Gigamon

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08 July 2013

Americas/United States

Equity Research

IT Hardware

Gigamon (GIMO) INITIATION

Improving Network Visibility but Shares

Already Reflect Growth Potential

■ Initiate with Neutral and $27 TP: Gigamon’s technology offering in network visibility or packet brokering is differentiated in a nascent and growing market which should drive robust LT sales growth, as we forecast 37%/30% revenue growth in 2013/2014. However, trading at an EV/sales multiple of 4.7x on our 2014 revenue estimate, we believe shares already reflect this potential. We initiate coverage with a Neutral rating and a $27 target price.

■ Differentiated Offering, Effective Business Model in a TAM of $3bn: Through its GigaVUE products, Gigamon improves network visibility for application/performance management, security, and other tools, generating a healthy ROI. Within this market, Gigamon’s focus, effective business model (high levels of repeat buying from all customers), and channel expansion position the company to capture share in this nascent market. Estimating the TAM for such a new market is challenging; we believe that the total spend for the application/network performance management and firewall markets is $11.4bn by 2015. Within these markets, Gigamon's technology tends to attach at a rate of 25%, leading to a TAM of $2.9bn. Viewed alternatively, the growing adoption and shift to 10GbE ports will fuel the need for Gigamon’s products to deal with faster data traffic. We note that 10GbE port growth is expected to be a 30% CAGR from 2012 through 2017.

■ Leverage to drive OMs from 10% to 17% LT: Based on strong sales growth, and despite 40% OpEx growth this year (driven by R&D), we see OMs rising to 17% LT. This is helped by company GM's of 77%.

■ FV of $27 based on EV/sales, DCF, and HOLT. Following recent strength, GIMO currently trades at an EV/sales of 4.7x on our 2014 revenue estimate, a premium to next-generation datacenter and networking companies at multiples of 3.6x/3.2x. Our multiple, DCF, and HOLT

® analysis suggest a FV

of $27. We would look to turn more constructive on any pullback.

Share price performance

25

26

27

28

29

30

Jun-13

Daily Jun 12, 2013 - Jul 03, 2013, 6/12/13 = US$28.47

Price Indexed S&P 500 INDEX

On 07/03/13 the S&P 500 INDEX closed at 1615.41.

Quarterly EPS Q1 Q2 Q3 Q4 2011A 0.10 0.24 0.33 0.32 2012A -0.04 0.18 0.22 0.29 2013E 0.02 0.04 0.08 0.11

Financial and valuation metrics

Year 12/11A 12/12A 12/13E 12/14E EPS - (Excl. ESO) (US$) 0.98 0.65 0.26 0.36 EPS (CS adj.) (US$) 0.98 0.65 0.26 0.36 Prev. EPS (CS adj.) (US$) — — — — P/E (CS adj., x) 27.6 42.1 104.9 75.8 P/E rel. (CS adj., %) — 265.6 708.1 568.3 Revenue (US$ m) 68.1 96.7 132.4 172.4 EBITDA (US$ m) 17.8 12.6 14.8 23.9 Net debt (US$ m) -13 -19 -74 -84 OCFPS (US$) 1.25 1.60 0.38 0.51 P/OCF (x) — — 72.2 53.3

Number of shares (m) 29.46 Price/sales(x) 6.39 BV/share (Next Qtr., US$) — P/BVPS (x) -31.9 Net debt (Next Qtr., US$ m) -77.6 Dividend (current, US$) — Dividend yield (%) —

Source: Company data, Credit Suisse estimates.

Rating NEUTRAL* [V] Price (03 Jul 13, US$) 27.20 Target price (US$) 27.00¹ 52-week price range 28.47 - 25.70 Market cap. (US$ m) 801.35

*Stock ratings are relative to the coverage universe in each

analyst's or each team's respective sector.

¹Target price is for 12 months.

[V] = Stock considered volatile (see Disclosure Appendix).

Research Analysts

Kulbinder Garcha

212 325 4795

[email protected]

Vlad Rom

212 325 5442

[email protected]

Matthew Cabral

212 538 6260

[email protected]

Talal Khan, CFA

212 325 8603

[email protected]

Andrew Ruben

212 325 4798

[email protected]

Ray Bao

212 325 1227

[email protected]

08 July 2013

Gigamon (GIMO) 2

Table of contents Executive Summary 3 Addressing Network Visibility 5 Product Portfolio and Strategy 12

Key Feature Overview 13 Long-Term Strategy 16

Addressing a $3 Billion TAM 19 Gigamon Targets $3bn of an $11bn Tools Market 19 Capturing the Shift to 10GbE 20

A Competitive Product Portfolio 22 The Current Competitive Landscape 22 Stand-alone Competitors 23 Bundled Offerings 25 Networking Vendors 27

An Effective Business Model 28 Strong History of New Customers 28 Recurring Revenue—Predictable and Growing 30 Revenue with Room for Growth 32

Valuation—FV of $27 per Share 36 Key Investment Risks 42 Management 43 Financial Models 46

08 July 2013

Gigamon (GIMO) 3

Executive Summary Gigamon’s technology offerings in helping administer and monitor increasingly complex

networks, as well as its exposure to the 10GbE ramp, are differentiated and should drive

robust long-term revenue growth of 37.0% and 30.2% in 2013 and 2014, respectively.

Nevertheless, trading at an EV/sales multiple of 4.7x on our 2014 revenue estimate,

Gigamon shares already reflect much of this potential. As such, we launch coverage with

$27 TP and a Neutral rating.

Exhibit 1: Gigamon Financial Forecast in thousands, except EPS

FY 2011 FY 2012 FY 2013E FY 2014E Target model

Revenues 68,105 96,715 132,438 172,371

Cost of goods sold 14,428 20,185 29,685 39,355

Gross profit 53,677 76,530 102,753 133,016

Gross margin 78.8% 79.1% 77.6% 77.2% 75-77%

Operating expenses 36,642 65,254 90,235 112,026

% of sales 53.8% 67.5% 68.1% 65.0% 49-52%

Operating income 17,035 11,276 12,518 20,990

Operating margin 25.0% 11.7% 9.5% 12.2% 23-28%

Pretax income 17,023 11,270 12,498 20,970

Income tax - 100 4,438 8,508

Tax rate - 0.9% 35.5% 40.6%

Net income 17,023 11,170 8,061 12,462

EPS $0.98 $0.65 $0.26 $0.36

Shares (diluted) 17,300 17,303 31,100 34,725


Addressing Network Instrumentation with GigaVUE Product Portfolio: As background,

Gigamon’s core products, which are centered around the GigaVUE product series, solve

networking administrator needs for instrumenting their networks and reducing overhead by

providing data and traffic to appropriate application/network performance management,

security, and forensic tools. Ever increasing data connectivity for applications and more

narrow standards in delivering them in a secure way with high performance are driving

growth in network instrumentation. While instrumentation or “tooling” networks helps ease

this issue, the method of directing traffic to tools is suboptimal, given its inherent

complexity in configuration man hours and the inability of tools to deal with the torrent of

data unleashed by large 10GbE pipes. For now, the core value proposition is aggregation

and filtering, as well as data manipulation, to help relieve administrator and tool overhead.

As software-defined networks (SDNs) rise, the company has the opportunity to become a

single pane of management across virtual machines as well as physical and SDNs.

In a TAM of $3bn: While the Gigamon’s addressable market is nascent and not formally

defined, there are several ways to determine the size of the opportunity and the potential

for revenue growth. First, the company’s products attach to the growing market of network

monitoring tools in application management, network management, and security, although

there are other segments with which Gigamon products are used, such as network

forensics. As networks become more extended and performance increasingly focal, IT

managers are relying more on applications and other monitoring systems to help analyze

and secure the datacenter. Here, Gigamon’s portfolio addresses nearly $3 billion of this

$11 billion network tools market. Alternatively, the second way to look at the addressable

market is by 10GbE attach, given the growing adoption and shift to 10GbE ports that will

08 July 2013

Gigamon (GIMO) 4

need Gigamon products to deal with increasing data traffic. The ports will grow from 16mn

last year to 41mn in 2015 and a long-term CAGR of 30% from 2012 through 2017.

Competing with Stand-alone Companies, Network Tool Bundlers, and the Larger

Networking Companies: We view Gigamon’s competition in the context of three types of

competitors: stand-alone, network packet broker private companies; public companies that

bundle functionality as part of security and performance management sales; and larger

networking companies, such as Arista and potentially Cisco and Juniper as they develop

their offerings.

■ Stand-alone Privates: For stand-alone competitors, we primarily consider cPacket,

APCON, and Net Optics.

■ Bundled Offerings: For the tool vendors that have since made acquisitions, we

primarily consider NetScout (NTCT), which acquired ONPATH; Ixia (XXIA), which

acquired Anue; and Danaher (DHR), which acquired VSS Monitoring.

■ Networking Vendors: While we believe that Gigamon’s more immediate competition

would be smaller networking companies, as Gigamon’s product is considered to serve

a very specific function, we do not dismiss the larger networking companies, as they

could offer very competitive solutions in the future.

While Gigamon’s more immediate competition would be smaller, private, network packet

brokers and tools vendors, as Gigamon’s product is considered to serve a very specific

function, we do not dismiss the larger networking companies like Cisco, Juniper, and

Arista as strong long-term competitors, as they extend into Gigamon’s niche, with SDN

serving as the path. For now, Gigamon’s strong integration with tools vendors, solid

breadth of functionality, and products will allow the company to maintain sales momentum.

Driving Sales through Distribution Growth and High Repeat Activity: Gigamon has an

impressive record of winning new customers, with 1,000 total customers at the end of

2012, up from nearly 300 at the beginning of 2009, and nearly 300 new customers in 2012.

Additionally, Gigamon is now selling its portfolio through Arrow Electronics, which could

result in as much as $20 million of revenue in 2013, and possibly double through 2014. In

addition to this momentum, Gigamon has a strong record of repeat orders from customers,

with approximately 80% of revenue from repeat customers. On this topic, we highlight that

14 of Gigamon’s top 25 customers bought every quarter in 2011 and 2012. In 2012, 22 of

the top 25 customer bought in at least three quarters of the year, with 14 customers buying

in every quarter. (See Exhibit 35.)

Neutral Rating on Valuation, but Buyers On Weakness: While we appreciate the need for

Gigamon’s product and subsequent market opportunity, including 10GbE exposure and

the relative under penetration of the market following recent strength, Gigamon shares

trade at an EV/sales multiple of 4.7 on our 2014 revenue estimate, a significant premium

to next-generation datacenter companies and general networking companies at multiples

of 3.6 and 3.2, respectively. Our multiple, DCF, and HOLT analysis suggest a blended FV

of $27. Specifically, an EV/sales ratio of 5.0 on our 2014 forecast plus cash results in a

value per share of $29, while HOLT and DCF yield $28 and $25, respectively. While these

analyses point to Gigamon being fairly valued, thus limiting upside, we look to turn more

constructive at a more attractive valuation.

Market Remains Nascent but Risks Rise with Increasing Maturity: Gigamon currently

competes primarily against smaller private vendors and larger companies that are able to

bundle full solutions. While competition from these vendors may increase, along with

additional risks from service provider exposure, long-term conflict with tool vendors, and

market saturation, one critical risk of note is whether Gigamon functionality is absorbed as

a feature by networking vendors. Here, the effect of Arista and the software-defined

networking efforts of Cisco and Big Switch warrant monitoring.

08 July 2013

Gigamon (GIMO) 5

Addressing Network Visibility Ever increasing data connectivity for applications and more narrow standards in delivering

these in a high-performance and secure way are driving ever higher network monitoring

capabilities or instrumentation. While instrumentation or “tooling” networks helps facilitate

this, the method of directing traffic to tools is sub-optimal for the following reasons:

Configuration Adds to Network Administrator Workload; Increases Risk. Configuring traffic

to go from one switch or TAP to a specific tool would not be a large issue if this had to be

done relatively few times. Here, IT administrators direct traffic from a myriad of switch

ports to a myriad of tool ports. This disaggregate approach has high administrative

overhead, and constant switch reconfiguration raises operational risk.

