Enablence Technologies Inc. Investor Update Annual and Special Meeting of Shareholders, December 14, 2011
Safe Harbor Statement The presentation of this information may contain forward looking statements that are based on current expectations, forecasts and assumptions that include risks and uncertainties that could cause actual outcomes and results to differ materially. These risks and uncertainties include, but are not limited to the strategic alternatives and divestiture of the Systems segment, the expectations of the joint venture in China, the ability to obtain funding to operate the business, the pricing, competition, dependency on new product development, reliance on major customers, customer demand for our products and services, control of costs and expenses, international growth, uncertain general industry and market conditions and growth rates, and unpredictable impacts of global recession and uncertain general domestic and international economic conditions including interest rate and currency exchange rate fluctuations. For a further list and description of such risks and uncertainties see the reports filed by Enablence Technologies Inc. with SEDAR (www.sedar.com). While the information herein is collected and compiled with care, neither Enablence Technologies Inc. nor any of its affiliated companies represents, warrants or guarantees the accuracy or the completeness of the information. The information is presented solely for educational purposes, and is not to be considered as either legal or accounting advice. 2
2011 Highlights The following items highlight the key developments in the Company over the past year ► Grew revenue 41%* year over year, and improved gross margins from 21% in the prior year to 27% ► Invested $3.5 million to establish a joint venture in China; ► Restructured US operations to reduce costs; ► Initiated the divestiture of the Company’s Systems segment, including the Teledata business, which was acquired in June of 2010; ► Initiated changes to the Board of Directors; and ► Sold the majority of the US Systems business in September 2011. Uncertainty around the Systems divestiture, a pause in the optical component market and the ability to fund debt coming due continue to put pressure on the Company * Adjusted for currency fluctuations and the change in fiscal period * Adjusted for currency fluctuations and the change in fiscal period Company Confidential 3
Enablence Overview ► Enablence is a global leader in integrated optical components & subsystems based on its revolutionary, proprietary Planar Lightwave Circuit ( “PLC” ) technology that enables systems companies to increase functionality in a reduced footprint ► Office locations in Fremont, California, Ottawa, Ontario, and Zurich, Switzerland and Enablence’s joint-venture with SUNSEA Telecommunications Co., Ltd. ( “SUNSEA” ) in China ► Major applications include Transmission (e.g., 2.5G to 100G), Switching & routing (e.g., ROADMs), Wavelength management (e.g., Mux/Demux), Security Applications and Performance Monitoring ► Present in all major optical networks worldwide, including 120+ customers and 11 Tier 1 Systems Developers ► More than 100 US & Canadian patents and pending applications covering AWG, VOA, switch, hybrid PIC integration, and PD products. These 100 IP expand into more 400 patents and pending applications internationally Company Confidential 4
Enablence Value Drivers Explosive Global Bandwidth Growth • Rapid rise in internet bandwidth usage continues to drive worldwide demand for high-performance optical network components. Broadening Product Portfolio • Enablence provides customers with an array of PLC based products applied across their networks from central office to the home, and continues to expand, leveraging the same design and production processes. High Organic Growth Profile • Enablence has significant opportunities for organic growth by leveraging a performance proven range of PLC products not currently supported by a full sales complement. Capacity in Key Product Lines • Enablence’s Components Design Team in Ottawa and Precision Components Division in Zurich possess under-utilized volume potential for high-margin product. Rapid Asian Growth Ahead • The SUNSEA joint-venture opens the Asian market to a range of high-margin products with direct positive impact to EBITDA. Older markets viewed PLCs mainly as a way to build cheaper components This new market is starting to RELY on PLCs to enable key functionality not available elsewhere Compete on functionality and performance, not just price Company Confidential 5
