Transcript TeleSoft Partners

TeleSoft Partners
Segment Themes
October 25, 2002
www.telesoftvc.com
CONTENTS
Page
I.
TeleSoft Target Segments
2
II.
Datacenter Segment Overview
5
III.
Software Segment Overview
8
IV.
Telecom Systems Segment Overview
11
V.
Optics Segment Overview
14
VI.
Semiconductor Segment Overview
18
Page 1
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TELESOFT TARGET SEGMENTS
Estimated Revenue for
Entire Industry Segment ($ Millions)
2001
2002
2005
Segment
Semiconductors
• Communications
• PC, Consumer
$30,028
$48,115
$30,521
$48,974
$48,477
$60,104
$78,143
$79,495
$108,581
$4,386
$2,301
$4,049
$4,386
$2,301
$4,049
$169,155
$59,994
$33,569
$151,171
$64,042
$31,308
$167,772
$84,487
$49,333
$262,718
$246,521
$301,592
$58,972
$31,241
$1,555
$58,959
$31,546
$2,120
$70,757
$40,017
$5,946
$91,768
$92,625
$116,720
$49,878
$38,100
$54,758
$33,600
$78,521
$49,600
$87,978
$88,358
$128,121
$89,514
$45,198
$98,201
$51,090
$140,532
$84,315
$134,712
$149,291
$224,847
$49,139
$42,925
$56,036
$49,139
$42,925
$56,036
$1,152,379
$137,500
$1,247,482
$179,600
$1,561,714
$392,800
Subtotal
$1,289,879
$1,427,082
$1,954,514
Total Telecom and Data Equipment and Components Revenue
(Excludes SP Revenue)
Source: IDC; RHK
$708,843
$701,517
$939,945
Subtotal
Photonics
• DWDM, SONET/SDH
Subtotal
Datacom and
Telecom Systems
• PCs, Workstations
• Enterprise networking
• Telecom systems
Subtotal
Servers and Storage
• Servers
• Storage (disk/tape/FC)
• IP management
Subtotal
Software
infrastructure
• Systems/Enterprise management
• Carrier OSS/Billing
Subtotal
Software
Applications
• Packaged applications
• Application development and
deployment software
Subtotal
Broadband Wireless
• 2G, 2.5G, 3G
Subtotal
Enterprise and
Carrier Networks
• Carrier
• xSPs
I. TeleSoft Target Segments
Page 2
Representative TeleSoft Investments
AmberWave, Catamaran (Infineon), Ikanos,
Lara (Cypress), SigmaTel, VxTel (Intel), Xpedion
Kymata (Alcatel), LYNX-Photonics, Modetek, Novalux,
NP Photonics, Red Clover, Versatile Optical Networks
(Vitesse)
Calient, Cerent (Cisco), Cosine (IPO), Internet Photonics,
IPUnity (empowerTel), Promatory (Nortel), Vina (IPO)
Aarohi, ConvergeNet (Dell), CreekPath, InfoLibria,
OmegaBand
BayPackets, iWitness, Jungo, OSI (IPO/Agilent)
ProFlowers, The Feedroom
Titon Networks (IPO)
Bombay Cellular (Hutchinson), Omnipoint
(IPO/Voicestream), OnFiber, Star21
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TELESOFT TARGET SEGMENTS
Aggregate Market Cap
Segment
Companies
October 2001
Semiconductors
Broadcom, AMCC, PMC-Sierra, Marvell, Intel, TI
$248B
($173B = Intel)
Photonics
Agere, JDS Uniphase, Corning, Finisar, Avanex
August 2002
Aggregate Revenue TTM
2001
2002
$178B
($128B = Intel)
$44B
($30B = Intel)
$36B
($27B = Intel)
$30B
$9B
$16B
$8B
Datacom and
Alcatel, ADC, AFC, Scientfic Atlanta, Cisco,
Telecom Systems Riverstone, Juniper, Foundry, Extreme, Avaya,
Ciena, Lucent, Nortel, Tellabs, Sycamore
$224B
$145B
$98B
$116B
Servers and
Storage
Dell, Sun, EMC, HP/Compaq, IBM
$374B
($181B = IBM)
$292B
($139B = IBM)
$235B
($90B = IBM)
$206B
($81B = IBM)
Software
Infrastructure
CA, Veritas, Checkpoint, Amdocs, Convergys
$50B
$25B
$9.5B
$8.9B
Software
Applications
Oracle, Microsoft, Siebel, PeopleSoft, Adobe
$472B
($336B = MS)
$393B
($288B = MS)
$49B
$51B
Broadband
Wireless
Nokia, Ericsson, Motorola, Comverse, Qualcomm
$221B
$134B
$98B
$78B
Enterprise and
AT&T, Sprint, Worldcom, Level3, Broadwing
Carrier Networks Verizon, BellSouth, Qwest, SBC
$119B
$64B
$123B
$98B
$369B
$234B
$160B
$153B
Totals
$2,160B
$1,520B
$857B
$718B
Source: Yahoo! Finance; company financials
I. TeleSoft Target Segments
Page 3
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INDUSTRY SEGMENT OVERVIEWS
Landscape/Trends – Valuations – Investment Perspective
Datacenter
Software
Systems
Optics
Semiconductors
I. TeleSoft Target Segments
Page 4
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DATACENTER LANDSCAPE
System & Storage Software ($58B 2002, 13% CAGR)
Services
($448B 2002
11% CAGR)
IP Management
(FW, IDS, LB,
Content Mgmt.)