Generic Switches Are Sub-optimal for Sending Traffic to Tools: Increasing network speeds

and traffic are creating issues for equipment sending the data for the tools as they

replicate increasing amounts of traffic and become overloaded, potentially decreasing

system performance. Moreover, using switch ports merely to copy and send traffic renders

ports unusable for traditional switching, increasing per port cost.

Tools Have Very Finite Ingest Capability: Many tools have only one or two ports,

sometimes at 1GbE, limiting their ability to ingest massive amounts of data from multiple

ports, especially as networks shift to 10GbE. Moreover, the tools themselves, as they

attempt to sort through nonessential traffic for relevant information, become strained.

The current network structure for monitoring the network is quite inefficient.

(See Exhibit 2.) Many of these monitoring appliances communicate with the switches in an

inefficient way, reproducing repetitive and slowing networks. This architecture also

becomes quite costly and inefficient, creating a need for a new and more efficient way

forward.

Exhibit 2: The Current Architecture Is Inefficient and Burdensome

Source: Company data.

08 July 2013

Gigamon (GIMO) 6

Gigamon solves these issues through the following methods:

Reduce the Reliance Switches and Taps as a Method of Sending Traffic to the Tools:

Instead of using many switches and taps to provide traffic to analysis tools, Gigamon

reduces overhead by aggregating and disseminating traffic as needed.

Filter Only Needed Traffic: Importantly, network packet brokers can direct the centralized

traffic to appropriate tools. Rather than inundating the tool with all the data, only the

needed data, or per predefined rules, can be sent.

Manipulate Data to Ease Tool Overhead: In addition to filtering data, modifications like

deduplication, truncating, time stamping, etc. can be made to the packets to ease analysis

by the tools.

Networks Are Being Increasingly Instrumented

Ever increasing data connectivity for applications and more narrow standards in delivering

them in a secure way with high performance are driving growth in network instrumentation.

In short, IT managers are increasingly implementing application and network performance

and security monitoring tools to analyze and understand traffic. According to IDC, tools to

support this are growing quickly. (See Exhibit 3.)

Exhibit 3: Network instrumentation or "tooling" is growing at a healthy pace

2011 2012 2013 2014 2015 2016 2011-2016 CAGR

Network Management Software and Appliance 2,532 2,760 2,994 3,234 3,476 3,720 8.0%

Application Performance Management Software 1,931 2,212 2,503 2,805 3,143 3,513 12.7%

Security

Firewall 2,356 2,390 2,420 2,425 2,415 2,390 0.3%

IDP 1,882 1,960 2,079 2,203 2,334 2,474 5.6%

Total 8,700 9,322 9,996 10,667 11,368 12,096 6.8%

Source: IDC.

Furthermore, networks are becoming further dispersed as administrators manage wireless

devices, branch offices, and the datacenter. This more complex and extended network

topology, along with the demand for highly performing networks and applications, are

leading to the rise of network instrumentation, which is gaining prominence. According to

an ESG survey data, widespread instrumentation will see continued penetration.

(See Exhibit 4.)

Exhibit 4: Network Administrators Will Increasingly Leverage Tools to Monitor Their Networks

38%

58%

61%

69%

86%

12%

22%

25%

16%

9%

25%

16%

13%

14%

4%

25%

4%

1%

1%

1%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Other types of tools

Packet capture/network

Application performance

IPS/IDS Security

Network performance monitoring

Currently use Do not use but plan to Do not use, but interested Do not use, have no plans

Source: ESG.

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Gigamon (GIMO) 7

While the increasing “tooling” or instrumentation of networks is understandable, given the

need to optimize networks and make them secure, the narrow categories of tools

significantly understate the high numbers of devices and end points being monitored.

According to ESG survey data, one-third of organizations monitor more than 1,000 hosts,

networking devices, applications, and network services on an ongoing basis. (See

Exhibit 5.)

Exhibit 5: Number of Hosts, Networking Devices, Applications, and Networking Services Monitored by Organization

Less than 25, 2% Between 26 and

50, 5%Between 51 and

100,

12%

Between 101 and

250, 18%

Between 251 and

500, 18%

Between 501 and

1,000, 14%

Between 1,001

and 2,500, 9%

Between 2,501

and 5,000, 13%

Greater than

5,000, 11%

Source: ESG.

The Current Approach to Feeding the “Tools” Is Inefficient

Unfortunately, the long-held approaches of providing traffic to the tools is becoming less

than efficient for several reasons.

Configuration Adds to Network Administrator Workload; Increases Risk: Configuring traffic

to go from one switch or TAP to a specific tool would not be a large issue if this had to be

done relatively few times. However, given the high number of networking devices

monitored, this task can become onerous. Consequently, IT administrators have to direct

traffic from a myriad of switch ports to a myriad of tool ports. This disaggregate approach

has high administrative overhead, and constant switch reconfiguration raises operational

risk. Moreover, using switch ports merely to copy and send data renders that port

unusable for traditional switching, increasing per port cost.

Generic Switches Are Nonoptimal for Sending Traffic to Tools: Increasing network speeds

and traffic are creating issues for equipment sending the data for the tools, as they

replicate increasing amounts of traffic and become overloaded, potentially decreasing

system performance.

Tools Have Finite Ingest Capability: Many tools have only one or two ports, sometimes at

1GbE, limiting their ability to ingest massive amounts of data from multiple ports. Moreover,

the tools themselves, as they attempt to sort through traffic and sort for relevant

information, become strained.

Today, two widespread approaches exemplify the challenges in efficiently attaching tools

to the network.

SPAN or Mirroring: One way to route traffic from the network or switch to the tool is to use

a Switched Port Analyzer feature (SPAN) or mirror the port. Here, the switch takes an

08 July 2013

Gigamon (GIMO) 8

active port through which production traffic is coming and copies it to another port on the

switch that passes it to a tool. Multiple ports can feed a SPAN or mirror port, or any switch

port can be turned into a SPAN or mirror port. Unfortunately, these methods have fairly

significant disadvantages.

■ Increasing per Port Switch Cost on Hardware and Management: By making a switch

port a SPAN or mirror port, it is unusable to production traffic, which increases cost per

port. With a one-to-one SPAN or mirror port relationship, as instrumentation is added,

production ports drop out to send copy traffic to tools. This one-to-one networking

wiring increases administrator and configuration overhead.

■ Dropped Traffic: If active ports forward too much data to the SPAN or mirror port,

dropped frames may occur. Moreover, switch overhead is created as a switch copies

traffic from an active to a SPAN or mirror port, reducing performance.

■ Overwhelmed Instrumentation: Using a SPAN or mirror port essentially sends a copy

of all traffic to a given port or multiple ports, essentially opening a fire hose of traffic.

With this significant traffic flow, a tool can become overwhelmed, either because it is a

1GbE tool on a 10GbE network, or as a result of analyzing large amounts of traffic for

slivers of relevant data.

Exhibit 6: Using a Switch to Forward Traffic to Tools Is Suboptimal

Copying too much data from ports to SPANs can lead to dropped frames and poor switch performance

Making too many SPANs or mirrors raises switch per port cost

Source: Credit Suisse.

Tapping: Network tapping creates a “T” in a network, in which two of the branches are

network traffic, while the third passes traffic to a tool. (See Exhibit 7.) Alternatively, a

SPAN or mirror port can be linked with a tap to provide traffic to two tools. (See Exhibit 8.)

08 July 2013

Gigamon (GIMO) 9

Exhibit 7: Tap Sending Traffic to One Tool Exhibit 8: Tap Sending Traffic to Two Tools

Network point “B”

Network point “A”

Instrumentation/tool(Application/network

performance, security, forensics)

Tool “B”Tool “A”

SPAN or mirror port

Source: Credit Suisse. Source: Credit Suisse.

While this approach does not have necessarily all the SPAN or mirror port issues of a

switch, tapping is less than ideal for several reasons. As previously mentioned, there is the

overwhelmed instrumentation network and potentially a myriad of taps in a networking

environment feeding a variety of tools. Moreover, while this approach potentially extends

one port to providing traffic to several tools, it too adds another layer or price and

complexity to the solution. Furthermore, while tapping does pass the data to the correct

appliance, tapping devices have limitations, in that they lack principal intelligence, such as

packet filtering, to help the network tool perform more efficiently.

Gigamon and Network Packet Brokers Solve the Issue

Gigamon and network packet brokers solve issues around collecting and disseminating

network traffic to the appropriate analysis tools and forward only appropriate data or

portions of it to ease tool overhead and manage necessary business requirements, such

as privacy.

Eliminate “Tangled Wire Syndrome”: Rather than connecting many switch SPAN ports to

many tools individually, Gigamon and other network packet brokers can aggregate the

traffic in one location and then disseminate as needed. (See Exhibit 9.) The myriad of

network ports connecting to a myriad of tools ports, or “tangled wire syndrome”, can be

avoided. This is particularly important as networks extend and the tools to monitor them

rise.

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Gigamon (GIMO) 10

Exhibit 9: Gigamon Allows More Flexibility in Providing Traffic to Analysis Tools

Before

A wiring mess with relevant

and irrelevant traffic

After

Aggregated traffic with only

relevant traffic

Switch

Tool 1 Tool 2

Gigamon

Switch

Tool 1 Tool 2

Switch

Switch

Switch


Filter Only Needed Traffic: Importantly, network packet brokers can direct the centralized

traffic to appropriate tools. Rather than inundating the tool with all the data, only the

needed data, or per predefined rules, can be sent.

Manipulate Data to Ease Tool Overhead: In addition to filtering data, modifications like

deduplication, truncating, time stamping, etc. can be made to the packets to ease analysis

by the tools.

The network becomes much less cluttered and can perform at a higher level with a

Gigamon appliance. (See Exhibit 10.) Only the necessary traffic is sent to the network

tools, and with mirror ports functioning more efficiently, more switch ports can be active,

helping data flow faster and more efficiently across the network. Ultimately, there are

fewer appliances doing more, creating a better architecture.

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Gigamon (GIMO) 11

Exhibit 10: Adding Gigamon Allows for a Simpler Network with Higher Performance


08 July 2013

Gigamon (GIMO) 12

Product Portfolio and Strategy Gigamon’s core products, which are centered around the GigaVUE product series, solve

networking administrator needs in simplifying the instrumentation of their networks and

reducing the overhead in providing data and traffic to appropriate application/network

performance management, security, and forensic tools. For now, Gigamon’s core value

proposition is aggregation and filtering, with data manipulation serving as an add-on to

Gigamon’s core products. As software-defined networks (SDN) rise, the company has the

opportunity to become a single pane of management across virtual machines and physical

and software-defined networks.

In Exhibit 11, we detail Gigamon’s portfolio, which consists of the G and H Series products

and well as GigaSMART, GigaSECURE, and network TAPs.

Exhibit 11: Gigamon Product Portfolio Gigamon

Series GigaVUE G Series GigaVUE H Series

Model GigaVUE-212 GigaVUE-420 GigaVUE-2404 GigaVUE-TA1 GigaVUE-HD4 GigaVUE-HD8

Maximum 1Gb ports 12 20 4 N/A Max 44 Max 44

Maximum 10Gb ports 2 4 24 N/A Max 32 Max 32

System size (Rack units) 1 1 2 1 5 14

Optional GigaSECURE No No Yes No Yes Yes

Optional GigaSMART No No Yes No Yes Yes

Line card capacity N/A N/A N/A N/A 4 8

Series Network TAPs

Model GigaSecure G-TAP G-TAP A Series G-TAP A Series

1Gb ports 4 ports Yes Yes Yes

10Gb ports 8 ports Yes Yes Yes


Gigamon G-Series: Gigamon’s G-Series consists of the GigaVUE-212, GigaVUE-420, and

the GigaVUE-2404. These products have up to 24 10GbE ports at the high end. The

GigaVUE-2404 is the only product in this series capable of adding the GigaSECURE and

GigaSMART cards and software, which contains additional features as discussed in the

following section. Multiple 2404 nodes can be stacked together or with GigaVUE-420

devices to create a much bigger visibility infrastructure with over 200 total ports.

