow us welcome new investors who may be hearing our message for the first time and we believe that we have a compelling value proposition in the company we've done great work to this point we are at just the beginning as you have seen of the opportunity for growth drivers that we believe are very compelling and are very much aligned with our roadmap and we are excited to continue the journey with you so with this i will hand the microphone over to david hurd for some closing comments before we open up for q a thank you [Music] thank you nancy that was terrific hopefully everybody's hung with us through this uh period uh hopefully by hanging with us and really getting some of the sub ledger detail about our business one you're getting our enthusiasm and passion for this business two you understand that there's favorable market dynamics that we do have a winning strategy that vertical integration does matter and innovation that matters for our customer that that drives real economics in the network and that you got the team here to execute and this same team after a short break is going to be reared up and ready to go to answer your questions thank you okay uh welcome back everybody i hope you found the presentations this morning highly insightful and informative and i hope you're getting a sense and a flavor of why we're so excited when we look at the opportunities in front of us you know whether it's the shift to open optical whether it's current moving all the way to the edge the ramp of 800 gig the opportunities in metro that you heard us talked about this morning and obviously the potential for a new addressable market with rxr optics technology so what we're going to do now is move into the q a portion and as i said in my opening remarks we're going to limit the q a the live unit portion to our cell site analyst and what i'd request of all the cell site analysis please limit yourselves to one question and one follow-up we'll try to get to as many questions as we can we also see some questions coming in the q a chat channel we'll try to get to a couple of those time permitting we're also going to push out an event survey on the chat channel uh please please please if you could fill that out that would be highly appreciated we take your feedback very seriously and it gives us a sense on how to sort of adapt future events and you'll see all the speakers on video we've also invited rob shaw our senior vp of marketing to join us with the q a portion many of you have heard from rob recently in our webinars that tech talks we've been doing and so rob's also going to join us for the q a portion so with that why don't we jump in uh i'm going to turn the first question to rod hall of goldman sachs rod when if you can please uh turn your camera on and your audio and the floor is yours yeah great thanks on the top can you guys see me okay yep and hear me um so i the first question i wanted to address to dave um on the xr technology i wonder if you could dave kind of lay out to us i get that you're talking about that taking tam from the existing routing switching layer and aggregation but could you talk a little bit about how that technology affects that overall optical tam within the you know the metro and aggregation layers and and why that happens architecturally and then i have a follow-up for nancy well i think the the the tam in the dollar sense you know is is really driven by uh uh how to how to build the infrastructure uh for all these new uh higher bandwidth edge edge capabilities whether it's 5g or iot or you know fiber deep type of type of architecture so that the the cost uh the tam gets driven by how fast and how rapidly companies want to absorb it what they're looking for is the simplest uh uh most cost effective solution to allow them to uh put more and more bandwidth uh on network uh what xr what xr does in that is it it simplifies the problem right uh it uses the optical layer for the actual aggregation of information as opposed to having to go through an electronic box and in that sense it it moves the the emphasis towards the optical layer those optical elements are become much more of a critical path uh intelligent uh element within the network uh in that process okay great thanks i i know that one of the historic problems with that is the grooming of the traffic on the optical layer but i guess we'll probably get into that you know as we go through the call here um the question for nancy nancy if you look back i was curious that you're you're 70 vertical integration and then your gross margins that um you know that correspond to that out in 2025 by the way thanks for that road maps i thought it was super clear but i'm curious whether um does that correspond back to that 2015 to early 2016 period when you guys did peak for a couple quarters there at 50 gross margins um do you think the gross margin contribution from vertical integration is similar to that period or do you think some you know something's changed between then and and now from fab utilization or you know other perspective uh yeah so i mean i would start with this team here we're we're first focused on let's get to the 40. let's get a four in the gross margin handle um that's our first focus and get to our target model that roadmap you know beyond 23 what it's designed to show is that there's continued growth from that mid 40s and you know you're referencing back historically when the company had a very high percentage of its products vertically integrated and was able to achieve margins in the 50s you know i don't see anything that's stopping us from doing that but again we first have to get let's get to the target model and then let's go from there you don't know could you say what the vertical integration rate was back when you you know hit 50 was it i think it was above 80. yeah okay hey thanks rod okay uh why don't we move to metamartial of morgan stanley meta great thanks um maybe a couple of questions for me one just with the xr optics um you know roadmap that you laid out and the market opportunity that you laid out you know is there a target percentage of the pawn opportunity that you think is kind of addressable within that tam and then maybe second question you know obviously you guys laid out a pretty extensive roadmap today but we didn't hear anything about 1.2 terabit and i just wanted to know is that a part something that you would be planning on investing in or you know you think 800 gig has a long enough road map that um you know you you might skip that cycle thanks so maybe we'll have dave take the xr and then party i'll defer the second question to you yeah great yeah the the um so uh there's a couple questions that we we've seen in and around pond so understand what uh uh what xr is able to do is create is operate over a passive optical infrastructure or upon infrastructure however the uh the bandwidth on where it really proves in is looks more like a 10 gigabit at the edge then a one or sub one gigabit uh at the edge uh and so in the initial application it's really about uh overlays on pawn infrastructure to be able to business groups etc that have the capacity driving on there so i want to look at it at so much as a percentage of the of the residential pond marketplace i would look at it as an added value feature that sits on top of that infrastructure to be able to access high higher value targets within that same geography okay uh and uh if party are you there yeah i'm i'm here uh with with reference to uh uh the embedded engines and 1.2 uh there are two points i'd like to make one yes we do see 800 gig technology having a large life cycle if you will and as i if you recall my presentation we talked about how there's a lot of transition happening from 200 gig to 800 so we believe it's a large market and it's a long market uh having said that if you also recall this slide we talked about beyond i6 and we referred to i7 i i should have elaborated more i7 is our engine to get 1.2 and beyond and what we are working on is to continuously push both the capacity we would like to target 1.6 but we are also cautious about what we we commit