IP Fabric
Servers
IO Fabric
Systems
($155B 2002
8% CAGR)
storage
subsystems
Technology Roll-out
Storage Resource Mgmt
Blade Servers
XML
InfiniBand
Serial-ATA Drives
iSCSI
Web Services
2002
2004
2006
2008
Source: IDC
II. Datacenter Segment Overview
Page 5
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DATACENTER VALUATIONS
Datacenter Public Valuations
40%
• Public Market
– EMC
– Veritas
– Net.App.
20%
$9B, -74% in 2002
$5B, -55% in 2002
$2B, -55% in 2002
0%
-20%
-40%
-60%
-80%
-100%
• IPO and M&A
software
security
systems
services
Nasdaq
2001
-29%
24%
-71%
-92%
-50%
2002
-55%
-11%
-64%
-75%
-34%
– No recent IPO’s
– Software $20M to $250M (Comstock, Prisa, Recource, Security, PetaSafe)
versus $300M-$400M (Highground, StoreApps) in 2001
– Hardware $50M to $150M (Pirus, Rapidstream, Benchmark) versus
$210M-$265M (GigaNet, Pathlight) in 2001
• Private Funding
Datacenter Private Valuations ($ millions)
Year
First Rnd.
Second Rnd.
Third Rnd.
Software
2002
$6 @NA pre
$10 @$10 pre
$11 @NA pre
Software
2001
$7 @$13 pre
$20 @$20 pre
$28 @$122 pre
Systems
2002
$9 @NA pre
$19 @$17 pre
$21@$47 pre
Systems
2001
$14 @$20 pre
$31 @$77 pre
$44 @$98 pre
– Raise and pre-$ decline
Source: VentureSource, Press
Releases, Yahoo Finance
II. Datacenter Segment Overview
Page 6
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DATACENTER OPPORTUNITIES
Segment
Why Interesting
Select Key
Players
Investment Perspective
Storage Mgmt /
Datacenter Mgmt
Cost of managing data center
assets is 5x cost of procuring
equipment. Increasing complexity
of data center operations.
Veritas,
BMC, EMC,
CA, HP, IBM
Products managing
heterogenious resources, with
strong partnerships, & flexible
architectures
Integrated
Security
CIOs are finding it difficult to
manage multi-level security
NetScreen,
Network
Assoc., CA
Bigger software (suites) and
smaller hardware (appliances).
Near-term avoid services until
proven business model.
XML / Java
Acceleration
Increasing use of XML and Java is
creating an emerging performance
bottleneck on servers
Sun, IBM,
MIcrosoft,
IONA
Investigate hardware
acceleration with reasonable
development costs and
providing 5x end-user ROI.
Server QoS &
Virtualization
Optimizing data center infrastructure
by increasing the efficiency of
existing assets and consolidating
resources.
Alteon, F5
Software to allocate and
monitor heterogeneous
resources based on application
and departmental requirements
S-ATA
Compelling value proposition and
market disruption, likely to expand
into the enterprise.
Intel, ADPT,
MRVL, LSI
Logic, EMC,
NTAP,
Early OEM traction and
sustainable margins.
BEA, IBM,
TeraData
Transparent acceleration of key
applications.
Application &
Removing performance bottlenecks
Data Base
as business move to more real-time
Acceleration
operations.