GigaVUE H-Series: Gigamon’s H-Series consists of the GigaVUE HD4 and the GigaVUE

HD8, which share a streamlined user interface apart from the G-Series. The TA1 is a

traffic aggregation node that takes traffic from lower to higher utilized areas to then be fed

to a GigaVUE H or G series appliance. On the high end, the HD8 has up to 44 10GbE

ports, with capacity for eight line cards for additional software features. The high-end HD8

has an affinity to the telco space and accounts for one-quarter to one-third of Gigamon

revenue, based on our estimates.

GigaVUE-TA: The TA1 is a traffic aggregation node that takes traffic from lower to higher

utilized areas to then be fed to a GigaVUE H or G series appliance. The product is lower in

margin that Gigamon’s fully featured products. The product is used to aggregate 10GbE

ports with low utilization and does not have Gigamon’s Intelligent Flow Mapping

technology, which routes the right traffic to the right tool.

08 July 2013

Gigamon (GIMO) 13

GigaSMART: GigaSMART cards can be added to extend the core functionality of

GigaVUE. These functions, like time stamping, packet slicing, and deduplication,

contribute to a tool’s efficiency, allowing it to receive just the needed data to make

monitoring and forensic tasks more efficient.

GigaSECURE: GigaSECURE serves as a complementary product for a security tool. If too

much traffic flows to the security tool in the network, it may be overwhelmed, which may

cause errors or breaches. GigaSECURE helps manage the traffic flow to minimalize these

issues.

Network TAPS: Network TAPS (as previously discussed in Addressing Network Visibility)

allow for data to be forwarded to one or two specific monitoring tools in traditional

environments or to a device like Gigamon’s, which can aggregate multiple TAPs. A TAP is

linked between two devices and takes data from one and continuously passes it along to

an aggregation point or tool, such as an application/network monitoring, security or

forensics device. (See Exhibit 7 and Exhibit 8.)

GigaVUE–VM: With the growth of virtual servers, a larger share of network traffic is

occurring between virtual machines. This data still needs to be properly pushed to external

monitoring tools outside the server. Just as the G and H Series products give visibility and

transfer data to physical tools, Giga-VUE-VM gives visibility into this virtual environment

and can filter data to forward to a physical switch or directly to the necessary monitoring,

analysis, or security devices. This is the second leg of the stool for which Gigamon

provides network visibility. (See Exhibit 14.)

GigaVUE–FM: GigaVUE-FM provides a centralized view and control of the network for

both physical and virtual fabric nodes. This system helps IT managers with maintenance

and automation for setting policies for the Gigamon appliances. For example, this system

allows IT managers to update simply and quickly all nodes across the network. As islands

of SDN become more prevalent, this type of functionality is seen as gaining prominence.

Key Feature Overview

For now, Gigamon’s key feature set revolves around aggregation, filtering, and directing

traffic to the appropriate tool and manipulating packets to optimize tool efficacy. We

highlight these three core aspects along with the company’s long-term strategy.

Aggregation: The key feature of Gigamon products, as they currently stand, is port

aggregation. The products allow many-to-one or one-to-many network connectivity tools.

This allows for many network ports to be aggregated for one tool port or alternatively for

one network port to be extended to many tools. This simplifies the tasks of network

administrators, as they can now have many network tools linked to a single Gigamon

appliance instead of accessing a myriad of switches to feed a myriad of tools.

Filtering: Central to this feature is that the core products, from the GigaVUE-212 through

the high-end GigaVUE-HD8, feature Intelligent Flow Mapping. With this feature, an

appliance can filter data, meaning it can exclude or include information to be forwarded to

a specific tool. This allows network administrators to perform two critical functions: (1)

forward specific traffic to the appropriate tool; and (2) filter unneeded data out of the

stream going to the tools.

Data Manipulation with GigaSMART: GigaSMART cards can be added to extend the core

functionality of GigaVUE. These functions, like time stamping, packet slicing, and

deduplication, contribute to a tool’s efficiency, allowing it to receive just the needed data to

make monitoring and forensic tasks more efficient.

Long-Term Strategy: SDN integration and the rise of the active network: In the preliminary

phases of the strategy, Gigamon is looking to become an aggregation tool with which

administrators can see what is occurring within multiple types of networks (physical and

software-defined) and virtual machines. Here, Gigamon can create a single pane of

visibility into the various types of networks that exist within an enterprise or service

08 July 2013

Gigamon (GIMO) 14

provider. In the latter phases of the strategy, through API linking into tools and

software-defined networks, Gigamon can become a hub, feeding tools network traffic data,

and when changes are needed, for application/network performance, security, etc., it can

modify the properties of the network. Effectively, Gigamon would become an intermediary

for tools improving network performance.

For now, the Gigamon product portfolio consists of base appliances that aggregate

network traffic and provide relevant data to a variety of “tools”, including application

performance monitoring, network performance monitoring, forensic data analysis, security,

and compliance.

Aggregation

The key feature of Gigamon products, as they currently stand, is port aggregation. As

discussed in the following section, the products allow many-to-one or one-to-many

network connectivity to tools. This allows for many network ports to be aggregated for one

tool port or alternatively for one network port to be extended to the ports of many tools.

This simplifies the tasks of network administrators, as they can now have many network

tools linked to a single Gigamon appliance. Individual switch to tool routing can be avoided

and configuration simplified. Effectively, a maze of switch to tool connectivity is foregone.

Filtering

Central to this is that the core products, from the GigaVUE-212 through the high-end

GigaVUE-HD8, feature Intelligent Flow Mapping, data filtering that can exclude or include

information forwarded to a specific tool. This allows network administrators to perform two

critical functions: (1) forward specific traffic to the appropriate tool, and (2) filter unneeded

data out of the stream going to the tools. This functionality allows for tools to function with

less system overhead (i.e., use less storage and more effectively), in that needed data is

readily available.

To extend aggregation and filtering capacity, additional line cards can be added to

GigaVUE products, and there are four H-Series line cards for this. In Exhibit 12, we outline

the four additional line cards Gigamon offers for the H Series. These cards offer additional

capacity to aggregate, replicate, filter, and forward traffic. This data is then sent to the

network monitoring, management, or security tools, creating a more efficient and

manageable network.

Exhibit 12: Gigamon Offers Four Additional Line Cards for More Capacity for the H Series Gigamon

Series GigaVUE H Series

Model GigaPORT-X04G44 GigaPORT-X12G04 GigaPORT-Q02X32 GigaPORT-X12-TS

Maximum 1Gb ports 44 16 N/A N/A

Maximum 10Gb ports 4 4 32 12

Maximum 40Gb ports N/A N/A 4 N/A

Packet Forwarding Yes Yes Yes Yes

Packet Aggregation Yes Yes Yes Yes

Packet Filtering Yes Yes Yes Yes

Packet Replication Yes Yes Yes Yes Source: Company data.

Packet Manipulation

As users step up to higher models, the 2404 and above, GigaSMART cards can be added

to extend functionality. (See Exhibit 13.) Many of the functions noted contribute to a tool’s

efficiency, allowing it to receive just the needed data to make monitoring and forensic

tasks more efficient.

08 July 2013

Gigamon (GIMO) 15

Exhibit 13: GigaSMART Cards Extend Functionality


These card modules enable additional functionality.

■ Packet slicing: Packet slicing allows packets to be truncated to send only relevant

information to a specific tool. Consequently, tools become more efficient since

overhead associated with finding appropriate data within the packet is eliminated.

■ Masking: Identity detail can be stripped from packet data, enabling confidentiality risk

to be reduced and compliance requirements like HIPAA to be met.

■ Source Port Labeling: Packets can be labeled based on the ports from which they

come, reducing the potential for duplicate data and easing overhead of network

monitoring tools.

■ Tunneling: Traffic is encapsulated and can be forwarded across networks to tools.

This allows remote datacenters to be monitored from central facilities.

■ Deduplication: Consolidates duplicate data gathered from multiple sources to ease

overhead for a tool.

■ Header Stripping: Header stripping eases overhead for tools since the need to

decipher protocols is eliminated.

■ Time Stamping: Enables backward-looking time series analysis and review of

networking performance.

■ L7 Load Balancing: Gigamon’s load balancing functionality can distribute traffic

beyond L2-4, based on field criteria.

While the core functionality of aggregation and filtering is valuable, packet manipulation

can be used to optimize tool performance, minimize system overhead, and reduce space

needed for storage. We highlight the key benefits below:

■ Application/Network Performance Monitoring: The network tools analyze traffic and

give IT managers visibility into the network. With networks increasing stretching from

core datacenters to branch offices to mobile, networks are increasingly complex. To

deal with this ever growing complexity, IT managers are more heavily instrumenting

their environments. Along similar lines, applications and types of applications are

quickly proliferating as business dependency and Quality of Service (QoS) demands

increase to meet consumer IT levels. These trends are supporting growth in network

and application performance monitoring tools. Unfortunately, given the transition to

10GbE, tools are being overwhelmed with traffic flows. Here, card functionality like

deduplication of packets can reduce the amount of data the tool must process.

08 July 2013

Gigamon (GIMO) 16

■ Forensic/Security Analysis: Using packet slicing, Gigamon appliances pass only the

needed information to security tools, which allows the tool to process less information

to maintain all the necessary security policies for the network better. Additionally,

masking allows managers to hide confidential information such as passwords,

financial accounts, or medical data to others with access to information on the

network.

■ Compliance: Related to security, Gigamon’s products allow the security tools to

perform all the necessary security for a given set of compliance regulations that a

company may implement for its datacenter. Customers can further improve security,

compliance, and overall network visibility with port labeling and time stamping features

to gain even more visibility.

Long-Term Strategy

In the preliminary phases of the strategy, Gigamon is looking to become an aggregation

tool with which administrators can see what is occurring within multiple types of networks

(physical and software-defined) and virtual machines. Here, Gigamon can create a single

pane of visibility into the various types of networks that exist within an enterprise or service

provider.

Exhibit 14: Gigamon Can Become a Single View as Networks Proliferate

Virtual Machines Physical networkSoftware-defined

network

Gigamon single view


In the latter phases of the strategy, through API linking into tools and software-defined

networks, Gigamon can become a hub by feeding tools network traffic data. When

changes are needed, for application/network performance, security, etc., administrators

can modify the properties of the network. Effectively, Gigamon would become an

intermediary for tools improving network performance.

08 July 2013

Gigamon (GIMO) 17

Exhibit 15: Gigamon as a Central Hub between the Network and Tools

Gigamon

Sends appropriate traffic from the

network to tools and passes network

altering tool feedback back

Network

Receives feedback from Gigamon and changes

configuration to improvement performance, security, etc.

Tools

Receive appropriate traffic from Gigamon and provides

feedback to the network through Gigamon to improve performance, security, etc.


We detail the four phases of the Gigamon’s specific strategy and note that SDN can be

both a friend and foe, depending on the customer’s preference to use Gigamon as a hub

feature. In our view, while one possible development is using only TAPing functionality and

intelligence from SDNs, Gigamon’s ability to interoperate with tool vendors (a forte of the

company), grow its install base, and use one pane of glass functionality may prove to be a

path for market evolution. For now, the strategy and R&D investments focus on bringing

SDN functionality to market. Given the narrow service provider and enterprise adoption of

technology, this early move to the market could become a competitive advantage. We

view broader adoption of SDN functionality as extending beyond 2015.