ourselves to so i7 is 1.2 and above and truly it's not just about 1.2 terabytes but how far you can take one point two terabytes just like we've taken uh 800 gig to a substantial reach got it and if i could just get in one last follow-up for nancy just on the eight to ten percent caker target that you laid out is that starting in 20 or 21 uh starting in 22. so our statements that we made at our last couple of earnings calls where we see 21 growing slightly above the current market growth those stand firm this is really beyond 21 the 8 to 12 percent okay great thank you thank you thank you and just yeah yeah david i was just going to say 8 to 12 and right i just want to add on to uh to rod's comment too because i think he had a question on kind of fabulization and how that our cost structure goes up against that vertical integration percentage one thing to kind of note is we've always used our vertical integration capabilities for high capacity engines which has served us very well our core competency and again there's fewer and fewer players that can compete at that speed and at those economics the the big the big news for us from a business model perspective to that um to that vertical integration percentage is now when you're making plugables uh both the tr t roses that could be used for zrz or zero plus as well as xr the number of uh the utilization goes way up because obviously as you get closer to the edge of the network the points of presence go up and so that's a nice additive and a creative part of our you know leveraging our vertical integration capabilities in our packaging and fab capability sorry on the top for jumping in there hey no no worries david uh let's move on to alex henderson of needham uh alex go ahead great thank you very much um i i wanted to to delve into the implications of the xr in a in a much broader format i mean clearly uh as a standalone product it's a very interesting product but as you know and i think uh is clearly uh well established among most people paying attention in this market service providers by road map and i guess my question is to what extent does the xr have a halo effect even long before it's launched in impacting uh the purchasing decision and changing you from a point products company to one that's much more strategic particularly as you start talking about the ability of xr to talk about 100 gig to 400 gig aggregation across maybe a metro environment um as opposed to just on the edge which is further out in the roadmap but clearly part of what the uh your uh layout what you laid out so how important is this changing perceptions of the company uh david hurt do you want to take that first and then maybe dave welch can add on yeah i would say uh uh spot on alex uh people buy road map and and are trying to prepare their architectures for this data center mobile edge compute dearth of bandwidth that continues on on the edge and need that dynamic policy on the edge to make sure that they can shift traffic around in a very unknown environment and so yeah as we're out looking at things like the huawei insertion opportunity that's half of that opportunity is is metro and as people look to change their metro architectures right now they have to change the grid spacing anyway as they go to 400 gig and so they look for new suppliers uh they're looking to potentially replace huawei and in some jurisdictions so they're looking for new architectures and new vendors and so they're not just looking at what box do you have today but they're looking uh for what solution do you have how do does that impact their economics both capex and opex and as dave went through those those areas are pretty profound which is why we're coming out more public and you're seeing this as an open architecture for us and dave will talk more about you know that xr open forum and getting 150 customers worth of feedback over the last 18 months into this architecture you'll lay it out now because people buy roadmap and they've got to address this architecture on the edge today dave yeah so you know that uh alex are two slides that i want to refer to which i call them the trip to the data center right and uh and the trip to the data center goes from you know the radio unit in the case of 5g it goes from the radio unit goes to to a low latency local data center uh and then it goes to the regional data center uh the implications of xr to your question the implications of xr in that uh specific application are huge all right they are completely game-changing in the way that the uh carrier can reconstruct how that network uh evolves and it enables them to put higher value-added services in their existing infrastructure right it frees up power and space so they can move and take advantage and deploy their local cloud infrastructure in order to realize a greater revenue opportunity that is highly strategic to these to these customers in that and so in that particular application and and and as you get into well you know when's all this play out it's critical to to understand that it plays out the the hardware can play out immediately because it fits and applies to all point-to-point applications which the current network is architected around but by choosing a communication language that says yep the input the stuff i'm going to stick in the ground in 22 can be transformed to absorb over time and and so i got to go have a phone call with my radio supplier and said hey i need i don't want a 25 gig sfp optical plug in my radio i want a qsfp28 plug in my radio right which the the radio provider is more than happy to do and when you do that all of a sudden you can carry xr from the edge to the data center and and see that complete transformation front hall back call uh data center uh orientation it's it's uh you know i said in my earlier comment there isn't a single optical network including the data center that doesn't need to be rethought because uh we've utilized for the past you know 50 years electronic switches to do our aggregation whereas this now allows the optical layer to do the aggregation if i could follow up a question off of this they're not much mention of 400 gig zr clearly that's designed to take out a dwdm platform and push it into the switch router uh my presumption is that service providers will always choose to go wherever they can on the optical layer and only switch route when they absolutely have to because the cost is so much higher uh this seems like it's a counterpoint to zr so can you talk a little bit about those two is point counterpoint yeah so uh uh the application of zr plus which is 400 gig point to point uh within a metro sized environment xr does that right so in the world of i'm a service provider i'm going to deploy in the case where i'm going to deploy bookended solution xr does everything that a zr plus zr plus is a subset of the specifications of xr and that i and but xr offers a wealth of other uh advantages and because of those advantages it will drive in a wealth of other applications and volume uh into that space that zr plus can't they can't do that and as a result it will become a larger scale lower cost manufacturing capability so the the point-to-point capabilities uh were fully supported we will make xr and cfp2s which plug into transport boxes we'll make xr and a qsfpdd format which will plug in the switch and routers for customers that want to utilize optics and switches and routers you know and they have that choice for that the um but what it uh uh and what openxr is to do is to create to satisfy the customers need for a common language for these transponders to talk to each other but the language that you want to stabilize on is the one that can talk low-speed interface to high-speed interface multi-generational languages as opposed to a 400 my part versus your part it's far more valuable and this is uh uh um you know the response to the openxr uh forum which is fully compatible with uh uh open rotum type of uh architectures and uh uh you know open optical infrastructure concepts but it's the open xr forum that creates a new standard of communication across from the