II. Datacenter Segment Overview
Page 7
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SOFTWARE LANDSCAPE
Custom
Development
Packaged
Applications
e.g. ERP, CRM, SCM
Vertical Applications
Development &
Deployment
($98B 2002,
13% CAGR)
e.g. Tools, Testing, Deployment
and Configuration
($51B 2002, 18% CAGR)
Infrastructure Software
e.g. Databases, App Servers, Data Infrastructure,
Integration Servers,
Information Access, Information Portals
Systems Management Software
Software spending increased from 32%
to 48% of total IT spending in 10 years.
Software comprised over 50% of venture
investments in IT since 2000
The
push for the real-time operation is
creating a large market for: product supply
chain, CRM, security and content
management.
Software
as a service ( i.e. ASPs ) went
through significant restructuring. Major
players (e.g. Microsoft, IBM) are pushing
business model through .NET and web
services.
e.g. Systems management,
storage management, security
($66B 2002, 13% CAGR)
Near term focus on enhancements to
existing software applications through
software integration tools and better
security for business continuity
Long term focus on continued move
to fully distributed applications (at
the component level)
Source: IDC, TeleSoft
III. Software Segment Overview
Page 8
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SOFTWARE VALUATIONS
0%
• Public Market
Change in Market Capitalization
-20%
-40%
-60%
-80%
• IPO and M&A
Applications
App. Dev.&
Deploy.
Syst. Mgmt.
NASDAQ
2001
-49%
-74%
-19%
-50%
2002
-34%
-32%
-40%
-24%
– 95% of VC exits in software in 2001 were through M&A
– IPO market essentially closed for enterprise software companies. Plumtree
(43x 2003 EPS) and Altiris (23x 2003 EPS) went out earlier, both forecasting
approx $90MM in revenue for 2003. Both now trading in low 20x EPS.
– Recent takeover premiums for public software companies 40% with next
twelve month revenue multiples of approx. 1.4x
– Median transaction size for software M&A approx. $77MM (2001-Sept 2002 )
for deals at least $25MM
• Private Funding
Source: VentureSource, Yahoo Finance, Press
Releases, SDC and Wall Street Research
III. Software Segment Overview
Median Pre-Money Valuation by Round Class ($M)
1996
1997
1998
1999
2000
2001
Seed Round
$2.6
$2.7
$3.3
$4.5
$5.0
$1.8
First Round
$7.1
$7.5
$7.8
$9.3
$13.0
$8.0
Second Round
$18.7
$19.3
$20.2
$30.0
$37.0
$15.4
Later Stage
$26.5
$34.8
$37.2
$54.8
$85.0
$33.1
Page 9
2002
NS
$5.0
$10.0
$15.4
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SOFTWARE OPPORTUNITIES
Segment
Appeal
Select Key
Players
Application
performance
management
•Increasingly complex infrastructure requires next generation of
application performance management.
•The focus is likely away from element frameworks and growth
remains in the new generation applications.
•Current IT spending also focused in integration and
performance of existing investments.
BMC, CA,
IBM ( legacy )
and HPQ ( open
systems )
XML
infrastructure
•Better automation of inter-company business processes
based on XML
•Increasing adoption of XML will provide demand for
innovations in database performance, integration with
hardware acceleration solutions and data infrastructure
management opportunities
Major database
vendors,
Software AG,
integration
players
Security
•Continuing shift to even more distributed systems at the
application levels will pose technical challenges for the
provision of manageability and security of software
components. This functionality will likely be in embedded form.
Network
Associates,
Symantec and
Check Point
Targeted
vertical
applications
•With IT spending on a slow rebound and no urgent platform
shift, application vendors with a well targeted products can
provide additional vertical sector value.
•Recent M&A data supports liquidity path for niche vertical
industry focused companies.