Phase 1: Extend Value to SDN: In Phase 1 of the strategy, Gigamon is looking to deliver

SDN software that loads onto the SDN software of a vendor like Cisco, Juniper, or Big

Switch, which will enable that switch to be monitored by Gigamon. This will allow the SDN

network to take advantage of Gigamon’s traffic filtering functionality.

Phase 2: End-to-End SDN Monitoring: In Phase 2, the company is looking to deliver an

end-to-end software management layer across SDNs and traditional networks, since both

are expected to reside side-by-side in the intermediate term. The company is looking to

work with Cisco, Juniper, and Floodlight SDN controllers, as well as virtual server

networking and traditional networks.

Phase 3 and Phase 4: Activating the Network: In Phase 3 and 4, Gigamon products and

software link the network and the analytics tools for security and performance

management. This link allows these tools to have influence on the network. In this case,

the tool does not only become the “analyzer” of the network and traffic but can also

become “active” or alter the network, improving security and performance.

Gigamon will be integrated with SDN’s and traditional networks as well as security,

application, and network performance management tools through software.

0

8 J

uly

20

13

Gig

am

on

(GIM

O)

18

Exhibit 16: Gigamon’s Long-Term Strategy

Phase 1: Tap into SDN Phase 2: Unify networks Phase 3: The active network

Phase 1: Extend value to

SDN.

In Phase 1 of the strategy,

Gigamon is looking to deliver

SDN software that loads onto

the SDN software of a vendor

like Cisco, Juniper or Big

Switch, which will enable that

switch to be monitored by

Gigamon. This will allow the

SDN network to take

advantage of Gigamon’s traffic

filtering functionality.

Phase 2: End-to-end SDN

monitoring.

In Phase 2, the company is

looking to deliver an end-to-end

software management layer

across SDNs and traditional

networks, since both are

expected to reside side-by-side

in the intermediate term. The

company is looking to work with

Cisco, Juniper and Floodlight

SDN controllers, as well as

virtual server networking and

traditional networks.

Phase 3 and Phase 4: Activating the network.

In Phase 3 and 4, Gigamon products and software link the network

and the analytics tools for security and performance management.

This link allows these tools to have influence on the network. In this

case, the tool does not only become the “analyzer” of the network

and traffic, but can also become “active” or alter the network,

improving security and performance.

Gigamon will be integrated with SDN’s and traditional networks as

well as security, application, and network performance management

tools through software.

Phase 4: The living network


08 July 2013

Gigamon (GIMO) 19

Addressing a $3 Billion TAM Gigamon Addresses Two Significant Growth Trends of Networking: Gigamon’s core

market, spurred by the growing adoption of 10GbE, has not formally been defined. With

this, there are several ways to approach the market sizing and revenue opportunity that

are helpful.

Network Monitoring Tools: The company’s products attach to the growing market of

network monitoring tools in application management, network management, and security,

although there are other segments with which Gigamon products are used, such as

network forensics. As networks become more extended and performance increasingly

focal, IT managers are relying more on applications and other monitoring systems to help

analyze and secure the datacenter. We believe that Gigamon’s portfolio address nearly

$3bn of this $11bn network tools market. (See Exhibit 18.)

The Growing Shift to 10GbE Port Speeds: Aside from the higher-level network monitoring,

we highlight the growing adoption and shift to 10GbE (and eventually higher) port speeds.

Gigamon appliances are designed around a core of packet-forwarding components,

meaning that data is intelligently sent to appropriate tools. With the amount of data

increasing, placing overhead on both switches and tools, the function of appropriately

aggregating and sending the right data to the right place increases in importance as it

lessens the overhead on switches for copying data and on tools for eliminating

inconsequential traffic. As 10GbE traffic flows, this becomes increasingly more paramount.

The fact that some network tools still live in a 1GbE world extends the need for more

efficient aggregation and forwarding of traffic.

Gartner predicts that the number of 10GbE ports will grow at a 30% CAGR from 2012-

2017. (See Exhibit 17.) As network architectures become more complex with faster data

speeds, Gigamon’s network visibility and management tools become more significant for

managing the datacenter. Even with this growth, 10GbE ports will only be approximately

15% of total ports in the long term, highlighting that this growth will likely continue in the

longer term.

Exhibit 17: The Number of 10GbE Ports Is Forecast to Grow at a 30% CAGR in 2012-17

2010 2011 2012 2013 2014 2015 2016 2017 CAGR 2012-17

100MbE 201 189 169 146 122 101 81 62 -18.1%

1GbE 155 187 207 227 247 265 279 283 6.5%

10GbE 4 9 16 25 33 41 50 58 29.5%

Total 360 385 391 398 403 407 409 403 0.6%

Source: Gartner.

Gigamon Targets $3bn of an $11bn Tools Market

Gigamon’s Current Portfolio Addresses a Nearly $3 Billion TAM: Gigamon’s products help

address general network management, application performance, and network security

functionality. The end market sizing, according to IDC projections for application

management, network performance, and security point to $3.3 billion, $3.1 billion, and

$5.0 billion markets, respectively, by the end of 2015.

To specify further the spend in these markets that will be allocated to Gigamon-specific

products, management notes that its products attach at a rate of approximately 25% of this

total deal spend, or approximately $2.9bn of the total $11.4 market. Exhibit 18 details

IDC’s market size for network tools and Gigamon’s specific addressable market.

08 July 2013

Gigamon (GIMO) 20

Exhibit 18: Gigamon’s Portfolio Addresses a Nearly $3 Billion TAM in billions, unless otherwise stated.

Market Segment Total Addressable Market (2015) ($USD Bn)

Application performance management $3.1

Network performance management $3.3

Firewall (IPS and IDS) $5.0

Total $11.4

Percent of tool sale allocated to Gigamon-type products 25%

Gigamon-specific TAM $2.85

Source: Company data, Credit Suisse estimates, IDC, Gartner.

Capturing the Shift to 10GbE

The Number of 10GbE Ports to More than Triple between 2012 and 2017: To highlight the

growth of 10GbE ports and revenue relative to the entire switching market, we isolate the

segment in Exhibit 19 and Exhibit 20. In Exhibit 19, we highlight that vendor revenue for

10GbE ports will increase from $6 billion in 2012 to an expected $9.4 billion in 2017, or a

CAGR of 8%. Perhaps even more importantly though, the growth in ports will be

significantly stronger. The number of 10GbE ports is forecast to grow from 16bn in 2012 to

58bn in 2017, which implies the number of ports will more than triple. As network

architectures become more complex with faster data speeds, Gigamon’s network visibility

and management tools become more significant for managing the datacenter.

Exhibit 19: 10GbE Revenue to Increase at an 8% CAGR in billions, unless otherwise stated

Exhibit 20: Number of 10GbE Ports Up 3 Times in 2012-17 in millions, unless otherwise stated

3.64.9

6.0

7.5

8.48.8 9.1 9.4

0

1

2

3

4

5

6

7

8

9

10

11

2010 2011 2012 2013 2014 2015 2016 2017

4

9

16

25

33

41

50

58

0

10

20

30

40

50

60

2010 2011 2012 2013 2014 2015 2016 2017

Source: Gartner Source: Gartner

1GbE and 10GbE Ports to Be 70% of Shipments by 2014: Gigamon is positioned for the

growth in 10GbE port speeds, given it simplifies traffic distribution for management

devices. As network architectures become more complex with faster data speeds,

Gigamon’s aggregation and packet manipulation tools become more significant for

managing datacenter networks. Exhibit 21 shows the growth in shipments of 1GbE and

10GbE ports as a percentage of the total market. Particularly, the strong affinity to

10/40/100GbE ports bodes well for continued growth.

08 July 2013

Gigamon (GIMO) 21

Exhibit 21: 1/10GbE to Be 70% of Ports Shipped in 2014 Exhibit 22: 30mn+ 10GbE Ports Will Be Shipped Next Year in millions, unless otherwise stated

56%49% 43% 37% 30% 25% 20% 15%

43%49%

53%57%

61%65%

68% 70%

1% 2% 4% 6% 8% 10% 12% 14%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014 2015 2016 2017

100 Megabit 1 Gigabit 10 Gigabit

201 189 169 146 122 101 81 62

155 187 207 227 247 265 279283

49 16 25 33 41 50 58

0

50

100

150

200

250

300

350

400

450

2010 2011 2012 2013 2014 2015 2016 2017

100 Megabit 1 Gigabit 10 Gigabit

Source: Gartner Source: Gartner

By the end of 2014, Gartner forecasts that 70% of all Ethernet ports shipped will be at

least 1GbE, up from under 60% in 2012. (See Exhibit 21 and Exhibit 22.) While we

acknowledge that the growth in total ports is forecast to slow, we highlight that the number

of 1GbE ports shipped is forecast to grow at a 5% CAGR from 2013 to 2017, with the

number of 10GbE ports shipped expected to more than double from 2013 to 2017. By

2017, 1GbE/10GbE ports are forecast to be nearly 90% of all ports shipped, meaning that

Gigamon is levered to the fastest growing portions of the market.

Between 2012 and 2015, 10GbE ports are forecast to grow by 160%. If Gigamon revenue

were to keep up with this pace of growth, 2015 revenue could approach $250mn off a

$96.7mn base of 2012, more than 10% more than management forecasts.

Vendor Revenue on 10GbE Ports Growing at an 8% CAGR Long Term: According to

Gartner, vendor revenue for 10GbE ports will increase from an expected $6.0 billion in

2012 to $9.4 billion by 2017, or an 8% CAGR. (See Exhibit 23.) It is important to note, that

while spending on 1/10GbE ports already accounts for approximately 90% of vendor

revenue, spending on 10GbE ports is forecast to be the only growth segment from 2013 to

2017, growing at a 5% CAGR over this period. Revenue for 10GbE ports will increase

from approximately 40% of total revenue in 2013 to over 50% in 2017. (See Exhibit 24.)

This increased 10GbE spending will increasingly make Gigamon functionality increasingly

necessary.

Exhibit 23: 10GbE Revenue to Increase at an 8% CAGR

in billions, unless otherwise stated

Exhibit 24: 10GbE Revenue a Growing Part of the Market

3.6 4.96.0

7.5 8.4 8.8 9.1 9.4

11.310.9

10.910.1 9.5 9.1 8.7 8.0

3.0 2.32.0 1.6 1.3 1.0

0.7 0.5

0

2

4

6

8

10

12

14

16

18

20

2010 2011 2012 2013 2014 2015 2016 2017

10 Gigabit 1 Gigabit 100 Megabit

20% 27%32%

39% 44% 47% 49% 52%

63%60%

58%52% 50% 48% 47% 45%

17% 13% 10% 8% 7% 5% 4% 3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014 2015 2016 2017

10 Gigabit 1 Gigabit 100 Megabit

Source: Gartner. Source: Gartner

08 July 2013

Gigamon (GIMO) 22

A Competitive Product Portfolio We view Gigamon’s competition in the context of three types of competitors: stand-alone

network packet broker companies, public companies that bundle functionality as part of

security and performance management sales, and networking companies such as Arista,

Cisco, Juniper, and Big Switch. For the networking vendors, SDN could provide an

opportunity to more substantively enter the visibility segment.

Stand-Alone Privates: For stand-alone competitors, we primarily consider cPacket,

APCON, and Net Optics.

Bundled Offerings: For tool vendors in network performance monitoring and security,

companies that have made acquisitions include NetScout (NTCT), which acquired

ONPATH; Ixia (XXIA), which acquired Anue; and Danaher (DHR), which acquired VSS

Monitoring.