edge the high the greater than 10 gigabit capacity edge all the way to the high capacity regional data center uh in there yeah i would i would actually just kind of when when you boil it down uh you know we're fully supportive of zr plus you know we have not traditionally been able to do our own optics in the metro and so we've had to buy merchant from other players that everybody knows out there which means a margin stack of 45 plus uh that we've gotta take on to our margin structure you saw when we bought corian they had a lot of merchant integration that were making our way back from i think the big news here is this allows us to have you know it's built compliant to the zr plus direction so if we're going to go point to point we get our own vertical integration capability when we think the market will really be there so you know if you kind of look at the market size as the rzr plus today and into 2022 it will be building and the meat of the market will really be at 23 24 and 25 and us introducing parts in 2022 and and starting revenue in really 2023 and 2024 gives us that margin uh bump that nancy talked about in the business model which we've never had before because we didn't have the affordability to do our own plugable terosa which is roughly 60 to 65 of that bill of material as well as uh our own dsp to address the metro well we changed that 18 months ago right we started investing along these lines thanks guys for a great answer i appreciate it thanks alex uh just a quick reminder please we do have the survey out there so if you guys can fill that on as you're listening that would be great let's move to john marchetti of stifel thanks very much i appreciate some of the metrics that you shared with us today around the early adoption of 800 gig and some of the momentum that you're showing there was curious if you could categorize or help us understand kind of maybe where we are in terms of the cloud guys who clearly are typically early adopters of these types of transitions versus maybe what we're seeing today in in that telco market particularly in in long haul and subsidy glenn uh i'll give that one to you glenn lockstall it's um no thanks thanks for the question it's actually very broad based um we've got a pretty good traction um as as we said in the presentation today 20 22 design wins uh we've got as of today 14 uh purchase orders in-house and it's pretty much equally split between uh icps and and csps and and then uh subsea i would say that that there's tremendous momentum on the subsea side good momentum on the on the csp side and really good momentum in in icps as well um we're doing uh and we expect you know that uh to increase over the course of the year we've got good momentum both on the trial side on the certification side as well as the expected deployment side going forward so i think our key message here is it's equally balanced across icps and csps and a lot of momentum in particular right now on the sub seaside great thank you and nancy maybe for you you know given the the goal from the growth perspective and and a good chunk of that is predicated on winning share in both that long haul and sub sea market and should we think of of margins being volatile as we go forward you know still within your your sort of longer term growth targets there but i think back to what did happen a few quarters ago when you won that big sub c business and and that took it then uh sort of a surprise step back before we were able to move forward again just curious as we're moving to ice six and and more of the module platforms you know driving this does that smooth some of that out or should we expect some inherent lumpiness even as we're marching toward that three or four hundred basis points per year uh it's a good question and you know as we talked about even just q3 um with the line system deployments that have been happening we've had um near record uh wins here and deployments that you're starting you may see that in q3 right we talked about a little bit lower gross margin in q3 i think what's different now versus a year ago in that q 120 is our visibility our our ability to as you said you know start as the vertical integration is growing smooth some of that but there will be lumpiness and what we're trying to do is be more transparent about it and give you visibility ahead of time so to be able to say hey this next quarter or two you know you may see some pressure on margin because of these line system deployments but as that vertical integration grows you know to your point it does help to mitigate some of that thank you thanks sean all right we'll move over to jeff cavall from wolf hi can you uh hear me and see me okay oh wonderful it's my first video back in the office and you know honestly ironically the kinks are here now no longer at the home office um okay i guess two questions for you uh i think the first is uh sort of more tactical and that is you spent a lot of time talking about share gains from from huawei which makes a decent amount of sense given that they are the largest player in the market particularly in the long-haul markets um you didn't spend as much time talking about sheer gains from the number two and number three players in the market and i'm wondering is that a part of your eight to twelve percent long-term kaggar or how should we think about that it's a good it's a good question i think we highlight jeff the huawei opportunity because i think in prior earnings calls everybody kept asking us can you please depict that a bit so uh we're trying to be empathetic in our communications uh certainly if if we're gonna grow uh at two to three times uh the market over that period we intend to take share and we're an equal opportunity sharetaker so um you know we think that uh we think that uh the huawei opportunity certainly is right in front of us but it's really an eight by four by one it's at 800 gig there are great insertion opportunities in the core metro uh metro core and subsea that will be a long cycle that we'll be able to take share in uh and that'll be against the competitive field uh and and it's you know as you go to the 400 gig in the metro people are going to be changing their good spacing as well as the huawei opportunity and we believe we're positioned to be able to take share there against the field and that field is is a bit broader than the the 800 gig at this point in time and uh and then at the 100 gig i think dave mentioned and i think alex brought up the point that people are really buying as they prepare for the metro access and aggregation edge they're buying on road map and looking at total cost of ownership and not only the ability to kind of take our own destiny of vertical integration uh in in our margin structure over but this ability to move from point to point to point to multipoint uh is very important and that's where we intend to disrupt and the share take there and the creation of new tam actually may come as others insinuated from outside the optical market so that billion or two billion is on top of the existing optical market did that help jeff yes thank you very much very delicately put um and then my second question is uh really on that point of multipoint so perhaps maybe for dave but as you were pointing out the concept of point to multipoint is is not not new in my history industry is 20 years and it period predates me so i guess what is it about the optical space that makes now the time for point to multipoints to become a a meaningful concept in optical sure so so uh uh real quickly you know it's interesting to look at in comparing radio communications and optical communications uh radio you know whether it's your fm radio your wi-fi antenna your cellular tower they all work and point to multi-point applications optics was never developed that way and it had two actually two shortcomings point to point in each generation only talk to its own generation ten to ten twenty to five to twenty five hundred a hundred what's different now is the code is the coherent the dsp that piece of silicon that is integrated into the uh coherent module has the power and