III. Software Segment Overview
Page 10
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TELECOM SYSTEMS LANDSCAPE
LAN
0km
Access
Local CO
CPE
Ethernet
IP Routing
10km
Copper
Pt to Pt, Digital Loop
Carrier (DLC), Cable,
Ethernet
PBX
802.11 /
WLAN
Metro
Regional CO
Fiber
Ethernet, SONET,
PON, FTTH / B
Wireless
GPRS, 3G, Fixed
Wireless, Freespace
Long Haul
100km
Inter Exchange
2000km+
SONET / MSPP
LH/ULH DWDM
Ethernet
SONET
CWDM/DWDM
Optical Cross Connect
Digital Cross Connect
Class 4 Switching
Class 5 Switching
IP Routing
ATM
Emphasis on standards (OSMINE, NEBS)
Need for capital relief
Customer concentration
Bankruptcies / reorganizations creating
gray market for inventories
Favoritism towards established vendors
Need for regulatory reform
IV. Telecom Systems Segment Overview
Skew of capital expenditures to foreign
markets
Page 11
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TELECOM SYSTEMS VALUATIONS
Number of Systems Deals
120
Systems ecosystem continues to rebalance:
• ~$10B of private equity invested in systems
start-ups from ’98 – ‘02
Ser Seed / A
Ser B
Ser C+
Corp
100
80
• Systems investment shut downs in 2002 =
> $1.3B of invested dollars
60
• 29% reduction in incumbent systems vendor
R&D expenditures
40
20
-
1998
1999
2000
2001
• Ser A & B = Total $ required to fully fund
systems company challenges potential return
2002
• Ser C & Later = Opportunistic, early round
valuations available
1998
1999
2000
2001
2002
Ser A
$5.4M @
$5.9M pre
$7.6M @
$12.3M pre
$14.1M @
$22.9M pre
$12.7M @
$16.9M pre
$11.3M @
$12.1M pre
Ser B
$7.0M @
$34.8M pre
$18.1M @
$62.4M pre
$34.4M @
$137.5M pre
$28.6M @
$72.3M pre
$14.9M @
$55.9M pre
Ser C
$12.5M @
$53.0M pre
$28.9M @
$324.9M pre
$68.0M @
$465.5M pre
$37.5M @
$94.5M pre
$28.2M @
$79.0M pre
Source: VentureSource, Press Releases and Wall Street Research
IV. Telecom Systems Segment Overview
Page 12
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TELECOM SYSTEMS OPPORTUNITIES
Near Term Trends (Now – 2+ years)
Long Term Trends (3-5 years)
–Access Infrastructure
–ATM / Multiservice Switches
•Bottleneck remains the last mile
•Likely the technology of choice for out-ofregion aggregation
•Digital Loop Carriers, RT-based DSL,
Ethernet services, VDSL, Fiber
Deployments
–Edge Devices (
•RBOC entrance into long distance
–MPLS Core Switches
)
•Integration of legacy services with newer
technologies
•Low cost, multi-service access devices
(Combine SONET, Ethernet, Fibre Channel,
etc…)
•Migration to converged IP core
•G.MPLS service / bandwidth provisioning
•Creation of 5th network or true convergence
achieved?
•Need for remote management / selfprovisioning
–Software (
)
•Inventory Mgt., Provisioning, Automation,
etc…
•Application delivery & management
•Reducing OPEX expense will help restore
health to the service providers
IV. Telecom Systems Segment Overview
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OPTICS LANDSCAPE
Systems: access, metro, long haul
Modules & Subsystems:
amplifiers, switches, ADMs,
transponders
Discrete components:
passives, actives, planar,
semis
Materials & Methods:
Wafers, Fiber Preforms,
Processes
Kigre Glass
V. Optics Segment Overview
Page 14
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OPTICS VALUATIONS
Optics Industry In Profound Malaise
Carrier
Spending
Dead Zone
How long?
How
deep?
Y / X
How fast?
Early investor
steps in here…
…gets washed
out here
Investor
risk
V. Optics Segment Overview
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OPTICS VALUATIONS
Market Cap Declines 2Q00 – 2Q02
$ Billions
Lost
%
JDS Uniphase
$127
95%
Ciena
$17
88%
Lucent
$168
91%
Nortel
$163
94%
Alcatel
$50
76%
JDS Uniphase market valuation and
M&A activity as a proxy for optics
industry
$316
JDS Fitel
$6.1B
OCLI $3B
$34
98%
TOTAL
$876
85%
00
Cronos $750M
75%
Marconi
SDL $41B
ETEK $15B
99
Cisco
JDSU M&A
Values
($ B)
JDSU
price/
share
($/share)
