Cyan's Management Presents at UBS Global Technology Conference (Transcript)

Nov.26.13 | About: Ciena Corporation (CIEN)

Cyan Inc. (CYNI) UBS Global Technology Conference Call November 21, 2013 5:00 PM ET

Executives

Joe Cumello – Chief Marketing Officer

Mike Zellner – Vice President and Chief Financial Officer

Analysts

Amitabh Passi – UBS Securities LLC

Amitabh Passi – UBS Securities LLC

Okay, thank you everybody for sticking around for day three. We are in home stretch here. My name is Amitabh Passi, I am the networking and supply chain analyst at UBS and it’s my pleasure to welcome Cyan to our conference. And I think presenting from Cyan we are going to kick off with Joe Cumello, the Chief Marketing Officer, and then following Joe, we’ll have Mike Zellner make here a few comments on the financials and then we will open up to Q&A. Thanks.

Joe Cumello

Thanks everybody. Again, my name is Joe Cumello, Chief Marketing Officer here at Cyan. I’m going to run through an overview of the corporation today, how we’re doing with, what we’re focusing on at the business, what our value is to our customers, kind of technology we’re implementing with those customers and then of course, Mike will go through the financials after that.

To start, Safe Harbor. We will leave this up for a couple seconds obviously, please refer to our 10-K or 10-Q on our Investor Relation section of our website for more on that. Okay, so Cyan. What business are we in? Cyan is a company that focuses really on providing packet-optical systems and hardware for networks today, and SDN software that controls and orchestrates networks. But in order to sort of describe what these things are, it’s really important to sort of go back in time a little bit and talk about how the Company was founded, and what the original vision of the Company was.

So in 2006, four gentlemen in the Petaluma area met and sort of sat down one day and said, take a look at what’s going on with the virtualization space and VMware and what’s happening in the data center. At some point those decisions that are being made in that space are going to affect the network. The dis-aggregation of software from hardware is making a huge impact there and at some point it will make its way into the wide area network and to transport networks and carrier networks.

So why don’t we take the choice now, when it comes to building performance high end systems, networking systems to disaggregate software from the hardware now. They’ve made the choice to do that and they created a software suite that disaggregated the control planes off of the hardware into a software suite that eventually became our Blue Planet SDN Platform. The packet optical hardware still high-performance networking equipment but controlled and orchestrated through Blue Planet.

From a Company standpoint, from a performance standpoint, from 2010 through 2012, the Company here grown at a CAGR of about 102%. And just a little background, 150 customers currently across the service provider space, data center operators, content based and for private network build.

So some investment highlights about the Company, some things that we should think about as we go through this presentation. There is a large fundamental shift going on in large networks today. It’s related to how the vertical integration of hardware and software system has created an economic model that doesn’t work for carriers, and I think most of the industry is familiar with what’s happening. You got a situation where they have to spend 30% a year on their CapEx, 30% extra on their CapEx every year just to keep up with capacity growth, at only growing their revenues at 3% is creating obviously an issue in how they drive their business.

So we are looking at transforming their network architecture and reducing their dependence on these vertically integrated systems and looking at technologies that allows them to provide more control over their network at a better cost and better operational efficiency. We believe that a software-driven architecture will obviously benefit them greatly. As a company we’ve built that technology today and have deployed it in over 100 networks. We have a growing customer base and opportunity here as a company for considerable revenue growth and margin expansion over time.

So what are the market drivers behind a company like ours? What is growing? What makes this a good opportunity? Obviously there is the growth in sort of the apps and services driven out of – in clouds and data centers really creating massive – really great opportunity from – there is lot of bandwidth-intensive applications, latency sensitive applications, driving the need for high performance systems, cloud compute storage, obviously a huge need in networks today – for the networks themselves to be able to respond to the requirements of cloud compute.

Mobility, you’ve got devices, end devices; iPad, cellphones, creating massive amounts of new content that are driven across the network. And Ethernet is the common protocol connecting everything.

We’ve talked a little bit about this already. When you look at the carrier business model, it’s under a lot of pressure today. And some of the technologies we’re going to talk about from a Cyan’s offering really sort of provides little bit of background on how they might be able to fit this model.