Global Optical Component Market • The Optical Components Market has slowed in recent quarters, however has solid growth potential. Enablence is well positioned to increase its market share in each of its product offerings • The Optical Components Market is currently approximately $6 billion in value – Enablence currently plays in a small section of this market and can expand • A significant opportunity exists for Enablence to increase its market share as the SUNSEA joint-venture will increase revenue from splitters and immediately expand Enablence’s access to the burgeoning Chinese market Most Likely $14.0 OC Total Addressable Market Revenue ($ billions) $12.0 $10.0 $8.0 $6.0 $4.0 $2.0 CAGR: 20% Optimistic 17% Most Likely 14% Pessimistic $- 2008 2009 2010 2011 2012 2013 2014 2015 Company Confidential 6 Source: Ovum Q4 2010 Forecast
Customer Base Growing Customer Base • Pioneering PLC based technology gives Enablence the potential to become a global leader in the optical components industry • Optical components companies around the world select Enablence for their next generation CWDM and DWDM components and subsystems for long haul, metro and access network systems • Enablence will have increased penetration into Asian markets and Asian customers through the joint-venture with SUNSEA Company Confidential 7
Product Strategy and ENA Advantage • Industry requires: 1) higher speed/bandwidth networks 2) more dynamic networks • We offer: 1) PLC based PIC technology for 100Gbs single channel TOSA/ROSA, 10x10Gbs CFP transceivers, 4x10Gbs QSFP transceivers, 4x25Gbs QSFP transceivers, and high speed PD/APD 2) polymer PLC based NxM Multicast switch and AWG based tunable filter array. Company Confidential 8
Growing our Business Expanding into the splitter chip market through our Chinese joint venture, “Sunblence” Continuing to leverage our technical expertise through offering revenue generating NRE services, and expanding our offering through these efforts to drive follow on product revenue Perhaps the largest emerging sector in telecom is now the 40G/100G market , which can be split into three segments, all of which are addressable by our PLC technology: Ultra-long-haul Leveraging key developments to increase bandwidth with reduced streams Long-haul Expanding our portfolio to satisfy different channel / speed combinations Short-Reach (< 10 km) (e.g. Datacom) As part of the 10X10G standards committee, we are developing solutions for data centers to support the growth in bandwith demanded by applications such as cloud computing Moving both up market and down market in the photodiode business Along with telecom products we are also pursuing a number of non-telecom opportunities in defense, homeland security, and test & measurement Expanding our sales effort Company Confidential 9
Sunblence – the China JV JV will drive profitable growth with Sunsea: • Initial focus will be on splitter chips, used to split signals in street cabinets of a metro network • Projected first year capacity expected to be consumed by our JV partner, Sunsea Telecommunications • As capacity increases, will sell to other customers, largely focused on China market • Additional provisions are being made to allow production of other products in subsequent phases of the JV evolution Company Confidential 10
PLC – NRE Evolution ENA’s NRE Projects have positioned us well to address new market opportunities: Differentiation: ENA has always focused on integrated PLCs, but our new capabilities further differentiate us in the market. Customers need this integration now and into the future: Integration: Smaller size = Higher port count (more end-customers) in the same rack space Functionality: New features not available from earlier suppliers Time-to-market: New products using well-established process means low risk Performance: Particularly in new 40G/100G markets, older technology platforms are increasingly not even an option Highly integrated modules require expertise in optics, packaging, electronics, thermal engineering, mechanical design, RF, etc. – large barriers to entry Company Confidential 11
Advances Made During NRE Projects Until recently, our most highly-integrated PLCs included 4 hybrid sub-components Recent NRE projects allowed us to increase this complexity 10-fold: 40 sub-components per module One of the most highly-integrated PLC-based products ever developed This NRE has also allowed us to use standard off-the-shelf lasers (no custom spot-size converted lasers) We developed a new 10G lensed-PD for this project, now offered commercially as a stand-alone PD product New products from NRE projects will begin shipping as early as Q1 calendar 2012 New Tx pigtailing process New 8ch receiver chip prototype Company Confidential 12
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