the capability to be able to create independently managed frequency channels within the bandwidth of the optics that couldn't have been done before uh and it's really that uh you've got uh as the silicon nodes have come down you know sixteen nanometers seven nanometers going to five and three etc you can put the processing power necessary to manage each of those in frequency channels independently so that's why now the application has always been there uh and and frankie i think to a certain extent historically you look at a piece of fiber and there's two ends right and they don't uh to one of the earlier questions pond was the only place where they talked uh thought about a optics in a broadcast mode everything else is always a point-to-point mode and so there's a little bit of that history the momentum of the fact that we solve point the multi-point via electronic switches right once you can do uh uh the point the multi-point in the optical layer many not all but many of those switches go away right and uh and so there's a certain amount of industry momentum technology it's that it's uh and i wouldn't call it a dsp anymore i would call it a system on a chip but it's that piece of silicon with a adequate enough intelligence to be able to manage the optics thank you thanks thanks jeff uh why don't we move over to fahad from mkm uh thank you for taking my question not sure if you can see me um so my question to you guys is relative to your internal expectations where do you see most of the upside coming from 5g telco build outs or web scale data center interconnect build out i have a couple of follow-ups it's a good it's a good question you know as as we talked about you know with 74 percent of the market being from the cfd and their adoption the long cycle in the spend uh is that 74 and 75 percent of that is with the top 50 of those service providers so i mean following the economic principle you know certainly over the strategic period we see that but we also see the growth rate of that of that icp spend being pretty pretty significant and so the beauty of what we see is those architectures are really coming together you know that data center it's called cord herd in the uh you know a central office reconfigured as a data center or a head end reconfigured as a data center those are really happening and that's why these compact modular platforms you're not just building for nicp requirement you're you're really building for both and that gx series that glenn went through is really built for both so not trying to dodge your question i'm saying you know we've developed a platform based on inputs from both for the future certainly uh the long the long play is is with the csps but the icps remain a very very important segment for us and that's why that five out of six uh you know presence that we have today we gotta turn that into six out of six and then go look for the next four to uh ensure the top ten we're really uh caring for because the growth in those data centers is just uh enormous rob did you have something to add there yeah i was just going to say uh yeah i mean it's certainly true that the 5g market is going to be driving significant amount of bandwidth in the edge of the network on metro aggregation but that does also subsequently drive additional bandwidth growth in the core of the network as well while the total volume of bandwidth at the edge of the network is greater than it is in the core we do see that uh all the market trends point to the similar growth rate about 35 30 35 percent growth rate in both metro capacity demands and long-haul capacity demand so um i know parthee likes to use a really good uh analogy here of uh yes as somebody like amazon uh distributes more of their uh regional distribution centers and there's more the little trucks delivering amazon packages to the edge of the network at the same time there's an increase in demand in uh the big amazon trucks to carry traffic from data center to data center um so again we see that and all the forecasts uh point to bandwidth at the edge and core growing at about the same rate just with the uh edge starting with a higher base number and to top off your question because you really asked when i when i listen carefully to upside so i think that's the base the way we see the base growing just based on the economics of the numbers but i think as dave suggested as you get to the edge of that network there's a really profound problem going on that needs to be addressed where there's new market to gain new tam to create so i guess if you're talking about upside that's the way we look at it is that new tam to create it is really driven by the immense activity at the edge of the network and uh by us going after that we're creating not only new tam but we're also uh keeping with the zr plus uh opportunity for us to further increase that vertical integration percentage across the platform uh on top of what we're doing with 800 gig all right and then maybe uh the question on your long-term calendar 25 framework of mid teams operating margin outlook um if i understand you know silicon development is not getting cheaper it's getting more expensive you mentioned five nanometers you won't shy away from investing in that uh you've got xr optics pluggables you're going to have to invest in creating a new market opportunity for xr optics by yourself primarily because you know still something you're pioneering i haven't heard many from the industry talk about it so how do you make the math work to make teams because you've got i mean 150 million dollars just to develop on five nanometers development costs right and this is significant investments coming around on the horizon and market investment costs from xr optics and creating that new incremental opportunity so help you understand how you get to the mid teens if you can yeah and that nasty do you want to take that first and then dave welch uh maybe i'd like for you to add to that yeah i'll start and then and go from there yes so um certainly the growth that we're showing the eight to twelve percent growth um and driving to a sustained level of profitability in the double digits um with the ability to to grow into the mid mid teens um that visibility that we're putting out there um you know additionally didn't assume any additional operating leverage so um you're right in terms of the focus that's going to be needed in terms of our investment um but we have been focused on that now you know as david mentioned you know 18 24 months ago we started putting in place the framework and really focusing our r d dollars on these key enabling technologies we have that in our plan certainly going forward and that expansion and getting into that healthier business model with even higher operating margin certainly is upside from our target but one that you know we believe with um the right market growth the right gain and share the right increase in vertical integration is is achievable um dave can certainly comment on uh us being the only one investing in this area because i think um certainly we want to make sure that we we comment that that you know we have a lot of um alignment on the customer and partner side there too right yes i'll add a couple commentary and one is the um uh xr will be ultimately will be infinera's integration into the ecosystem uh play that allows the technology to be developed one of the key architectural aspects of xr is the uh the um communication language is fixed i there's i don't need to develop a new effect every time i make a dsp i don't have to develop the rtl it's it's the same it has it by definition it is generationally compatible and therefore many of the things that i've had to uh redo the math and the rtl of the silicon in the past i no longer i don't have to do i have to scale those chips and i have to put them in a higher order power order node in order to drive the thermal dissipation power down so i can get more sophistication into it so there is absolutely an investment in silicon the the dsp side investment is not at the same level as we have on every one of our new chips and it