Networking Vendors: While we believe that Gigamon’s more immediate competition would

be smaller networking companies, as Gigamon’s product is considered to serve a very

specific function, we do not dismiss the larger networking companies, as they could offer

competitive solutions. Specifically, we see SDN as an entry path for these vendors,

leveraging commodity switches, x86, and SDN technology to put together solutions.

According to Gartner, SDN and switching will capture 35% of the market, up from 1% as

they enter the segment, lured by high growth, large margins and the ease of implementing

the functionality.

The Current Competitive Landscape

The competitive landscape has developed such that cPacket, NetScout, Ixia, and Danaher

have emerged as the primary competitors among the smaller networking companies.

(See Exhibit 25.) We also believe that the larger networking companies, such as Cisco,

may pose as more significant threats over time.

08 July 2013

Gigamon (GIMO) 23

Exhibit 25: Portfolio Has More Scale and Breadth than Competitors’

Breadth and Applicability of Vision

Solu

tion s

cale


Stand-alone Competitors

cPacket

cPacket targets the higher end of the market with its custom hardware solution, which

allows the company to excel in accurate time stamping. In some use cases, such as

trading, this functionality is important. The product is highly performing and can do deeper

packet inspection along with base network performance monitoring functionality. The

company offers its cVu Traffic Monitoring switch in three different variations: the 120G,

240G, and 320G. (See Exhibit 26.) On the high end, these products have as many as 34

1GbE ports and 32 10GbE ports. All three products run cPacket’s SPIFEE platform, which

packet inspection to analyze network performance conditions. cPacket is priced at

approximately, $18,000 per port at the low end, according to Gartner.

08 July 2013

Gigamon (GIMO) 24

Exhibit 26: cPacket’s Product Portfolio

cPacket

Series cVu Traffic Monitoring Swtich

Model cVu 120G cVu 240G cVu 320G

Maximum 1Gb ports 24 24 34

Maximum 10Gb ports 12 24 32

System size (Rack units) 1 2 3

SPIFEE Yes Yes Yes Source: Company data.

APCON

APCON entered the network packet broker business through its testing and measurement

legacy segments. The company is positioned below that of higher vendors like cPacket

and Gigamon in absolute terms and slightly above network packet brokering peer Net

Optics. While the products are less expensive, they feature fewer options than higher

priced competitors. APCON offers its IntellaFlex series, which consists of two appliances,

one which primarily does time stamping and packet slicing and the other, the packet

controller, which primarily does deduplication. (See Exhibit 27.) It also offers its IntellTap

and APCON Tap appliances for packet aggregation. Its time stamping and packet slicing

appliance has capacity for 18 10GbE ports, and its ApconTap appliance has capacity for

32 10GbE ports. APCON products start at $15,000 per port.

Exhibit 27: APCON’s Product Portfolio APCON

Series IntellaFlex

Model

Time Stamping/Packet

Slicing Packet Controller IntellaTap ApconTap

Maximum 1Gb ports 18 4 16 32Maximum 10Gb ports 18 4 16 32System size (Rack units) 1 1 1 2

Deduplication No Yes No NoPacket Slicing Yes No No NoPacket Aggregation No No Yes YesTime Stamping Yes No No No Source: Company data.

Net Optics

The company was one of the originators of the network packet broker segment and has a

legacy in making taps, connectors, and fiber cables and is now expanding into the low end

network performance management market and does not compete with tools vendors. The

company is making significant investments in R&D to continue to extend its offerings.

Similar to APCON, the company tends to price lower than competitors cPacket and

Gigamon. Net Optics’ Aggregation series has six main models that offer the primary

08 July 2013

Gigamon (GIMO) 25

competitive functions (time stamping, packet slicing, remote monitoring, and traffic

monitoring), but have overall less capacity than most other comparable companies’

appliances. At the high end, the appliances have just one rack with four 10GbE ports,

which is a less robust offering to most other companies’ products. (See Exhibit 28.) Net

Optics is priced at $11,000 per port.

Exhibit 28: Net Optics’ Product Portfolio Net Optics

Series Aggregation

Model iTap 2 Port Aggregator

iTap 10 GigaBit Fiber

Port iTap Gigabit Fiber Port iTap Triple-speed GigaBit Fiber SFP Dual Port Tap

Maximum 1Gb ports N/A N/A 2 4 2 4Maximum 10Gb ports 4 2 N/A N/A N/A N/ASystem size (Rack units) 1 1 1 1 1 1

Remote Monitoring No Yes Yes Yes Yes YesPacket Slicing No Yes No No No NoTime stamping Yes Yes No Yes No YesTraffic Monitoring No No ww Yes Yes Yes Source: Company data

Bundled Offerings

Before late 2011, most companies in the network performance management space were

independent, and network performance management tools or security tool providers had

multiple partnerships in which the tool provider would refer business to a software vendor.

Recently, there has been some consolidation among the smaller companies in the market,

primarily Ixia’s acquisition of Anue, NetScout’s acquisition of Simena and ONPATH, and

Danaher’s acquisition of VSS Monitoring. As a result, among the smaller networking

companies, these three remain as the biggest competitors.

As a result of the acquisitions among the tool vendors, larger competitors are bundling

versions of monitoring appliances as part of larger network management sales. While

some of these products may not be perceived to be as strong as Gigamon’s, maturation of

the products over time may allow them to be “good enough”. Moreover, while Gigamon is

perceived to be a best of breed vendor, continued consolidation in the space may leave it

with fewer go-to-market partners and we discuss this as a potential risk below.

NetScout

NetScout has built its network packet broker segment through acquisitions, which started

with the purchase of Simena in December 2011. Although NetScout likely does not play as

large of a role as Gigamon or Ixia in Gigamon’s specific segment, NetScout aggressively

bundles its tools and can make concessions to facilitate the sale of its Infinistream

products. With the acquisition of ONPATH in 2012, NetScout extended its capability for

core 40GbE/100GbE.

NetScout has the nGenius Infinistream series, which features three appliances primarily

for deep packet capture and real-time network analysis.(See Exhibit 29.) It also has the

nGenius Switch and TAP series appliances, which offer a combination of packet filtering,

packet aggregation, and packet slicing.

08 July 2013

Gigamon (GIMO) 26

Exhibit 29: NetScout’s Product Portfolio NetScout

Series nGenius Infinistream nGenius Switches and TAPs

Model Infinistream 1900/2900 Infinistream 6900 Infinistream 7900 Packet Flow Switch 1500 Packet Flow Switch 3900

Maximum 1Gb ports 4 Eight 10 Gb interfaces Four 1 Gb interfaces N/A 24Maximum 10Gb ports N/A Four 10 Gb interfaces Two 10 Gb interfaces 48 24System size (Rack units) 1 3 3 1-12 1

Deep Packet Capture Yes Yes Yes yes NoPacket Slicing No No No No YesPacket Aggregation No No No Yes NoPacket Filtering No No No Yes YesReal-time network analysis Yes Yes Yes No No Source: Company data

Ixia

Ixia entered the space with its $145 million June 2012 acquisition of Anue. At that point,

Anue 2011 revenues stood at $40.5 million. With BreakingPoint security and network

performance management capabilities, the company can bundle this functionality. The

company’s Anue product has garnered success at AT&T to provide network visibility and

ensure QoS and Ixia is targeting both carrier and enterprise customers. Approximately half

of sales are to enterprises and cloud services providers and the other half goes to wireless

carriers and MSOs, according to the company. Ixia may also be adding functions through

increased levels of R&D, including deeper inspection capabilities to monitor more traffic.

The company sees the opportunity split along these 50/50 revenue dynamics and expects

the network visibility market to amount to $850mn next year, growing at a 23% CAGR.

Anue margins stand in the low-80% range. In terms of share in Gigamon's market, we

believe that Ixia and Gigamon are the two largest companies, which each having about

25% of the market.

Ixia’s primarily competitive product is its NetTool Optimizer series, consisting of five

different appliances. (See Exhibit 30.) The products have has many as 64 10GbE ports

(for the high end).

Exhibit 30: Ixia’s Product Portfolio Ixia

Series NetTool Optimizer

Model Ixia Anue NTO 5204 Ixia Anue NTO 5236 Ixia Anue NTO 5273 Ixia Anue NTO 5288 Ixia Anue NTO 5293

Maximum 1Gb ports 28 28 28 Max 64 Max 64Maximum 10Gb ports 4 24 24 Max 64 Max 64System size (Rack units) 1 1 2 2 2

Event Logging Yes Yes Yes Yes YesSyslog Yes Yes Yes Yes YesLine card capacity 2 N/A 5 N/A N/A Source: Company data

VSS Monitoring (Danaher)

VSS Monitoring was acquired by Danaher and complements network performance

monitoring portfolio in Visual Networks and Fluke. This is also a fit with Arbor Networks in

the security space. In terms of direct competition with Gigamon, VSS Monitoring is smaller

than Gigamon and a narrower marketing footprint. VSS has a larger exposure in the

service provider market and continues to be integrated with Danaher post acquisition.

08 July 2013

Gigamon (GIMO) 27

Danaher offers VSS’s vBroker portfolio, which has four different appliances, ranging from

the 100 to 400 series. (See Exhibit 31.) The 100 and 200 series have both one and 10GbE

ports, while the 300 and 400 series have only 10GbE ports. The appliances offer packet

filtering, packet forwarding, and load balancing.

Exhibit 31: VSS Monitoring’s Product Portfolio VSS Monitoring (Danaher)

Series vBroker

Model 100 Series 200 Series 300 Series 400 Series

Maximum 1Gb ports 28 12 N/A N/AMaximum 10Gb ports 4 12 32 32System size (Rack units) 1 1 1 1

Packet Filitering Yes Yes Yes YesPacket Forwarding Yes Yes Yes YesLoad Balancing Yes Yes Yes Yes Source: Company data

Networking Vendors

Larger networking companies such as Cisco, Juniper, Arista, and Big Switch could absorb

Gigamon’s functionalities into their existing software offerings. Gigamon technology is

complementary to the focus of larger networking vendors and would be an improvement to

the network monitoring functionality they currently offer. Nevertheless, as companies like

Gigamon expose the market opportunity, bigger networking companies will continue to

develop their own offering as part of a packaged solution. According to Gartner, SDN and

switching will capture 35% of the market, up from 1%, as they enter the segment, lured by

high growth, large margins, and the ease of implementing the functionality.

Arista Networks: Arista Networks, in particular, is disrupting the market by releasing Arista

Data ANalyZer (DANZ) in February 2013 as part of its operating system. DANZ is a set of

features within the core switching OS running on their switch, which primarily includes tap

aggregation functions to give data on network conditions. Arista is expected to keep

developing its network performance management offering, but for now, the company is

pricing the solution aggressively at 1/6 to 1/10 the price of competitors. We believe that

Arista is targeting big datacenter architectures and the Arista installed base.

Big Switch: The SDN leader Big Switch is targeting tapping functionality as a primary use

for penetrating the market. The company’s product, dubbed Big Tap, provides tapping and

spanning functionality. Pricing is variable and starts at $500/month and varies on the

number of tools and boxes.

Cisco: As part of Cisco’s Open Network Environment initiative (ONE), in February, it

announced that a controller with features similar to those of Gigamon’s in several ways.

■ Tapping: Similar to Big Switch’s Big Tap, Cisco’s product can duplicate for monitoring.

■ Custom Forwarding: Modifies chosen traffic to be sent to monitoring tools.

Juniper: Juniper currently has the MX product that is targeted for carriers and therefore

has more capacity than a traditional enterprise switch. The MX is an edge router that has

switch-like capabilities, in that it can give service providers deeper visibility into Layer-7

traffic. While Gigamon primarily currently targets enterprise customers, we would highlight

this product as a development from a larger networking company to enter this market.