Akzo
Nobel
$20M
Epitaxx
$400M
01
02
IBM
Laser
$340M
Source: Yahoo Finance, public market information
V. Optics Segment Overview
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OPTICS OPPORTUNITIES
True Transparent Networks
High BW, Long Span Transport
Transparent Switching, Routing
Modular System Architectures
Dynamic Network Control
Tunable lasers
Dynamic gain
equalizers
Dynamic DCs
Modulators
High-density  filters
Tunable  filters
AO switches
AO  converters
Wideband amps
Tunable
Transparent
Scalable
Manageable
3R regens
Packaging
Optical packet
routers
InP photonic ICs
SOAs
VCSELs
V. Optics Segment Overview
40 Gb transp.
Photonic crystals
Page 17
OPM equipment
Alarm filters
 partitioning
Network mgmt
Nanooptics
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SEMICONDUCTOR LANDSCAPE
Communication
Consumer
Compute (PC)
AMS
Generic
Access
(Modem and
Local Loop)
$3.2 B (2001)
3.1% CAGR
Digital TV/
STB
$2.3 B (2001)
-4.6% CAGR
Microprocessors
$21.9 B (2001)
5.8% CAGR
Power ICs
$2.9 B (2001)
10.2% CAGR
Memory
$5.6 B (2001)
19.7% CAGR
Data Converter
$1.8 B (2001)
3.1% CAGR
FPGA/PLD
$2.1 B (2001)
Amplifiers and
Comparators
$2.2 B (2001)
-1.5% CAGR
Microcontrollers
WAN ICs
$2.6 B (2001)
6.0% CAGR
LAN ICs
$1.9 B (2001)
13.8% CAGR
Layer 3-7
Processing
$2.1 B (2001)
18.7% CAGR
Wireless
Infrastructure
$763 M (2001)
17.5% CAGR
Digital Audio
$188 M (2001)
26.6% CAGR
Digital Cameras
$2.3 B (2001)
11.5% CAGR
Digital Displays
$2.3 B (2001)
11.5% CAGR
Optical Storage
$1.6 B (2001)
7.9% CAGR
Videogame
consoles
$5.5 B (2001)
-5.9% CAGR
PC Core Logic
$5.6 B (2001)
4.5% CAGR
Graphics
Controller, Video
and Audio Sub
System
$2.3 B (2001)
-4.6% CAGR
Communication
$0.95 B (2001)
16.6% CAGR
Interface
Drivers
$2.1 B (2001)
2.3 % CAGR
Semiconductor
IP
Storage
$3.3 B (2001)
-1% CAGR
Source: Wall Street Research Reports, IDC and RHK
VI. Semiconductor Segment Overview
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SEMICONDUCTOR VALUATIONS
(30.0%)
(40.0%)
(22.7%)
(37.8%)
(50.0%)
(42.6%)
(42.6%)
Generic
AMS
Compute
Consumer
(20.0%)
Communicatio
n
(10.0%)
Semi SOX Index
0.0%
Nasdaq
Annual Change in Market Capitalization/Nasdaq
(39.0%)
(43.9%)
(49.1%)
(60.0%)
Selected Acquisition Values
• Broadcom acq Mobilink (mobile chipsets) for $190M on April-02
• RF Micro acq. Resonext (802.11 chipsets) for $133M on Oct-02
Pre-Money Valuations
Median Pre-Money Valuation by Round Class ($M)
1996
1997
1998
1999
2000
2001
Seed Round
NS
$4.14
NS
$3.25
$8.83
NS
First Round
$7.3
$9.8
$7.3
$11.0
$16.0
$9.3
Second Round $29.0
$26.4
$20.0
$27.8
$54.5
$30.5
Later Stage
$43.3
$47.5
$50.8
$55.0
$85.0
$73.0
2002
NS
$4.1
$29.8
$25.5
Source: VentureSource, Equidesk, Press Releases
VI. Semiconductor Segment Overview
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SEMICONDUCTOR OPPORTUNITIES
Segments
Compute
Areas of
Interest
Appeal
Select Key
Players
Investment
Perspective
ICs dedicated to offloading
the CPU on higher layer
protocol processing
Most of the accerleration
needs to happen in Silicon
XML Acceleration
Server Offload,
Impending Bottleneck
None
Application Aw are
Security
Higher speeds,
Hardw are acceleration
None
AMS (Analog
Mixed Signal)
Pow er and Display
ICs
Continuous Integration,
Capital efficient
Maxim, TI, Linear,
O2Micro, Intersil
CMOS based, fabless model,
programmability, cost
competitive w ith existing
solutions
Communication
Signal
Compensation
A must have at higher
data rates
Broadcom
CMOS based approach;
Integrated into existing
architecture
Generic
Materials
Increase speed and
integration (RF and
optics)
IBM, Intel
Low ers cost and enables
new functionality
VI. Semiconductor Segment Overview
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