creates an opportunity for doing a lot of clients client side management within there uh in that and so that so the uh you know getting the engine going getting a a train of dsps that go out and fill the 100 gig slot 800 gig slot etc uh are important but when if you look at the cost structure what's it take to make a silicon chip the actual fab piece is significant but it's only about a third of the piece right it's the rtl uh development the tools necessary to do it well a lot of that carries over it has a high degree of ip reuse between chips you know kind of by definition by strategic intent okay thanks fahad we will move on to mike genovese right great thanks thanks very much it's uh mike from west park capital um so there was a lot of talk about differentiation on xr um uh i guess i there was less about differentiation on ice six and it was more like uh hey there's two of us so it's a great opportunity um so besides that customers some of them want a second vendor i wanted to ask if you could talk more about i understand xr is part of the differentiation of the whole solution but specifically for i6 differentiation i wanted to ask about that part 3 do you want to take that one first sure um so mike there are two pieces it's not a radical change we you know it's it's it's a it's a constant increment from ice three to s4 to i6 so in that sense uh we you know it's it's not a disruptive uh to the architecture however there are uh significant uh differences that we we do bring to the market and the first thing as i said you know if imitation is the best form of flattery uh sub carriers we developed this uh to get the better reach uh numbers we see others coming on board uh trying to pick it up so we are on our second generation uh 800 gig we are uh driving 800 gig to a true deployment so when people talk about 400 gigahertz or 600 or 800 those are nodes which then drop down effectively to in the case of 600 gig technology to a 400 uh and and 800 typically doesn't run more than a couple hundred kilometers in our case as as done in all the trials and evaluations uh we truly drive uh significant distances as published in our in our trial papers 800 gig or 800 kilometers uh with deployment margins so uh in addition uh we also have very tight you know what we technically call the roll-off that is our ability to pack these wavelengths close together that's our historical super channel approach that we've been driving for a long time and that increases the total capacity so i would say the differentiation is that we can take the highest higher capacity per wave we can take that capacity over much larger distances and we can pack many of them so that you get significantly higher capacities per fiber just to give you uh a sort of a perspective uh in in a recent subsea evaluation uh we were we've been able to pack together so much so that we can get over 20 percent capacity than our competition so that is i think the big differentiation how far they can take how much capacity they can take and how much capacity they can squeeze into a fiber and that that's the reason why as you heard glenn you are seeing a large number of people uh evaluating and going through the integration process for isix i hope that gives you a feel yeah that was helpful thank you and then my second question um right now because of the ongoing work from home stimulus and 5g when i talk to access companies in the access part of the network i'm hearing almost universally that the next five years should be the best five years ever in the industry but that's what the access companies are saying so my question is is is that relevant for the metro and the core could you have the best market ever for access and and and you know what does that do to the metro and the core yeah so so i'm glad that that they're seeing the best ever uh access for five years that means you know you have to plug in those ports somewhere uh on the metro edge and all the way up and that you know as bandwidth continues to grow that's good for us i think today we've tried to lay out our view of a very strong optical investment period from as we as we finish this challenge here with covid and supply chain issues from 2022 to 2025. i think nancy said it right you know we've been executing we've got to hit this next uh target business model in 2023. beyond that you know look it's a much better optical period to my first comment on that market yes we feel good about the optical market i wouldn't uh i like the fact they're saying that because that's a positive indicator for us thanks mike uh just a quick time check uh you know we still have quite a few questions in the queue so we'll actually go a few minutes extra so uh we'll try to get to as many of them as we can uh so with that let's transition to simon leopold of raymond james simon thanks avatar so i've got two questions the first one is i i appreciate the commentary on the huawei what we're calling the backlash opportunity i'd like a little help unpacking it in terms of quantifying the dollars available as well as the time frame and where i'm coming from is i think the the amount of huawei business annually x china's two to two and a half billion uh and i don't believe historically infinera's had high exposure to india which i think of as one of the earlier markets to be shifting away we've also heard europe's worth maybe almost a billion but if you could maybe unpack a little bit more around how you take uh your piece of that opportunity and then i've got another question uh hey glenn do you want to take that first and then maybe david heard if you want to attitude sure i can i think that um i i think we share your view that that the huawei spent or the what the the capex spent on huawei is about uh 2 billion a little bit north of 2 billion dollars x china uh it uh and and substantially uh you know uh that is is is spent in in europe uh in asia as well as a smaller proportion in latin america i think that um uh we see two large spend areas one uh in particular in the long-haul space in india that we see an opportunity for infinera to step into that market in that we're on the cusp of of an 800 gig deployment cycle uh across india that we want to be able to take advantage of and then uh in europe there's a large footprint in europe and and uh and as we have a relatively small share in that footprint uh right now in particular in the metro networks we see this as a large upside opportunity uh for infinera and so i think that while we're coming off of a small base uh we see it as a very good upside opportunity and we think we've got also a pretty good product portfolio a new compact modular base gx product portfolio which is easy to insert into the huawei footprint and we've already had uh we've already had some early wins um in terms of inserting our gx product portfolio into the huawei footprint in in europe and so we see this as the beginning of a very long cycle that we want to that we want to take advantage of um we are seeing a lot of rfx activity right now uh around the huawei footprint uh and so we see it as is a as a pretty good upside opportunity for us yeah i would i would probably add just a little bit of math here so uh it to glenn's point the way we see that uh two billion-ish opportunity as you get out into 2025 it still takes a while for people to swap out networks and huawei has been hoarding a fair bit of supply and so in some jurisdictions they're actually trying to use that to their advantage and and are um during the supply chain shortage uh so we kind of think about it internally we look at that and say yeah by 2025 if there's a billion and a half opportunity uh out there we want to go get our fair share when we look at that opportunity half of the opportunity is think of it as long-haul subsidy metro core opportunity so half of it is going to ride that 800-ish gig cycle and then half of it you know you got to look at metro uh all the way down through metro access and aggregation to those 5g ports and um again that is a big focus of our portfolio so we had two questions around this that i'm gonna i'm gonna entangle into one