And what’s the market opportunity? When you look at Cyan today, the technology we’ve created from a packet-optical standpoint and an SDN software standpoint, allows us to take advantage of a number of areas of spend in carrier markets. From the Metro WDM space to the OSS space, access and aggregation, multiservice provisioning platforms, packet opticals all equaling an aggregate market size of about $26 billion.

If you take a look at the way networks have been architected today, what have we done that’s fundamentally different than how they were architected before that makes us a viable company to take advantage of this market opportunity. Well, take a look at the way, legacy network architectures were built before. You have Layer 1 technology, WDS technology, so the DWDM Fabric and proprietary software system running those systems. A SONET layer with proprietary Layer 2, Layer 3, all of these technologies add sort of complexity, EMS complexity as well as vision and operate your network at each of these different layers, you have to purchase equipment at those layers, operate your network at those layers, it creates complexity.

Then our legacy OSS platform on top of that, that is sort of difficult to control the network and to drive all these different functions. When you look at what Cyan has done here, you can see that from an SDN standpoint you got a platform that drives the software transformation and the packet-optical hardware that collapses a lot of these layers, we have software control above the hardware.

There is another area of opportunity for the Company that has to do with deterministic traffic across the cores. What’s happened over time is that these massive data centers and content distribution hubs that exist have changed the nature of the way traffic traverses the core. The need for sort of many-to-many connectivity across the core sets up a situation or in the past, you had a huge need for routers to sort of set up that many-to-many connectivity or least we thought we did. Now with major content distribution hubs, large data centers, you have the opportunity to consolidate layers of the network and take some of that traffic off the routers reducing the cost by putting in packet-optical systems.

Here is a little bit of value here on the Z-series systems. What we’ve done here? We’ve combined the packet technology, the packet layers of the network, combined with the optical layers of the network into one system. We’ve got centralized stock where obviously the SDN software controls the platform, but it doesn’t just control the platform.

And we’ll talk a little bit more about the open architectures of the Blue Planet systems. So when it comes to the Z-Series platform, you can obviously upgrade the system with out taking down the network. It is packet based. It has optical scale up to 100 gig, switching intelligence. It was optimized to the way networks need to be built in the future.

The software control system on top of that is Blue Planet. The key takeaways here for Blue Planet is that it’s deployed in over 100 networks today. It’s open on the northbound side for third party app, so you can build apps into the northbound side of the system, with customers today that are doing that besides the own apps that we build, our own app that we built for the system like Planet Design, Planet Operate, Planet View and Planet Inventory.

On the southbound side of the system, it doesn't just control the packet optical systems that Cyan creates, it supports over 50 devices from 22 other companies. Generally what happens is that as the software get deployed into network, automation and control from our customers who pressed automation and control not just over our own systems but other devices, simplifies the way they provision and operate services.

When you look at some of the folks that we support today which will be on the next slide, see that we actually have built in quite an ecosystem of partners like the SDN platform works with today. Here’s a quick view of that.

The level of integration between Group Planet and the third-party partners depends on the application that customer wants to run. So in some cases, it fits SNMP visibility or mid visibility into the platform to show that the performance is up – so the network is up and running, and that is performing well. And in other cases we have full A-Z provisioning control over the device for us to set up a service.

So if you take a look at folks like RAD, Overture, Accedian, we built in quite a bit of A-Z provisioning control of those devices to drive Ethernet services as an example. Up in the right hand corner there are – your right hand, my left, the Blue Orbit Ecosystem is also another set of types of partner that we are cultivating today. Folks like Metaswitch and Connectem for NFV functions or VNF. Folks like Pica8, Arista, and Mellanox, the data center fabric. There is quite a large group of companies that we are working with in trials and in customer labs where we haven’t build an element adapter of the device actually built an software adapter to work with those systems in a multivendor environment.

So let’s take a look at how we implement this technology. I think a great example here is Colt and we’ll walk through how a system like Group Planet helps the Colt. This is something that we recently announced within the last 30 days. As most folks know Colt is a very large Tier 2 in Europe with connecting 22 countries, 39 metros, 150 cities. And their main business challenge of the company was automating and simplifying their networks. And if you look at the legacy network architecture that they had. They had quite a few devices in different parts of the network, at the IP layer, at the Ethernet layer, all running into the optical networks, a lot of different devices to provision its service if it’s very complex. And one of the main things they wanted to do is simplify that process, reduce the cost of it and speed up provisioning in the network, in a multivendor environment.

