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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.

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TeleSoft Partners

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  1. TeleSoft Partners Segment Themes October 25, 2002 www.telesoftvc.com

  2. 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

  3. TELESOFT TARGET SEGMENTS Estimated Revenue for Entire Industry Segment ($ Millions) Representative TeleSoft Investments Segment 2001 2002 2005 AmberWave, Catamaran (Infineon), Ikanos,Lara (Cypress), SigmaTel, VxTel (Intel), Xpedion Semiconductors • Communications • PC, Consumer • $30,028 • $48,115 • $30,521 • $48,974 • $48,477 • $60,104 Subtotal $78,143 $79,495 $108,581 Kymata (Alcatel), LYNX-Photonics, Modetek, Novalux,NP Photonics, Red Clover, Versatile Optical Networks (Vitesse) Photonics • DWDM, SONET/SDH • $4,386 • $2,301 • $4,049 Subtotal • $4,386 • $2,301 • $4,049 Calient, Cerent (Cisco), Cosine (IPO), Internet Photonics, IPUnity (empowerTel), Promatory (Nortel), Vina (IPO) Datacom and Telecom Systems • PCs, Workstations • Enterprise networking • Telecom systems • $169,155 • $59,994 • $33,569 • $151,171 • $64,042 • $31,308 • $167,772 • $84,487 • $49,333 Subtotal $262,718 $246,521 $301,592 Aarohi, ConvergeNet (Dell), CreekPath, InfoLibria, OmegaBand Servers and Storage • Servers • Storage (disk/tape/FC) • IP management • $58,972 • $31,241 • $1,555 • $58,959 • $31,546 • $2,120 • $70,757 • $40,017 • $5,946 Subtotal $91,768 $92,625 $116,720 BayPackets, iWitness, Jungo, OSI (IPO/Agilent) Software infrastructure • Systems/Enterprise management • Carrier OSS/Billing • $49,878 • $38,100 • $54,758 • $33,600 • $78,521 • $49,600 Subtotal $87,978 $88,358 $128,121 ProFlowers, The Feedroom Software Applications • Packaged applications • Application development and deployment software • $89,514 • $45,198 • $98,201 • $51,090 • $140,532 • $84,315 Subtotal $134,712 $149,291 $224,847 Titon Networks (IPO) Broadband Wireless • 2G, 2.5G, 3G • $49,139 • $42,925 • $56,036 Subtotal • $49,139 • $42,925 • $56,036 Bombay Cellular (Hutchinson), Omnipoint (IPO/Voicestream), OnFiber, Star21 Enterprise and Carrier Networks • Carrier • xSPs • $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 $708,843 $701,517 $939,945 (Excludes SP Revenue) Source: IDC; RHK I. TeleSoft Target Segments

  4. TELESOFT TARGET SEGMENTS Aggregate Market Cap Aggregate Revenue TTM Segment Companies October 2001 August 2002 2001 2002 Semiconductors Broadcom, AMCC, PMC-Sierra, Marvell, Intel, TI $248B ($173B = Intel) $178B ($128B = Intel) $44B ($30B = Intel) $36B ($27B = Intel) Photonics Agere, JDS Uniphase, Corning, Finisar, Avanex $30B $9B $16B $8B Datacom and Telecom Systems Alcatel, ADC, AFC, Scientfic Atlanta, Cisco, 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 Carrier Networks AT&T, Sprint, Worldcom, Level3, Broadwing Verizon, BellSouth, Qwest, SBC $119B $369B $64B $234B $123B $160B $98B $153B Totals $2,160B $1,520B $857B $718B Source: Yahoo! Finance; company financials I. TeleSoft Target Segments

  5. INDUSTRY SEGMENT OVERVIEWS Landscape/Trends – Valuations – Investment Perspective Datacenter Software Systems Optics Semiconductors I. TeleSoft Target Segments

  6. DATACENTER LANDSCAPE System & Storage Software ($58B 2002, 13% CAGR) Services ($448B 2002 11% CAGR) IP Fabric Servers IO Fabric IP Management (FW, IDS, LB, Content Mgmt.) storage sub-systems Systems ($155B 2002 8% CAGR) 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

  7. DATACENTER VALUATIONS Datacenter Public Valuations • Public Market • EMC $9B, -74% in 2002 • Veritas $5B, -55% in 2002 • Net.App. $2B, -55% in 2002 • IPO and M&A • 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-$265M (GigaNet, Pathlight) in 2001 • Private Funding • Raise and pre-$ decline Datacenter Private Valuations ($ millions) Source: VentureSource, Press Releases, Yahoo Finance II. Datacenter Segment Overview

  8. DATACENTER OPPORTUNITIES II. Datacenter Segment Overview

  9. SOFTWARE LANDSCAPE Packaged Applications e.g. ERP, CRM, SCM Vertical Applications ($98B 2002, 13% CAGR) Custom Development • 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. Development & Deployment 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 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

  10. SOFTWARE VALUATIONS Change in Market Capitalization • Public Market • IPO and M&A • 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

  11. SOFTWARE OPPORTUNITIES III. Software Segment Overview

  12. TELECOM SYSTEMS LANDSCAPE LAN Long Haul Access Metro 0km CPE Local CO Regional CO Inter Exchange 100km 2000km+ 10km Copper Pt to Pt, Digital Loop Carrier (DLC), Cable, Ethernet Fiber Ethernet, SONET, PON, FTTH / B Wireless GPRS, 3G, Fixed Wireless, Freespace Ethernet IP Routing PBX 802.11 / WLAN SONET / MSPP Ethernet CWDM/DWDM Digital Cross Connect Class 5 Switching ATM LH/ULH DWDM SONET Optical Cross Connect Class 4 Switching IP Routing Emphasis on standards (OSMINE, NEBS) Customer concentration Favoritism towards established vendors Need for regulatory reform Need for capital relief Bankruptcies / reorganizations creating gray market for inventories Skew of capital expenditures to foreign markets IV. Telecom Systems Segment Overview