answer which is everybody then says so why did why didn't you build in 600 million into your model uh or 500 million into your model in 2025 is it's hard to judge how how fast these things are going to happen we're winning deals now we don't expect to see significant revenue until next year so nancy's built in uh an amount but not to that degree in terms of market share the same question was some uh industry analysts have uh 800 gig peg bit three to four billion in uh in 2025 so why don't we build in you know two billion or a billion and a half into our numbers therefore the kagger would be some huge number i would get right back to we got to get our heads down and execute what we said we've executed take share 8 to 12 is again growing ahead of the market and getting to a target business model in 23 as our focus if we built our business model on market analyst numbers whether it was for 400 z zr zr plus any technology over the last 20 years you should shoot us it's just it's not that's not what we we're going to do right now and i appreciate that that's helpful and my follow-ups regarding the the xr um i'll call it industry development so i i think the technological pitch is is compelling and clearly you have operators who agree but the standardization process has changed dramatically in this industry and historically operators don't buy into a monopoly so if you're alone it's really tough for for an operator to embrace the technology if there are other players it gets easier so i want a little bit of help understanding how you bring other players into the market and in that scenario are you licensing technology do you have some patents is there a mode what makes this move to that next phase that operators can be comfortable to embrace xr thanks yeah let me let me hand this to dave but let me let me start so dave mentioned this open xr forum similar to what uh zrplus has done dave mentioned we've met with 150 customers they share look we're everything we do is open and as the we're not the market share leader here so we have to take sure and embrace open fully where that's part of our strategic logic and so uh you will see announcements on the xr forum which is very similar again to how zrplus approached things you know today we have a number of players that have signed that forum agreement and so we'll be announcing that as we go out these are household names that you would recognize you know we look at it very much like pareto's rule go after where that spend is because that's who's going to change the architecture we all know they take a while to change that architecture which is why we're not building in huge amounts of revenue in the near term it does take a while we are also embracing the supply chain there because you can't just have one supplier of the technology so both from a dsp and and t rosa and plugable standpoint uh we will make the technology available uh for the ecosystem um our goal is you know to have a nice slice of a huge pie rather than you know the entire pie being uh you know a cupcake very very small dave do you want to add anything there yeah i'll just add on uh open xr forum is a a service provider uh an end customer driven organization uh of which uh our commitment to those people that have signed up for that is that we will provide and make available technology at any number of horizontal levels of integration uh that needs to happen in order for the end customers to see the value of that msa uh the end customers their job is to define the application the specifications around a particular application and make sure that that fits in and the right sockets exist and the right management plane connectivity exists to adopt xr they define that specification we sign up with ms agreements with other uh what with other oems we sign up ms agreements msa agreements with other uh component manufacturers uh and we'll sell at the horizontal that ranges anywhere from uh ip to dsp to modules to systems to software uh as appropriate uh in there there's no reason uh uh in over the long term uh point the multi-point is a far more capable technology that it doesn't take that the concepts don't take uh the majority market share of uh coherent optical transceivers over the years right and and we will uh uh uh ensure that the access to the technology is such that that can happen thank you thanks simon uh we are kind of running a little behind so let's move on to george george and otter of jeffries hey thanks a lot guys i guess i just wanted to expand on that last question um you're going down the msa route with xr um are there other historical precedents you can point us to for the creation of msas that um you know went from sort of idea to revenue you know in a reasonable period of time uh you know i was looking at qsfp28dd you know it's an msa of course obviously it's not a direct comparable but you know that was originally created in march of 2016 and i think the final spec was done you know a year and a half later and even today you know dd is still you know not really much in terms of revenue so i guess i'm just curious if there's other msa processes that you think would be a good analog for this sure i mean uh you know open rotum uh is exactly the same scenario uh uh uh zr plus a similar scenario if you go to the radio world uh cdma uh all these aspects these are driven these impactful innovations or comes comes through a from an originating member an ability to uh create multi-source agreements across the ecosystem and then ultimately those msa the specifics of those msa gets absorbed into standards bodies and that's the way the whole industry works uh and so that the impetus uh which is uh the governing factor of time is driven by the economic impetus it is not driven by uh the difficulty of creating the environment when the when the end customers come along and say i need that uh specification well then the ecosystem responds i and it's and it's and for the customer to say i need that well it's the economic benefit it's that factor of 4x reduction in the cost structure in an area that they need to transform now 22 21 22 23 that infrastructure of edge access and edge compute is what they are trying to play and this plays a substantive role in their definition of that that's what drives the economic i'm sorry that's what drives the timing uh of the technology uh not uh if the if the end customers want it it'll happen right away i think the georgia's point though that's the other piece that helps piggyback it is that the core on the point-to-point piece of xr is there on a zr plus equivalent so as people go look to adopt uh xero plus in the 2022 2023-2024 time frame this does provide kind of that piggyback effect kind of you're building around that same msa so uh we've had a lot of other players that since some of the industry consolidation that's gone on between players that provide scarce dsps and and packaging and systems players um they do want to have some other alternatives um you know suppliers even on zrplus and again this technology is vr plus compliant in a point-to-point mode got i assume it's fair to say you think the msa will be up and running by the end of 2023 i guess i'm assuming that because you're looking for significant revenue from xr in 2024 is that yeah i think what we're saying is first revenue in in you know kind of in 2023 um and and yeah you then start to really ramp as you get to 2024 and beyond thanks yeah so if the question is if the msa uh we'll have msa agreements this year thanks george thanks dave let's move on to christian schwab of craig hallam christian uh i thought i saw jim suva up there somewhere he might have disappeared uh no we see them all uh okay why don't we move on to dave kang and we can circle back to your christian uh dave if you want to unmute and turn on your video go ahead dave all right jim's ready he's coming come on all right uh let's go to gym then great thank you so much and i want to give my compliments to amitabh and his team and putting this all together for so smooth of an operation so thank you i just have one question and that is um on your guidance and