Because from a competitive standpoint, if you can offer service faster than your competition you are going to win. If you reduce your operational costs across the multivendor network, it obviously provides a lot of advantage as well. The target network architecture as you can see on the right collapses lot of these layers, as I said earlier in the presentation, one of the things packet optical does is it reduces the amount of complexity in systems in the network, reducing the amount of equipment, reduces the amount of operational cost and simple single orchestration software system on top of that can automate across all these different elements.

This is how it looks from a logical standpoint today. The third party or the Accedian devices are out of the Ethernet edge, the Cyan Blue Planet system is providing end-to-end multivendor service automation orchestration across our metro core and into Accedian devices. We are from a routing standpoint, from an IP standpoint, we are interoperating with the network management system of the routing company to make sure that the network is up and live on the IP book. In this way, they are able to from an end-to-end set up services, tear down services automate their network and speed up their services to get a better customer experience.

Here is another example of a customer that has been very aggressive in rolling out our technology, the Web 2.0 very large Web 2.0 company. This figure shows how they were going to connect all their large data centers in a specific metro area. The application here is not so much about service automation and service delivery and provisioning, the application here is efficient data center interconnect for huge amounts of and huge volumes of data for the applications they run to their end customers.

And you can see here we expect that the Z-series packet optical systems collapses the layers, in the connectivity mechanism that’s in the data centers and Blue Planet provides the multilayer network management across that infrastructure.

So our strategic direction and our positioning as a company. What are we going to do and what are we going after? First, let’s take a quick look at the current customer base and some of the types of companies we are pursuing. As you can see we have a large installed base of customers in the service provider market today. We are penetrating fully the data center operator base and also working with the Web 2.0 companies as well. Some of our larger customers Windstream as many know, we are also CenturyLink, Colt, NTT, some of our larger Tier 1 type customers. The customer counts by the end of the year 2013 is to be around 150.

From a strategy standpoint, the growth of the company will be based on these areas here expanding internationally, the company’s work team has step up sales team in Latin America, Europe and Asia, and it’s pushing forward the packet optical story in those markets as well as the SDN story heading to the customers there. We’ve also set up channels internationally to help us with fulfillment in those regions.

As a company we want to penetrate additional verticals. Though we have a great install base as a cooperation today in the service provider market as mentioned, but making our way into the content delivery space, media and entertainment, financial services, government, these are all areas that we have not penetrated yet, obviously provides us with additional opportunity as a Company.

As I mentioned earlier, targeting the edge router footprint would be important for us. As I mentioned the sort of deterministic nature of traffic across networks today has changed where you need to deploy routers. You don't want to get – obviously routers aren’t going anywhere and IP is not going anywhere. They’re predominant networking technology available today.

But across networks, these major content hubs have changed the characteristic of where traffic is sent, Ashburn, Virginia as an example, Elk Grove Chicago, New York, these major content hubs are driving 70% of the traffic across the Board.

You can simplify the amount of dollars you spent, simplify the network, reduce the amount of dollars you spend if you can traverse traffic across to those major content hubs on packet optical systems versus using router ports.

Expand the revenue stream also through software apps. Today we have the Blue Planet system, as I mentioned there are four apps we offer today; Planet Design to design a network; Planet Operate for the operation and automation of the network, to set up and tear down circuits and links; Planet View, which is the SLA management performance management system that provides the portals to the end customer so they can view the performance of the network.

You can design a network, operate and automate a network, view it, provide your customers with a view of the network, so they can see how it’s operating, performing and this is all in multi-vendor implementations, not just our own technology, not just our own hardware.

And the third is Planet Inventory which allows you to inventory the systems you have in the network. Beyond those apps, we offer today, there is an opportunity over time to offer new applications and I will talk about what some of those are coming up in a minute. Obviously also the company has a very strong land and expand strategy which Mike will discuss, land a new customer, the revenue grows off of those customers pretty substantially, so we will go through that.

So future applications for Blue Planet; this slide here depicts what we are currently showing in some large Tier 1 in North America and in Asia and Europe today. The center section around network orchestration describes the Colt application, the control across multiple layers across multiple vendors of network infrastructure and the automation of that infrastructure to drive new services quickly to customers.

What we are showing today at Tier 1 is also the cloud orchestration piece from the NFV orchestration piece. Those are potentially new apps that the company would be offering to those customers over time.