08 July 2013

Gigamon (GIMO) 28

An Effective Business Model We believe Gigamon has an effective business model, given the following characteristics.

Significant Repeat Activity: Gigamon has a strong record of selling to customers after their

initial purchase. After an initial pause that has occurred after the initial purchase, Gigamon

customers have very consistently repeated purchases. More specifically, customers who

placed initial orders prior to 2010 have, on average, fulfilled at least eight times the original

order, and top 25 customers have, on average, fulfilled 38 times their initial orders.

New Customer Wins: From the first quarter of 2009 to the fourth quarter of 2012, Gigamon

has increased its total customer count from 298 to 1,010, or an increase of nearly 3.5

times. Moreover, Gigamon has mentioned that approximately 20% of its sales come from

new customers.

New Channels: During the first quarter of 2013, Gigamon started selling its entire portfolio

through Arrow. Arrow has also indicated that it expects Gigamon to significantly grow and

become a much more meaningful part of its business. The addition of Arrow could add up

to 8% upside to our forecast for 2014 revenue. Arrow has commented that it believes

Gigamon revenue could be as high as $20 million for 2013, which we estimate could

double in 2014.

New Products: In 2012, Gigamon focused on enterprise, finance, and cloud providers, and

in 2013, it will extend that focus to service provides and distributed enterprises. To do this,

the platform will continue to evolve with 100GbE connectivity, increased management

simplicity, a hardware platform for branch offices, improved midrange price performance,

more VM functionality, an SDN introduction, and eased configuration management.

Strong History of New Customers

Since its inception in 2004, Gigamon has significantly expanded its customer traction.

Exhibit 32 displays many of the well-known companies that deploy Gigamon’s technology.

As of March 2013, Gigamon’s total customers exceeded 1,000 and included 60 of the

Fortune 100 and 50 of the top 100 global service providers. Gigamon’s customers also

include:

■ eight of the top ten U.S. banks and diversified financial services companies;

■ seven of the top ten U.S. retailers;

■ six of the top ten US telecom service providers; and

■ four of the top ten securities and commodities exchanged.

08 July 2013

Gigamon (GIMO) 29

Exhibit 32: Many of the Top Global Companies Use Gigamon’s Technology

Source: Gigamon.

In the process of gaining these customers, from the first quarter of 2009 to the fourth

quarter of 2012, Gigamon has increased its total customer count from 298 to 1,010, or an

increase of nearly 3.5 times. For 2011 and 2012, Gigamon added an average of 61

customers every quarter. Exhibit 33 shows the growth in customers for Gigamon from

2009 to 2012.

Exhibit 33: Gigamon Now Has 1,000 Customers, with Nearly 300 New in 2012

298 326 353 380 405 437 469

521 545 587

641 724

771

843

919

1,010

27 28 27 27 25

32 32

52

24

42

54 83

47

72 76

91

-

10

20

30

40

50

60

70

80

90

100

-

200

400

600

800

1,000

1,200

Q1 Q2 Q3 Q4'09 Q1 Q2 Q3 Q4'10 Q1 Q2 Q3 Q4'11 Q1 Q2 Q3 Q4'12

New

Cu

sto

mers

To

tal C

usto

mers

(th

nd

s)

Total Customers New Customers


Gigamon has mentioned that approximately 20% of its sales come from new customers. In

addition to having a large and reliable recurring revenue source from existing customers,

Gigamon has a strong record of attracting and selling into new customers. The percent of

bookings from new customers has exceeded that of sales the past three years, averaging

over 25% the last three years and 28% in 2012. (See Exhibit 34.)

08 July 2013

Gigamon (GIMO) 30

Exhibit 34: Over 25% of Gigamon’s Bookings Have Been from New Customers

% of bookings.

27%

24%

28%

22%

23%

24%

25%

26%

27%

28%

29%

2010 2011 2012 Source: Company data.

Recurring Revenue—Predictable and Growing

Strong Revenue Growth from Existing Customers: Gigamon has a strong record of selling

to customers after their initial purchase. Exhibit 35 shows buying patterns for Gigamon’s

top 25 customers going back to the first quarter of 2006. After an initial pause, which has

sometimes occurred after the initial purchase, Gigamon customers have very consistently

repeated purchases. We note that the top 25 customers are quite balanced, with 11

enterprises, 13 service providers, and one government customer.

Exhibit 35: Gigamon Has a Diversified Base of Large Customers that Consistently Buy after the First Purchase

Top 25 Customers Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

1 Enterprise

2 Service Provider

3 Service Provider

4 Enterprise

5 Enterprise

6 Service Provider

7 Service Provider

8 Service Provider

9 Service Provider

10 Service Provider

11 Service Provider

12 Enterprise

13 Enterprise

14 Enterprise

15 Enterprise

16 Service Provider

17 Service Provider

18 Service Provider

19 Service Provider

20 Enterprise Repeat Purchases

21 Enterprise

22 Enterprise Initial Purchases

23 Government

24 Service Provider

25 Enterprise

2011 20122006 2007 2008 2009 2010

Source: Gigamon.

Additionally, we highlight that 14 of the top 25 customers bought every quarter in 2011 and

2012. In 2012, 22 of the top 25 customer bought in at least three quarters of the year, with

14 customers buying in every quarter. Of these top 25 customers, eight waited one quarter

or less to complete their second purchase. Finally, Gigamon has discussed service

08 July 2013

Gigamon (GIMO) 31

provider revenue as a growth driver, as it represented 33% of bookings in 2011 and 27%

of bookings in 2012. We point out that this growth could be achieved, as seven of the top

ten customers are service providers, with all seven buying in at least three of four quarters

in 2012.

In addition to customer breadth and a long history of buying in the majority of quarters

after the initial purchase, customers have cumulatively bought several times the amount of

their initial purchase. Since the initial order, all customers have, on average, cumulatively

fulfilled orders of three times the initial order (see Exhibit 36). More specifically, customers

who placed initial orders prior to 2010 have all since fulfilled at least eight times the

original order, and top 25 customers have fulfilled 38 times their initial orders.

Exhibit 36: On average, all Customers Have Fulfilled Orders at Least Three Times Their

Initial Purchase

1x3x

8x

38x

0

5

10

15

20

25

30

35

40

45

Initial Purchase All Customers All Customers Prior to 2010 Top 25

Mu

iplt

e o

f In

itia

sl P

urc

hase


Number of Large Orders Continues to Grow: Gigamon’s sales growth is at least partly

explained by the growth in larger orders, or those over $100,000. The number of sales

over $100,000 in a quarter has increased from 15 in the first quarter of 2009 to 97 in the

fourth quarter of 2012. (See Exhibit 37.) The number of orders over $100,000 continues to

grow at a fast pace, with 97 orders in the fourth quarter of 2012, which was over 30%

growth year over year.

08 July 2013

Gigamon (GIMO) 32

Exhibit 37: Number of Orders over $100,000 Continues to Grow

15

5

17

26 26 28 36

41

27 40 46

73

43 61

62

97

4%

43%

28%

78%

59%

53%

35%

33%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

-

20

40

60

80

100

120

Number of Orders Y/Y% Change Source: Company data.

Sales Team Growth: As sales have and will continue to grow, Gigamon has outlined plans

to increase its sales coverage. In addition to adding Arrow as a distributor (discussed in

the following pages), Gigamon has added five account managers in North America, one in

EMEA, and intends to hire one for Asia Pacific. More specifically, for EMEA, the company

has put in place senior leadership in the region as well as additional infrastructure to

support anticipated sales growth. Both geographies are still in the process of ramping (the

United States still represents over 80% of bookings) but will serve as growth drivers in the

future.

Revenue with Room for Growth

Growing Products and Services Revenue: Gigamon’s revenue is approximately 70% from

products and 30% from services. We note that services provide a reliable and growing

revenue source from Gigamon. Additionally, as services gross margins have historically

been at approximately 90%, this segment should provide gross margin support going

forward compared with slightly below corporate average gross margins for products.

Gigamon may also be able to sell software add-ons both at and after the initial sale of the

hardware, which would be accretive to overall product gross margins.

Exhibit 38: Product and Service Revenue Mix Will Be Stable Going Forward

% of revenues.

65%72% 73% 74%

68% 71% 72% 69% 64% 68% 71% 71%

35%28% 27% 26%

32% 29% 28% 31% 36% 32% 29% 29%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1Q12 2Q12 3Q12 4Q12 1Q13 2Q13E 3Q13E 4Q13E 1Q14E 2Q14E 3Q14E 4Q14E

Product Service


08 July 2013

Gigamon (GIMO) 33

In-line with management commentary, Exhibit 39 shows how Gigamon planned its

expansion in 2012 through the enterprise and the steps it plans to take in 2013 to continue

its growth, at least partly through increasing distribution to service providers. Gigamon’s

priority in 2012 was to target enterprise accounts, which drove bookings in this segment to

66% of total bookings in 2012. Additionally, Gigamon successfully gained traction in the

technology segment, which includes companies like Salesforce.com. This represented

18% of bookings in 2012, up from 10% in 2011. Cloud service providers are becoming an

increasing important aspect of the overall IT solution, as a number of organization have

replaced some traditional, on-premise infrastructure with cloud-based solutions, as these

platforms may decrease the upfront cost and time for network implementation.

In 2012, Gigamon focused on enterprise, finance, and cloud providers, and in 2013, it will

extend that focus to service provides and distributed enterprises. To do this, the platform

will continue to evolve with 100GbE connectivity, increased management simplicity, a

hardware platform for branch offices, improved midrange price performance, more VM

functionality, an SDN introduction, and eased configuration management.

Exhibit 39: Increasing Penetration to Service Providers to Help Drive Growth in 2013

2012 2013

Market Focus Enteprise Service Providers Distributed Enterprises

Finance

Cloud Providers

Solution Evolution Performance, Scale Usability

Density Performance/scale across platforms

Security Most complete portfolio

Virtualization Differentiation by Market

Platform Evolution Increased chassis capacity 200+% 100GbE connectivity

40GbE connectivity Manangement simplicity

10GbE denisty blades HW platform for the branch

Small-form chassis Improved mid-range price/performance

Traffic aggregation VM evolution (function and scale)

Nano-second timing

Intelligence: Active and Living fabric solutions for

Enterprise, SP, Telco

Inline IPS distribution SDN product introduction

GigaVUE-VM End-to-end configuration management and

monitoring Source: Company data.

For 2013, Gigamon plans to increase its penetration with service provider customers. As

previously mentioned, seven of Gigamon’s top ten customers are service providers, which,

in addition to possibly winning new customers, will allow Gigamon to increase sales to

these existing customers.

Growing the Channel could Provide 8% Upside to Forecasts: Gigamon relies heavily on

selling through its channel partners. In North America, Interlink has represented a

significant portion of revenue at 63% for all of 2012 and 57% for the first quarter of 2013.

However, during the first quarter of 2013, Gigamon started selling its entire portfolio

through Arrow. Arrow’s decision to resell Gigamon highlights the company’s

competitiveness. This should help Gigamon achieve a solid footprint at Arrow and help the

distributor become a broader portion of revenues.

Further growth from Interlink and the addition of Arrow could add up to 8% upside to our

forecast for 2014 revenue. (See Exhibit 40.) Arrow has said that it believes that Gigamon

revenue will reach approximately $20 million for 2013, which we estimated could double in

2014. We believe that revenue from Interlink can continue to grow revenue at 40% for

2013 and 30% for 2014 and that revenue from Arrow can double in 2014 from the 2013

08 July 2013

Gigamon (GIMO) 34

estimate of $20 million. We conservatively assume that all revenue excluding Arrow and

Interlink will be maintained at a flat rate on a year-over-year basis.

Exhibit 40: Adding Arrow and Growing Interlink Could Give 8% Upside to Estimates in millions, unless otherwise stated.