outlook which was very detailed and good any comments on cash flow or maybe i missed part of that any thoughts about cash flow generation targets of use maybe a percent or mirroring or monitor net income or given the supply constraints that we've seen do you need to you know spend a little bit more on working capital such as inventory buffers thank you so much uh no good question jim um so i guess i'll break this kind of near term longer term certainly in the shorter term um and we commented this on on our earnings call we we will likely be utilizing cash in the nearer term as we're making sure that we're shoring up that inventory um given the industry-wide semiconductor shortages but as we look longer term the business model particularly as we get to the target range and have that at a sustained level does put off good cash um it generates um you know certainly positive cash flow and meaningful cash flow um so you know right now we're sitting in a position where we have access to to the markets with our abl we paid that down last quarter we've got ample access to draw on that if we need to and going forward we expect and want to be in a position where we're generating our own cash and the model gets us there thank you thanks jim i'll just cycle through some of the others salmic chatterjee from jp morgan i don't know if you're able to okay um if you can hear me yeah thanks uh so just a quick clarification first um so you talked about the use cases for xr optics extending from multi-point point to kind of the point-to-point use cases as well i'm just wondering how would that price point compare to a more of a point-to-point solution like a pluggable zr or zr plus because we've often seen it in networking equipment where you have a feature-rich product which is higher asp or higher cost than kind of more of a targeted product for that part of the market so just help me think about that uh and then i will follow up please so it's a i'll talk on two things uh you know price is driven by uh two two um issues it's driven by what your cost structure is and driven by what your market value is from a cross-structure point of view it has everything is the same as a other co as any other 400 gig coherent plug it's got a laser a modulator a dsp etc the dsp you pay on a dollar per square inch of silicon for that at least you the uh when you buy it from tsmc uh and so the cost structures are you know there's no difference uh except in volume the fact that xr pushes deeper into the edge inherently understand you know if i go from a place that aggregates 400 gigabit to a place that aggregates 100 gigabit well i'm guaranteed at least 4x more volume if i go to the aggregation at 25 gigabits well i'm guaranteed uh you know uh you know 16x uh more volume and frankly it's more like 100x more volume i just because i can push those technologies to the edge those volumes will enable xr to be a lower cost structure platform for the industry you throw on top of that the fact that we use photonic integration we have one monolithic piece of optics we have one monolithic piece of silicon inside that inside our optical module those things are very akin to high volume manufacturing as opposed to others that build it with multiple optical elements multiple packages multiple thermoelectric coolers etc they aren't very akin to high volume manufacturing net net our implementation of xr even though it's more sophisticated has a capability have the best cost structure in the industry and then you go and you say well nets also happens to be the most capable technology and there you've got an opportunity to drive value pricing as opposed to cost structure pricing uh and that you know i'm going to reduce their network costs by a factor of four well you know there's value in that uh and there's an opportunity and then you throw in the third element that piece of silicon has as much intelligence in it as your transport box i can put a lot of software in a lot of applications in inside that little tiny plugable i and uh so you've got a whole uh whole paradigm change and how that optical industry has worked in the past uh and uh so hopefully that gives you some insight there yep um just as a follow-up i know you talked about um kind of the upcoming investment cycle where all service providers now need to invest particularly in the metro uh but if we go back and look at the history of the kind of optical industry they have been clear distinct periods of investment in long haul followed by investments in metro so just want to get your thoughts of how long this investment cycle in the metro lasts and how should we think about when you have a 8 to 12 person kind of target at this point how should we break that down into more of a sick what portion of that is more driven by cyclically higher investments happening right now over the next few years yeah i i would say the reason we're giving you the 22 to 25 interval and that's uh that's a lot of years in our industry to look ahead so we think that this eight by four by one plays out where 800 gig is still going to uh scale in that period and be growing in the core in the long haul and uh and in sub c 400 gig is going to definitely be uh as we said uh zr zr plus when you look at the numbers this year it's very little uh so it starts to scale uh next year and into 2023 2024 or 2025 so we think that metro cycle then lays just on top of that uh and continues uh beyond uh 2025 and uh to dave's point uh as people shift the architecture and have the need as they think about 5g and got help a 6g and mobile edge compute by introducing an optic that can that can participate in that zr plus in the meat of the market and then uh be able to bring dynamic policy to the edge of the network um as you get into again revenue wise into that 23 24 25 and beyond you think that's a pretty long cycle and and yeah some of it is it's all driven from the architectural need in the network to uh to be able to adapt to the changing traffic pattern which is a unpredictable and be you know continuing to grow and see where you're setting up data centers everywhere and in a hybrid cloud environment you're constantly moving uh data around it's kind of medcap's law to a new power right not n squared right you're adding another digit yeah so i'll uh add uh you know three quick points on top of that uh uh metro inherently has more geographic locations inherently takes takes longer to roll out right i the the movement of data center functionality to the edge will require construction right it's going to happen it has real value it's got lots of location you know the number of uh i'm not sure i know the number today but the number of google sized data centers in north america yet a few you know a few handfuls right the number of ceo offices in america tens of thousands right the number of cell towers in america hundreds of thousands right uh and uh and that the so the the extent of opportunity is deep but because there's so many geographic locations they can't do it in a day they won't do it a day right but but you can you can see the the battle developing uh the uh service opera service opportunity of edge compute uh and the enabling technologies that enhance the ability for edge compute to happen are big deals they are the next wave of of of the network uh and the access to that of which 5g plays a huge role in and ultimately high capacity any high capacity uh interconnection is going to play a huge role in how that how that goes forward thanks so much thanks dave we're just going to take two final questions we're well over time and as a reminder please if you could fill out the survey that would be great so let's go to tim savage of northland securities time how about that yep we hear you okay great um i think my xr optics question was answered subsequently in context so i want to focus on 800 gig where you did mention industry leading reach performance and for an 800 gig wavelength i just want to find out where that stands right now specifically what kind of reach you're seeing or should we assume that longer each applications are going to run it you know 