Let me describe NFV orchestration first. NFV orchestration is a multi-vendor function being built into the system that allows you to instantiate VNF, multi-vendor VNF in Blue Planet. So not only can you orchestrate the wide area network resource, but you'll also be able to instantiate the VNF from the network as well. So we have demonstrated that this works with virtual EPC, evolved packet core, virtual route reflector, virtual DHCP all from different vendors.

So a lot of the NFV orchestration technologies to-date that are available are from single vendor system, so X vendor orchestrates their own VNF. We’ve shown this technology works across multiple vendors and with the cloud orchestration piece, which is the other application that we are showing in the system, you actually can take that VNF and put into VM. So what we are showing on the cloud orchestration side is the ability through OpenStack and OpenFlow to connect the wide area network with the data center working with partners as I mentioned like Arista, Mellanox, Red Hat to actually access the data center, direct access the VM, spin them up and then put the VNFs where they need to go in order to orchestrate this across a full implementation.

The point here is that Blue Planet will act as a single pane of glass in an environment where there are many, many, many type of panes of glass, in an environment where the carriers are dealing with operational systems for this vendor, an operational system for that vendor.

We are in an environment where turning up a service requires them to access multiple EMS and where accessing VMs requires them to turn up the different piece of software and the swivel chair mentality is driving them into very difficult operational situations and driving up the time it takes them to provision a service. You sometimes hear terms like 45 to 90 days, turn up in Ethernet service. In an elastic compute environment, that’s not really going to work.

This system puts it all under one pane of glass. We’ve already proved analysis and deployed the technology obviously in the center and we are showing as I mentioned on our quarterly call, technology to the Tier 1 around cloud orchestration and NFV orchestration.

And I'll hand it over to Mike for the financial overview.

Mike Zellner

Okay, so first just a moment on the business model. As Joe mentioned, for all the reasons that are impacting the network providers and those of us at the edge that demand more and more requirements, there is a strong long-term revenue growth profile as we solve those problems for our customers. New geographic and growth opportunities were in primarily North American centric that just the last quarter Q3, were up to about 13% of our revenue being international, still modest, that’s up from 5% in Q2.

I’ll show in a moment a slide where we demonstrate repeat buying patterns of our customers. Our margin profile is set up to expand both on the hardware side as we solve our customers problems more and more packet base line cards and then more significantly on the software side and we continue to invest for growth that is to make sure that we can take advantage of the opportunities that’s in front of us that way.

So this gives a quarterly revenue trend. You can see it over the last several years, continued growth if you take a look at where things are pointing here, our growth profile will be in the low 30s, so we continue to again as we expand both geographically and as we expand within our customers’ networks and continue to deploy more and more equipment with them that we expect that growth profile to continue.

So this kind of gives the same profile on an annual basis. You can see for the first nine months of this year, we're right where we were for the entire year in 2012. So again it demonstrates the growth that way. This is the win that expand chart and essentially what this does is it shows how we come in and we are making an initial sale with a customer tends to be a chassis which is rather thinly configured, perhaps it has two or three line parts and then dealt with that in one area of their network, kind of test it out, they will test out our Blue Planet software in a very small area and as we gained the confidence and as they see the value, then they will move us to another area in their network as they continue to sort of modernize their network.

Sometimes it's greenfield, sometimes it’s brownfield, so this basically shows how that’s worked – what we have experienced in that regard and if you take our top 30 customers as an example related to that initial purchase our top 30 customers on average have purchased 9.5 times that over the period that we that we've designated here.

So again, we call it our land and expand. We get in many times in a rather narrow area, demonstrate the value and then it goes from there. So the opportunity for gross margin, I mentioned it on the earlier slide, you can see that it’s growing sort of to date for us that way, 42% year-to-date in 2013 from a 22% previous year. We are shifting on the hardware side to higher margin packet-based solutions and certainly when we sell initially a chassis with a couple of line card that sets it up for us filling that in with much higher margin cards, higher margin profile cards that way.

We also get the economy of scale of course which drives down cost, which we are doing on a regular basis. And then as our Blue Planet software solution expands throughout the network, that of course is a very high margin profile and that kind of sort of blends in if you will and causes our overall margins to grow. I will show you our target operating model in a moment.