2011 2012 2013E 2014E

In USD mlns

Interlink 25.20 60.93 85.28 110.87

Percent Total 37% 63% 65% 65%

Y/Y % change 142% 40% 30%

Arrow - - 20.00 40.00

Percent Total - - 15% 24%

Y/Y % change 100%

Other Dist./Direct 42.91 35.78 35.70 35.70

Percent Total

Y/Y % change -17% 0% 0%

CS Estimates 68.11 96.72 132.44 172.37

Implied Total 68.11 96.72 140.99 186.57

Upside to CS Est's - - 8.55 14.20

Percent Upside - - 6.5% 8.2%


Expansion into Europe Could Drive Growth: Management has highlighted that one of the

key growth drivers for Gigamon is sales growth outside of the United States. Exhibit 41

shows the percentage of total annual bookings across the three major geographies from

2010 to 2012. In addition to strength in the United States, there is a clear opportunity for

international expansion. Management noted that, in 2012, just over 80% of bookings was

generated in the United States. Gigamon has mentioned that it plans to expand its

European channel, and at just over 10% of bookings, this is likely to drive growth going

forward.

08 July 2013

Gigamon (GIMO) 35

Exhibit 41: America Continues to Dominate, with EMEA and APAC to Grow

% of bookings.

79% 77% 83%

13% 16%12%

8% 7% 5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012

America EMEA APAC


Enterprise as a Growing Portion of Sales: As of year-end 2012, the enterprise segment

represented two-thirds of bookings, highlighting the growth in this area. That said,

Gigamon is well positioned in the service provider segment, with six of the top ten U.S.

service providers as customers. Service provider revenue can fluctuate as a result of large

deals that can be concentrated in a single quarter but not repeat in the same size. While

this makes the service provider segment slightly more unpredictable, it also serves as a

potential source of upside for Gigamon.

Exhibit 42: Enterprise Is a Majority of Bookings

% of bookings.

14% 9% 7%

29% 33%27%

57% 58%66%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012

Government Telco and Service Provider Enterprise


08 July 2013

Gigamon (GIMO) 36

Valuation—FV of $27 per Share We focus our valuation on a three-pronged approach: (1) EV/sales multiple valuation

(comparing EV/sales with peers), (2) discounted cash flow (DCF) analysis, and (3) Credit

Suisse HOLT analysis. Our approach suggests that the company’s equity value is $813

million to $934 million, or $25-29 per share, with a blended value of $27 per share.

Exhibit 43: Gigamon Blended Average Value of $27

in thousands, except per share data.

Equity value ($'000) Valuation Value/Share ($)

Approach

EV/Sales 934,283 5.0x EV/sales 28.57

DCF Analysis 813,021 Term. growth of 3%, WACC of 10.4% 24.86

Credit Suisse HOLT 865,838 R&D life of 7 years 27.56

Blended Average 871,047 27.00


EV/Sales Multiple Suggests FV of $29 per Share

We apply an EV/Sales Multiple of 5.0 on Gigamon’s 2014 Revenue Estimate. Given the

top-line growth profile of the company, we believe that it is a better metric for valuation

than standard P/E valuation.

Exhibit 44: Applying 5.0x Multiple to CY14 Sales Plus Cash Gives Fair Value of $29 in thousands, unless otherwise stated.

EV/Sales Valuation

Current Price 27.20

Diluted Share Count 32,700

Market Cap 889,440

Net Debt -77,600

Enterprise Value 811,840

Peer Group

High-Growth Networking Companies 3.2x

Next-Generation Datacenter 3.6x

Gigamon Sales 172,371

EV/Sales Multiple 5.0x


Cash 77,600

Market Cap 934,283

FV per share for Gigamon 28.57


Apply an EV/Sales Multiple of 5.0x Based on Comps: To analyze a fair revenue multiple

for Gigamon, we have looked at the current EV/sales multiples for the company along with

the related peer group. Given Gigamon’s competitive product and growth profile, we form

a peer group of comparable companies divided into three groups:

1) high-growth networking companies;

2) next-generation datacenter companies; and

3) a smaller group with NetScout, Ixia and SolarWinds, which have comparable

platforms.

For high-growth networking companies, we considered names such as Palo Alto Networks,

Fortinet, and Infoblox. For next-generation datacenter companies, we included companies

such as Rackspace, Salesforce, VMware, Citrix, Riverbed, F5, and Fusion-io. We also

08 July 2013

Gigamon (GIMO) 37

include other networking companies such as NetScout, Ixia and SolarWinds, which

provide systems for overall networking and application visibility and management.

Palo Alto Networks and Infoblox the Most Applicable Comps: In terms of high-growth

networking companies, we view Palo Alto Networks and Infoblox as most applicable

comparables to Gigamon, mostly because of their revenue growth and margin profile.

(See Exhibit 45.) We view Fortinet, Riverbed, F5 Networks, Ruckus, and Aruba as less

applicable comparables because of their growth profiles. For next-generation datacenter

companies, we have included Rackspace, Salesfore.com, Red Hat, VMware, and Citrix.

Although these companies also provide important platforms for next-generation networks,

they too differ in growth.

Gigamon Trades at an In-line EV/Sales Multiple to Closest Comps for 2014: Palo Alto

Networks and Infoblox, which we believe are the most comparable companies for

valuation, trade at an average EV/sales multiple of 4.4x on 2014 consensus revenue,

roughly in-line with Gigamon at 4.7x our 2014 revenue estimate. (See Exhibit 45.) While

Gigamon may not have the same product sets and addresses differing segments, we do

believe that it has similar growth characteristics to high-growth networking companies.

Gigamon is valued at a premium to Riverbed, F5 Networks, Ruckus, and Aruba, which

trade at a EV/sales multiple of 2.5x on 2014 revenue, which we believe is warranted due

to slower forecast revenue growth.

Gigamon Trades at a Justified Premium to Next-Generation Datacenters and Others: The

average next-generation datacenter company trades at an average of EV/sales multiple of

3.6x on 2014 revenue. Gigamon is valued at a premium to this multiple, which we believe

is warranted due to higher sales growth and a strong competitive position in the market.

Similarly, NetScout, Ixia and SolarWinds trade at an average EV/sales multiple of 3.6x on

2014 revenue, which we believe is a warranted discount due to slower revenue growth.

08 July 2013

Gigamon (GIMO) 38

Exhibit 45: Gigamon Trades at 4.7x EV/Sales on 2014 Revenue, Roughly In-line with the Closest Comps

Company P/E P/Sales EV/Sales Sales Growth EPS Growth (%) GM

2013E 2014E 2013E 2014E 2013E 2014E 2013E 2014E 2013E 2014E 2013

Next-Generation Datacenter

Rackspace Hosting 62.5 47.9 3.5 3.0 3.5 3.0 16.3% 17.0% -14.3% 30.6% 69%

Salesforce.com 98.0 67.5 5.8 4.6 5.8 4.6 29.3% 26.6% -2.2% 45.1% 80%

Red Hat 36.1 31.1 6.0 5.2 5.6 4.9 15.3% 14.4% 9.8% 15.9% 86%

VMware 20.0 17.5 1.6 1.4 4.6 4.0 12.4% 14.7% 15.2% 14.4% 88%

Citrix Systems 20.0 17.6 3.9 3.4 3.7 3.3 14.6% 12.9% 7.6% 14.1% 87%

Riverbed 15.8 13.0 2.4 2.1 2.5 2.2 28.1% 11.3% 0.3% 21.2% 79%

F5 Networks 15.1 13.4 3.6 3.2 3.3 2.9 7.3% 11.7% 4.8% 12.8% 84%

SolarWinds 25.4 21.2 8.7 7.0 8.0 6.4 25.2% 24.4% 13.8% 19.4% 95%

Fusion-io NM 46.9 3.1 2.3 2.3 1.8 9.2% 33.7% -92.4% 816.8% 50%

Mellanox 35.4 18.9 5.0 3.9 4.1 3.2 -15.9% 28.3% -61.5% 87.7% 68%

Average 36.5 29.5 4.4 3.6 4.3 3.6 14.2% 19.5% -11.9% 107.8% 79%

High-Growth Networking Companies

Palo Alto Networks Inc 149.8 81.5 6.5 4.8 5.9 4.4 45.1% 35.2% 70.1% 83.8% 73%

Infoblox 77.4 47.5 6.1 5.0 5.4 4.4 26.1% 21.6% 91.9% 63.0% 79%

Fortinet Inc 36.8 30.0 4.6 4.0 4.1 3.6 12.4% 14.5% -7.7% 22.7% 72%

Riverbed 15.8 13.0 2.4 2.1 2.5 2.2 28.1% 11.3% 0.3% 21.2% 79%

F5 Networks 15.1 13.4 3.6 3.2 3.3 2.9 7.3% 11.7% 4.8% 12.8% 84%

Ruckus 83.3 49.4 3.8 3.0 3.3 2.7 20.8% 25.0% -70.4% 68.8% 66%

Aruba 24.5 21.0 2.8 2.5 2.2 2.0 13.4% 13.0% 2.1% 16.8% 72%

Average 57.5 36.5 4.3 3.5 3.8 3.2 21.9% 18.9% 13.0% 41.3% 75.1%

Other Networking Companies

SolarWinds 25.4 21.2 8.7 7.0 8.0 6.4 25.2% 24.4% 13.8% 19.4% 95%

NetScout 17.0 15.0 2.6 2.3 2.3 2.0 11.7% 11.2% 11.6% 13.6% 80%

Ixia 18.3 16.4 2.7 2.4 2.6 2.3 23.4% 13.8% 25.7% 11.9% 81%

Average 20.2 17.5 5.2 3.9 4.8 3.6 20.6% 16.5% 21.4% 15.0% 85%

Gigamon

Gigamon 104.9 75.8 6.7 5.2 6.1 4.7 36.9% 30.2% 27.8% 38.5% 78%

Source: FactSet, Credit Suisse estimates, company estimates

DCF Analysis Yields an Equity Value of $813 Million or $25 per Share for Gigamon

Our discounted cash flow analysis for Gigamon suggests a fair value of $25 per share.

(See Exhibit 46.) This is based on the following assumptions.

Strong Revenue Growth to be Sustained for Several Years: For 2013 and 2014, we expect

Gigamon to see strong revenue growth of 37% and 30%, respectively, driven by continued

sales to enterprise customers, increasing penetration to service provider accounts, and

ramping EMEA and APAC regions. Beyond fiscal 2016, we expect revenue growth to

moderate around to 20% before stabilizing at 3% in the long term.

EBIT Margins to Grow to 25% in the Long Term: Driven by strong product momentum, we

believe Gigamon’s gross margin will remain stable at 77% in 2014 and 2015. This, in turn,

will drive operating margins of 12%/17% in the next two years. In the long term, we expect

gross margins to remain at 76% and EBIT margins to eventually reach 25%, as the

company scales up and increases its revenue stream.

08 July 2013

Gigamon (GIMO) 39

Exhibit 46: Gigamon DCF Yields a Value of $25 in thousands, except per share data.