  13. TELECOM SYSTEMS VALUATIONS Systems ecosystem continues to rebalance: • ~$10B of private equity invested in systems start-ups from ’98 – ‘02 • Systems investment shut downs in 2002 = > $1.3B of invested dollars • 29% reduction in incumbent systems vendor R&D expenditures • Ser A & B = Total $ required to fully fund systems company challenges potential return • Ser C & Later = Opportunistic, early round valuations available Source: VentureSource, Press Releases and Wall Street Research IV. Telecom Systems Segment Overview

  14. TELECOM SYSTEMS OPPORTUNITIES • Near Term Trends (Now – 2+ years) • Access Infrastructure • Bottleneck remains the last mile • Digital Loop Carriers, RT-based DSL, Ethernet services, VDSL, Fiber Deployments • Edge Devices ( ) • Integration of legacy services with newer technologies • Low cost, multi-service access devices (Combine SONET, Ethernet, Fibre Channel, etc…) • Need for remote management / self-provisioning • Software ( ) • Inventory Mgt., Provisioning, Automation, etc… • Application delivery & management • Reducing OPEX expense will help restore health to the service providers • Long Term Trends (3-5 years) • ATM / Multiservice Switches • Likely the technology of choice for out-of-region aggregation • RBOC entrance into long distance • MPLS Core Switches • Migration to converged IP core • G.MPLS service / bandwidth provisioning • Creation of 5th network or true convergence achieved? IV. Telecom Systems Segment Overview

  15. OPTICS LANDSCAPE Systems: access, metro, long haul Manufacturing Services Manufacturing Equipment Modules & Subsystems: amplifiers, switches, ADMs, transponders Test & Measurement Equipment Discrete components: passives, actives, planar, semis Materials & Methods: Wafers, Fiber Preforms, Processes Kigre Glass V. Optics Segment Overview

  16. OPTICS VALUATIONS Optics Industry In Profound Malaise CarrierSpending Dead Zone How long? How deep? Y / X How fast? Early investorsteps in here… …gets washed out here Investorrisk V. Optics Segment Overview

  17. OPTICS VALUATIONS Market Cap Declines 2Q00 – 2Q02 JDS Uniphase market valuation and M&A activity as a proxy for optics industry $ Billions Lost % JDSU M&A Values ($ B) JDSU price/ share ($/share) JDS Uniphase $127 95% Ciena Ciena $17 88% SDL $41B Lucent Lucent $168 91% ETEK $15B JDS Fitel Nortel Nortel $163 94% $6.1B OCLI $3B Alcatel Alcatel $50 76% 99 00 01 02 Cronos $750M Cisco Cisco $316 75% IBM Epitaxx Laser $400M $340M Akzo Marconi Marconi $34 98% Nobel $20M TOTAL TOTAL $876 85% Source: Yahoo Finance, public market information V. Optics Segment Overview

  18. OPTICS OPPORTUNITIES True Transparent Networks High BW, Long Span Transport Transparent Switching, Routing Modular System Architectures Dynamic Network Control Tunable lasers Modulators Dynamic gainequalizers 40 Gb transp. Dynamic DCs High-density  filters Tunable  filters Wideband amps Tunable Scalable AO switches OPM equipment Manageable Alarm filters Transparent AO  converters  partitioning 3R regens Packaging Optical packetrouters Network mgmt InP photonic ICs SOAs Nano-optics VCSELs Photonic crystals V. Optics Segment Overview

  19. 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 Memory $5.6 B (2001) 19.7% CAGR Power ICs $2.9 B (2001) 10.2% CAGR PC Core Logic $5.6 B (2001) 4.5% CAGR Digital Audio $188 M (2001) 26.6% CAGR FPGA/PLD $2.1 B (2001) Amplifiers and Comparators $2.2 B (2001) -1.5% CAGR Data Converter $1.8 B (2001) 3.1% CAGR WAN ICs $2.6 B (2001) 6.0% CAGR Graphics Controller, Video and Audio Sub System $2.3 B (2001) -4.6% CAGR Digital Cameras $2.3 B (2001) 11.5% CAGR Micro-controllers Communication $0.95 B (2001) 16.6% CAGR Digital Displays $2.3 B (2001) 11.5% CAGR Interface Drivers $2.1 B (2001) 2.3 % CAGR Layer 3-7 Processing $2.1 B (2001) 18.7% CAGR Optical Storage $1.6 B (2001) 7.9% CAGR Semiconductor IP Storage $3.3 B (2001) -1% CAGR Wireless Infrastructure $763 M (2001) 17.5% CAGR Videogame consoles $5.5 B (2001) -5.9% CAGR SEMICONDUCTOR LANDSCAPE Consumer Communication AMS Compute (PC) Generic LAN ICs $1.9 B (2001) 13.8% CAGR Source: Wall Street Research Reports, IDC and RHK VI. Semiconductor Segment Overview

  20. SEMICONDUCTOR VALUATIONS Annual Change in Market Capitalization/Nasdaq 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 Source: VentureSource, Equidesk, Press Releases VI. Semiconductor Segment Overview

  21. SEMICONDUCTOR OPPORTUNITIES VI. Semiconductor Segment Overview

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