So again these are the results you can see the last Q3 versus Q3 last year. I’d like to think that our progression in margin is up into the right every quarter is an always that way. We actually had a quarter where we had a number of new customers and therefore sort of thinly configured a chassis that impacted things in this past quarter that we just completed. There is also a single large customer of ours that has an annual review of their pricing and so we had a little bit of pricing pressure on that regard with one very large customer.

But you can see the progression and in fact, this is our long-term operating model, which is very much intact that way, you can see how we are progressing both in terms of gross margin over the course of the four years there, year-to-date in 2013 along with our long-term market model, and we’ve talked about being able to, we believe we can get there in the three to five year time period.

So again 56%, 60% gross margin and then down to operating margin is 15% to 20% share. We haven’t given it, we haven’t given a revenue level specifically but given the timeframe of three to five years in the growth profile that we’ve talked about, as we think that our growth next year can be similar to this year, so that will give you a sense of it.

So there is definitely a component of software that we think we can get, we think hardware only side we can trend towards 50%, but certainly to get to these levels, there is a software component that’s significant. We’ve talked about believing that we will be at a point where we'll break software out at some point probably closer to the end of next year end of the Q4 of next year and that point it will be 10%.

So it’s a flywheel, if you will, because it is recognized ratably and it takes time to get going, so it’s a – I mean our solutions are absolutely going to both hardware and software together, but it’s so once we start getting to 10%, 15%, 20% then we’ll – you will see some dramatic movements up there.

Question-and-Answer Session

Unidentified Analyst

[Question Inaudible]

Mike Zellner

So all one hundred are in production. It may not be across an entire network but it is carrying live traffic in the area that it is. The lion's share are – I don't have the exact number, I don’t know if you do Joe. But the lion's share is – we have no equipment, and where it’s a multi-vendor, it only a hardware side [indiscernible] of the hundreds.

The Tier 1s the companies of those any Tier 1s went down?

Unidentified Analyst

[Question Inaudible]

Mike Zellner

Absolutely, correct. Right.

Unidentified Analyst

[Question Inaudible]

Mike Zellner

In surely multi-vendor the difference as I mentioned is always application specific, so it could just be Planet use sort of network management type functionality where you are just visualizing whether or not the device is up or down, sort of SLA management view and in some cases it’s actually sort of provisioning a device or cost.

Unidentified Analyst

[Question Inaudible]

Mike Zellner

Off the top, I don’t know off the top of my head, but there are probably the majority of those are SLA management applications.

Amitabh Passi – UBS Securities LLC

And Mike can ask you a quick question.

Mike Zellner

Yes.

Amitabh Passi – UBS Securities LLC

Just on the hardware gross margin target of 50%, is there anything unique that you are doing that to get there because I look at other packet-optical vendors in the space and barely anybody is above 45%, just trying to understand your strategy to get that 50.

Mike Zellner

Well, it’s close – getting to a point where we can take advantage of scale of course, and so it’s on the cost side. And it’s – as we have – as I mentioned in this quarter, as example although I am talking out three to five years, we have rather thinly configured chassis. Chassis carries very low gross margins as you might imagine. And then when you fill in those in discreetly with your high value packet-oriented cards and that will help us get there. So it’s always a – it’s a little bit of a steeple chase of course right, but it’s certainly our target.

Yes, I think I actually only have one more slide which is the wrap up slide, which is the key investment highlight and we’ve been talking about the shift in the network requirement is driving the opportunity. The architecture transforming the network architecture with both our packet-optical solutions as well as Blue Planet, the software-driven open architecture that will allow us to operate control not only our hardware but third-party hardware, and the growing customer base not just of carriers but of other verticals as well as Joe mentioned. And then, growing revenue and margin expansion as well. We'll talk about those [indiscernible].

Amitabh Passi – UBS Securities LLC

Any questions, yes.

Unidentified Analyst

[Question Inaudible]

Mike Zellner

Everything is done on standard [indiscernible].

Amitabh Passi – UBS Securities LLC

I was curious, just your stock reaction. What do you think the Street is missing on why, I mean I think since your IPO, stock prices declined quite precipitously. So we’d love to get your…

Mike Zellner

I make it a point not to comment on stock prices specifically obviously Mr. Market was not happy with our Q4 guidance, we met our Q3 guidance as well as Q2, so I think it’s more oriented towards, what where things are going in the future. So I think there is an expectation there of higher growth. I guess that is obvious. But I think it’s – when you think about all the things that Joe mentioned, the opportunity is huge and the growth profile is there. And – so I think it’s I am assuming again it’s a little bit of show me mentality that’s out there at some level and want to see it on the P&L.