400 or 600 or something less on the one hand that's one question and then you know part two is to the extent at you know lower reaches there really is no spectral efficiency advantage between 800 gig and 600 gig are we not perhaps missing a horse from this race that we've been talking about uh partly why don't you take uh actually both parts and then david herrera to anybody else you want to add okay um so so took you know two parts to it what's the 800 gig reach and then what about 800 versus 600 versus 400 spectral efficiency uh in in terms of reach uh we we truly believe our 800 gig offering and it's not just us you you've seen the testimonials and the long line up uh truly customers are looking at our 800 gig as a long-haul solution we are quite comfortable because this is based on actual field trials uh talking about indexes of 800 gig we have an osc paper where we'll talk about much larger distances that we can drive and as we increase the baud rate to 100 gigabyte that actually translates to extended reach now one of the factors and this will dovetail into the second part of the question uh is uh as you point out it's not 800 gig our 800 gig solution is deployed at 800 gig in some instances of the network but goes down to 350 400 gigabits per second when it goes to subsidy and with probabilistic shipping we actually have a fine grain of 50 gig so it's not a question of whether there is 400 or 800 it's a total question of how much capacity now the second piece to bear in mind as we drive in fact as you go to subsidy or ultra long haul you really want to run at lower baud rates that's where the other piece of information that i talked about which is our roll-off factors and our ability to push the channels together we've been pushing super channel concepts for quite a long time and therefore we are able to squeeze those channels closer together with you know everybody's line systems today is very flexible so we can really squeeze those channels and get a much higher capacity so i would say the the reach uh based on uh deployment and end-of-life criteria not just a hero experiment uh is is quite impressive to our customers and we see uh the 800 gig being deployed not just in 800 gig applications but all the way down to 300 350 gigabits per second apartheid i think tim was looking for a number though too so at 800 gig what do you see today and what do you see tomorrow so today we we are quite comfortable at uh 800 kilometers uh where we get to a hundred gigabytes of on uh i will just leave it as in excess of uh 800 kilometers now realize it's all fiber plant one one last point david is that we do already deploy 600 gig technology solutions it's not new to us so it's not a competition we are actively deploying chm2t that goes at 400 giga and 600 gig and in those same applications we will be able to increase the total capacity for our customers and to tim's other point right whether it's 600 gig 400 gig solutions right that's why the long cycle is so important to understand it doesn't mean there's just two people now that everybody's gonna adopt uh fifth generation dsp technology it overnight so we we absolutely recognize that and that's why you know you're not seeing us build some ludicrous market share number into our into our financials so still a lot of execution ahead a lot of market to cover thanks tim uh why don't we take the last question from john lopez of vertical group john hi thanks very much uh did i get through yep we hear you oh great oh good i just have one sorry i'll keep it quick and everybody just get out of here but um i guess it's probably for nancy but anybody care to chime in if we take the sort of top-line framework that you guys have laid out for the next few years and then we kind of graph over some of the commentary on on 800 gig it would seem like out to 2023 you don't get any growth other than 800 gig that sort of seems conceptually wrong to me given your focus on 100 and 400 could you maybe just talk through that a bit do you feel as though you have growth drivers across that whole stack and is there anything kind of weighing between now and then that we should that we should think about yeah no it's a really really good question so when you think about that eight by four by one that those are really the biggest growth drivers right so the core 800 gig growth the metro growth in in 400 gig and then albeit some creationism new opportunity as well as vertical integration improvement um on the uh xr zr plus you know vertical integration don't forget while that's going when you look at the legacy network uh people are going to be phasing out of uh older legacy technology and so over the last three years we've you know it's this happens in every networking company right you life cycle manage so you're you're phasing out some of the older generation technologies and platforms that that goes down and and so your overall growth rate of eight to twelve percent you're actually growing much faster uh in the uh in in that eight by four by one kind of like that one chart shows you the overall optical market that's why it looks like two to three percent when in the in the core of that eight by four by one boy that open optical segment is growing a double digit going up and so we mine that very carefully like most infrastructure companies and we bake that into our our future business model nancy anything to add there just you know to reiterate what you had mentioned earlier in that um certainly the team right is off to capture every bit of the analyst expectations in terms of market growth but i'm building this from a bottoms-up perspective right and you know we want to show you that there's upside from here but you know we are really focused on getting to that target model and uh exploiting the market everywhere we can yeah really helpful thank you thank you thanks john uh you know with that i think we'll bring the event a close uh you know as you all know we really enjoy the q a portion of these presentations it's our opportunity to engage with you it's probably the most energetic and exciting for us so before we wrap up i'd like to turn the floor back to david heard david if you want to make just uh any closing comments yeah no i appreciate that so one uh thank you all for your patience we know staring in a screen uh for the last uh four you know 14 16 months uh has not been a lot of fun we did our best to try to give you a view these are always better live but we tried to give you a view not of our quarterly view of getting through this year we've done that on prior earnings calls and and again we're not changing what we've said in our prior earnings call with respect to 2021. this was really to give you that 2022 to 2025 uh you know strategic view and view of the opportunity for infinite so eight really appreciate your patience hopefully we were able to take some of the market and technology uh jargon and translate that into you know the compelling investment thesis for infinera that was our job uh it being techies at heart for for many of us it's hard to do so you've seen us try uh over the last couple of quarters to give you tidbits of market updates and technology updates uh to help along that way we'll continue to do that and your feedback is really really important to make sure we're translating and giving you again not only the short-term views and our quarterly earnings calls but how we're progressing along these long-term milestones it's certainly what we're holding ourselves accountable for so again we appreciate the patience we look forward to your feedback as omnitopic said in the survey to get better we haven't done one of these in a long time so we hope uh we hit your mark in terms of giving you that fill in for that 22 to 25 longer term view of the company with that uh please take care of yourselves and your families we'll continue uh to take care of our families our employees our customers and thus our shareholders so thank you all and please stay well yeah thank you thanks

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Length: 200min 25sec (12025 seconds)

Published: Thu May 20 2021