Joe Cumello

I will add a comment to that. I think that there has been some you hate this sort of lump yourself in with everything else is going on in the market has been a bit of ground swelling for around carrier CapEx slowing down. And the government budget issues from issues from Cisco to Advent [indiscernible] to Ciena to a lot of players, sort of talking about the same fundamental shift that’s happening in CapEx spending. So while you don’t want to lock yourself in stuff like that we have a high growth profile and we want to stay with that clearly is part of what we mentioned in the conference call as well for the quarter.

Mike Zellner

Yes, one of the thing I think that will benefit is that as we have become more and more successful outside in addition to the service providers, that will allow for a little bit of a, I guess, I will call it a portfolio effect in terms of some of these cycles. Today we are pretty carrier centric, so we did impacted by their cycles pretty dramatically.

Unidentified Analyst

[Question Inaudible]

Mike Zellner

Sure I mean my – I think we all have our invasive thoughts, I will answer it and then, Joe, maybe you can. You it’s first of all, it's a shorter cycle. They tend – that profile of customer tends not to have such a large installed base and I also believe that they're not so kind of stuck in looking in terms of how they have done things in the past simply because they haven't – they've purchased these services before from the service providers.

So you do not get the inertia effect that you tend to get on the carrier side, so exactly a faster cycle, I think that a lot of it has to do with how the carriers will ultimately respond because there are big pieces of their business that are potentially being taken over by some of these large, end content folks, whether it's an Amazon or a Facebook, you name it. So if they move and respond so that they can maintain their profile, then it may moderate a bit. If they don't, then I think a lot of the sort of service that will end up being provided to all of us on the edge will end up migrating over towards a model. So that will change things a lot. I don’t think it’s clear exactly how it is going to shake out, I don’t know if you have any…

Joe Cumello

Yes, I think carriers have but we have learned over our deployment that carriers have a very specific methodology for implementing this type of technology, and it sort of like a five step process, which is very different from the content players who don't have the legacy installed infrastructure.

So if I were going to look at the carrier market, I’d say the first thing they do is they are going to sort of discovery mode. What operational processes do I have? What support systems do I have? How many layers of the network do I have to simplify? And that discovery process takes a little while for them to figure out, what do I want to tackle first.

In Colt's case, it was automation, to use that as an example. If I can automate it, I can get revenue quicker. The second part is simplification. And we are going to simplify the layers of my network? Which layers am I going to simplify, am I going to simply my operational support systems, am I going to use software to do that? And they each make their choices differently and one of the benefit of Blue Planet is that it helps to address a number of different things; the discovery, simplification, then automation.

So the automation process is one of the first things they tackle because it is something that very manual today. The fourth is orchestration. So now how do I connect my network with data center assets? And the fifth is network virtualization. So in each engagement it seems to sort of go through this very definitive path of decision making and engagement. And we sort of have a really good understanding as a Company of how to address that in each of those spaces.

Going back to your question the content guys is different. They do not have the legacy infrastructure. They don't have – they have a very progressive view of how quickly they can do things. They have incredibly smart people on staff – every company has smart people, but they sort have this willingness, this operational willingness to do that, so it tends to move faster and they tend to be more forward looking when it comes to technology they deploy.

Mike Zellner

The folks making the decisions at the telcos are my age, and the folks making decisions at the [indiscernible] are my daughter's age now…

Joe Cumello

Pretty much.

Amitabh Passi – UBS Securities LLC

Joe, I'm just curious, what are you seeing in the market and the conversations you are having with your service provider customers around these options NFV and is it significantly different across geographies?

Joe Cumello

So we are seeing, the conversations around NFV are probably the most as I mentioned aggressive to start that we are engaged with on future applications, as I mentioned in the especially in the Tier 1 space. And the main reason for that, and I will talk to your regional question in a second – the main reason for that is that the SDN orchestration piece is actually much more might take a little longer to develop, because connecting the WAN and the data center and operationalizing that as a service is probably a little bit more of a complex process, but NFV the actual turning a piece of hardware and appliance into software, and then just instantiating that in VM and offering it to customers is actually a simpler – probably a simpler action, and the problem though that you have if you are a carrier and you have WAN optimization, DHCP, security functions, all these things that our appliances today, you have to say to yourself well don’t want VM creep.

And I don’t want to have all these different management portals that I have to open to manage all these VNF, which is going back to Blue Planet, which is our vision for it, if you have one pane of glass to instantiate all these VNF, it should simplify that process, so those conversations are – we are not going to be an NFV. We are not going to offer an NFV, but we will orchestrate all the VNF and that’s where a lot of those conversations are.

The hot topic areas right now for that type of technology are virtual evolved packet core technology, virtual router, route reflectors technology and then some of the simple things that we do like. Again we don’t offer those technologies I want to make it clear. We are working with folks to orchestrate those. I think we will now connect them for the virtually PC as an example, Metaswitch for the virtual route reflector and open source DHCP versus DHCP as another example.

Well, on your regional question, it seems that in North America and Europe, there is quite a bit of focus on the mobile networks that virtual evolved packet core technologies as an example. And in Asia, probably more focus really on packet-optical and just automation, just general sort of Blue Planet software automation and orchestration.

Amitabh Passi – UBS Securities LLC

I think we’re almost out of time, if any one last question? Maybe just one last one from me; competitive landscape, how would you characterize that, who would you run into most often?

Joe Cumello

I think that there is two views for the competitive landscape for the Company. We of course have the standard packet-optical companies that we would compete with on the hardware side. The advantage we have there almost always relates back to the software, because the packet-optical space, you got 100 gig, I got a 100 gig. You’ve got a certain switch fabric, I’ve got a switch fabric. It really comes down to the software, people asks us all the time what percentage, you have a high percentage of your revenue, which is hardware. We like we have this anecdote internally. 100% of our revenue is actually in the software and I don’t mean that literally, I mean it because we win because of the software.

So from a competitive standpoint, you have those sort of packet-optical guys and the software helps us win there and then on the software side – not the hardware side; we are seeing both the people like to say, we might compete with Tail-f as an example of the new sort of up and coming SDN Company. But we actually view them as more complementary than competitive that they are doing YANG and NETCONF, downstream vendor device provisioning. That's just one thing that Blue Planet does in its different model. So we see them as someone that it’s actually sort of complement to each other in the network.

A lot of folks also sort of say, well what about Juniper or Cisco or Infinera or Ciena’s SDN strategies. We have to break those apart then, because Cisco which is largely, or big switch or Nicira, VMware, that’s all data center SDN technology. We were in the land. This is a transport technology. So it’s a little bit different. We’re controlling and orchestrating networks across large multi-metro or within metro networks not within the four walls of the data center. And I think that’s an important distinction to make, we don't compete with those SDN solutions.

Mike Zellner

I would say by the way just add to that, I would say the strategy of the kind of this traditional, big traditional suppliers base relative to an SDN kind of solution across the network. It’s really to do their best kind of freeze things for a while. I mean their take is, this is real and it’s there and but it’s not ready for prime time. So hang with us and we will have it for you in five years. Meanwhile we’ve taken….

Amitabh Passi – UBS Securities LLC

That’s right. I think that one last point and actually really important one is that we are taking advantage of a mood swing as well, and I know it’s not quantifiable. But a mood swing within the carrier that has to do with the fact that their operational models broken and that does largely come from the cost of the existing software and hardware they exploit today.

Joe Cumello

So AT&T announces Domain 2.0 for very specific reason and they are willing to look at other vendors for specific reasons because we are not encumbered by the billions and billions of dollars that has been potentially spend on vertical integration of software and hardware systems together, because they work a certain way. We just aggregated that. And so we have a sort of go to market advantage being able to just deploy today and if it work, if someone want to do an SDN, hyper NFV deployment of Blue Planet type deployment today which is where we get a lot of our initial traction. We view that as a actual small company competitive environment in a market that often doesn’t view those as competitive environment or a competitive advantage being a small company. For us we view this as an advantage.

Amitabh Passi – UBS Securities LLC

We could go on, but unfortunately we’ve run out of time. Mike, Joe, thank you both so much for coming.

Joe Cumello

Thank you.

Mike Zellner

Thanks for having us.

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