2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E

Revenue 132,438 172,371 224,145 280,182 336,218 403,462 463,981 510,379 535,898 551,975

yoy% 36.9% 30.2% 30.0% 25.0% 20.0% 20.0% 15.0% 10.0% 5.0% 3.0%

Gross Profit 102,753 133,016 172,216 214,339 255,526 306,631 352,625 387,888 407,282 419,501

GM% 77.6% 77.2% 76.8% 76.5% 76.0% 76.0% 76.0% 76.0% 76.0% 76.0%

S&M (51,073) (61,774) (75,313) (92,460) (110,952) (129,108) (143,834) (153,114) (160,769) (165,592)

as % of sales 38.6% 35.8% 33.6% 33.0% 33.0% 32.0% 31.0% 30.0% 30.0% 30.0%

R&D (27,699) (36,603) (44,157) (55,196) (63,881) (70,606) (81,197) (81,661) (85,744) (88,316)

as % of sales 20.9% 21.2% 19.7% 19.7% 19.0% 17.5% 17.5% 16.0% 16.0% 16.0%

G&A (11,463) (13,649) (15,690) (19,613) (21,854) (24,208) (25,519) (25,519) (26,795) (27,599)

as % of sales 8.7% 7.9% 7.0% 7.0% 6.5% 6.0% 5.5% 5.0% 5.0% 5.0%

EBIT 12,518 20,990 37,056 47,071 58,838 82,710 102,076 127,595 133,974 137,994

EBIT Margin 9.5% 12.2% 16.5% 16.8% 17.5% 20.5% 22.0% 25.0% 25.0% 25.0%

D&A (+) 2,287 2,919 3,796 4,763 5,716 6,859 7,888 8,676 9,110 9,384

as % of sales 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7%

EBITDA 14,806 23,909 40,852 51,834 64,554 89,568 109,963 136,271 143,085 147,377

EBITDA Margin% 11.2% 13.9% 18.2% 18.5% 19.2% 22.2% 23.7% 26.7% 26.7% 26.7%

Capex (-) (6,289) (8,129) (10,268) (12,608) (15,130) (16,138) (18,559) (20,415) (21,436) (22,079)

as % of sales 4.7% 4.7% 4.6% 4.5% 4.5% 4.0% 4.0% 4.0% 4.0% 4.0%

Total Cash Flow before Tax 10,916 10,101 40,614 47,532 52,171 78,276 97,542 126,362 137,867 145,921

Cash Taxes 4,445 8,516 14,809 16,475 20,593 28,948 35,727 44,658 46,891 48,298

Tax rate (%) 35.5% 40.6% 40.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0% 35.0%

Free Cash Flow 6,471 1,585 25,804 31,057 31,578 49,328 61,815 81,704 90,976 97,623

Summary

PV of Free Cash Flow 234,747

Terminal Value 1,351,508

PV of Terminal Value 500,674


Plus: Cash & ST Investments 77,600

Less: Debt -

Equity Value 813,021

12-month share price target $24.86

Diluted share count 32,700

Terminal Growth Rate 3.0%

WACC 10.4%


08 July 2013

Gigamon (GIMO) 40

Exhibit 47: Weighted Average Cost of Capital (WACC) Calculation for Gigamon

WACC calculation

Beta 1.2

Risk free rate 3.0%

Equity Risk Premium 6.0%

Avg cost of debt (pre tax) 5.0%

Tax rate 35.0%

Cost of Equity 10.4%

Avg Cost of debt (post tax) 3.3%

Equity 100%

Debt 0%

E/V 100%

D/V 0%

WACC 10.4%


Terminal Growth Rate of 3.0% and WACC of 10.4%: For the DCF analysis, we have

assumed a terminal growth rate of 3.0% for Gigamon. We estimate the weighted average

cost of capital (WACC) to be 10.4%.

Sensitivity for Terminal Growth Rate Shows Upside Scenario.: In Exhibit 48, we show a

scenario analysis for the terminal revenue growth and EBIT margins. With greater than

expected revenue growth and operating leverage, there appears to be upside potential.

While future dilution will likely limit the extent of the upside, we nevertheless highlight that

upside may exist with higher revenue growth and greater operating leverage.

Exhibit 48: Terminal growth of 3%, EBIT Margin of 25% Yield $25 Per Share

28 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0%

22.0% 18.86 19.96 21.32 23.05 25.32 28.42 32.92

23.0% 19.29 20.43 21.85 23.66 26.02 29.25 33.93

24.0% 19.72 20.91 22.39 24.26 26.72 30.07 34.94

25.0% 20.15 21.38 22.92 24.86 27.41 30.90 35.96

26.0% 20.58 21.86 23.45 25.47 28.11 31.72 36.97

27.0% 21.01 22.34 23.98 26.07 28.81 32.55 37.98

28.0% 21.44 22.81 24.51 26.67 29.50 33.37 38.99

29.0% 21.87 23.29 25.05 27.28 30.20 34.20 40.00

30.0% 22.30 23.76 25.58 27.88 30.90 35.02 41.01

31.0% 22.73 24.24 26.11 28.48 31.59 35.85 42.02


08 July 2013

Gigamon (GIMO) 41

Credit Suisse HOLT™

Implies a Fair Value of $28 per Share

Exhibit 49: HOLT™

Implies a FV of $28 for Gigamon in millions, except per share values

Valuation Results

PV of Existing Assets 79

NPV of Future Investments 767

+ Market Value of Investments 0

Total Economic Value 845

+ Share Issuance 57

- Debt & Equivalents 2

- Minority Interests 0

Warranted Market Cap. 901,059

Shares Outstanding 32.7

Warranted Share Price (USD) 27.56


CFROI® 19% in the Long Term: To take a long-term perspective on valuation, we utilize

our forecasts for the next five years until 2017 (from our discounted cash flow analysis) for

Credit Suisse HOLT valuation methodology. For fiscal 2017, we project a Credit Suisse

HOLT CFROI of 19%. (See Exhibit 50.)

EBITDA Margins to Rise to 19% Long Term: As top-line growth for Gigamon moderates

toward 10%, we believe EBITDA margins will increase each year, eventually reaching

19% in 2017.

Exhibit 50: Gigamon Long Term HOLT Analysis

CFROI Results 2012 2013 2014 2015 2016 2017

CFROI 27.64% 16.98% 17.44% 18.85% 19.42% 18.49%

Transaction CFROI 27.64% 16.98% 17.44% 18.85% 19.42% 18.49%

Normalized Real Growth Rate -3.71% 17.21% 19.45% 22.62% 24.28% 24.32%

Real Growth Rate 12.80% 193.31% 25.57% 24.00% 22.57% 22.28%

Sales Growth 42.01% 36.94% 30.15% 30.04% 25.00% 20.00%

EBITDA Margins 9.34% 11.18% 13.87% 18.23% 18.50% 19.20%

Asset Turns 1.65 0.76 0.77 0.79 0.79 0.76

Gross Cash Flow 27 41 55 73 91 113

Non Depreciating Assets -4 53 68 83 95 115

Gross Investment 59 175 224 283 353 440

Life 4.0 6.5 6.3 6.2 6.2 6.2

Country Specific Discount Rate 5.60% 5.03%

Size Differential 0.00% -0.02%

Leverage Differential 0.00% -0.98%

Company Discount Rate 5.60% 4.03%

Discount Rate Used 5.03%


08 July 2013

Gigamon (GIMO) 42

Key Investment Risks While we believe Gigamon is well positioned within a fast growing market, given the early

stage of the company, we would highlight the following risks:

■ Increased bundling from tool vendors – NetScout, Ixia, Danaher: Larger

competitors are bundling versions of monitoring appliances as part of larger

network management sales. While these products are not perceived to be as

strong as Gigamon’s, maturation of the products may prove to be “good enough”.

Moreover, while Gigamon is perceived to be a best of breed vendor, continued

consolidation in the space may leave it with fewer go-to-market partners. For

example, network performance monitoring vendor NetScout acquired a similar

technology to bundle with their analytics tools.

■ SDN friend or foe? Absorption of functionality from networking vendors –

Cisco, Juniper, Arista, Big Switch: While Gigamon technology is seen as

complementary to the focus of larger networking vendors, large network vendors

can offer this type of functionality as part of their core products. Indeed, Juniper

has a portion of this functionality in their carrier product, Cisco in their SDN

initiative, and Big Switch as part of the first step effort in penetrating the

networking market. Meanwhile, Arista introduced a targeted software product as

an add-on software license to their datacenter switches.

■ Increased service provider penetration could raise risks. As of the end of

2012, approximately one quarter of bookings came from service provider

customers and part of Gigamon's growth strategy is to increase penetration with

the segment. While service providers are expanding datacenters and

implementing network packet brokers as part of reference designs, the deals are

large and can be unpredictable. As a result, these may result in top line volatility.

■ Potential conflict with tool vendors: In addition to becoming a single layer of

management for traditional physical, virtual machines, and software-defined

networks, an opportunity exists for firms such as Gigamon to increase

functionality. One way to do this would be to add functionalities currently offered

by the tool vendor partner companies. This potentially puts network packet

brokers or network visibility companies in a catch-22. Moreover, if tool vendors

acquire functionality such as Gigamon’s, this will reduce the number of go-to-

market partners.

■ Technology disruption: The network appliance monitoring space is quite

fragmented with many solutions on the market. These solutions have numerous

strong suites, like time stamping, deduplication, etc. If Gigamon is unable to

master a critical feature or feature prioritization changes, the competitive

advantage may shift from Gigamon.

■ Market saturation: The market segment in which Gigamon participates is

nascent and seeing high growth rates. Indications are the competition is not yet

intensive, but this could change if the market sees saturation. For context, the

application and network performance monitoring segments are low-double digit

growth markets.

■ Reseller concentration: A key reseller, Interlink Communications, accounted for

37% and 63% of total revenue in 2011 and 2012. Gigamon is attempting to

diversify, and is working with Arrow, a large distributor. Nevertheless, until

broader diversification occurs, the concentration poses a risk.

08 July 2013

Gigamon (GIMO) 43

Management As shown in Exhibit 51, Gigamon’s management has extensive leadership experience at

other networking and communication equipment companies, including Ciena, Brocade,

Extreme Networks, and Infinera, where Gigamon’s CFO, Duston William, led a successful

IPO.

Exhibit 51: Gigamon’s Executive Team Has Extensive Industry Experience

Name Position At Firm Gigamon Holdings Experience

Paul Hooper CEO Dec-12

0.1% 116.8k options

- CMO/VP-GM at Extreme Networks

- Previous positions at JDS Uniphase and Netscape

Patrick Leong* CTO, Co-Founder

7.0% 40k options

- Principal Engineer at Ciena - Manager High Speed Products, Network Associates

- Ph.D. in Applied Physics

Thomas Cheung* VP, Technology, Co-

Founder

6.0% - Principal hardware designer at Cyras

- Led hardware development at Ciena

Duston Williams Chief Financial Officer Mar-12 0.3%

33.3k options

- Over 25 years of experience - CFO at SandForce, Maxtor, Infinera, Aruba, Rhapsody Networks, and Western Digital

Peter Finter Chief Marketing Officer Jun-13

- Vice President of Marketing for Juniper

- Americas Marketing & Sales, Global Marketing Strategy & Operations and EMEA Marketing at Nortel

Dave de Simone VP of Engineering

- Over 30 years of experience - Previous executive positions with Blue Coat, Brocade and Tandem

Paul Shin General Counsel

- Associate GC, Enterprise Group, HP

- Previous experience at Wilson, Sonsini Goodrich, and Rosati

Shehzad Merchant Chief Strategy Officer

- CTO of Extreme Networks

Mike Hoffman VP of Worldwide Sales - VP of Enterprise

Communications for MRV Communications

Other Co-Founders 14.9%

Ted Ho 7.4%

80k options

King Won 4.7%

Thomas Gallatin 2.8%


Paul Hooper, CEO: Prior to becoming CEO at Gigamon, Mr. Hooper was Vice President

of Marketing and Product Management. Prior to Gigamon, Mr. Hooper worked at Extreme

Networks, where he held many executive positions, including Chief Marketing Officer, Vice

President and General Manager for the Volume Products Group, and Chief Information

Officer. In addition to Extreme Networks, Mr. Hooper has held a broad range of leadership

08 July 2013

Gigamon (GIMO) 44

positions in marketing, product development, business management, and information

technology with companies including, myCFO, JDS Uniphase, Netscape Communications,

and Sun Microsystems.

Patrick Leong, CTO (Co-Founder): Mr. Leong has successfully designed many telecom

and network analyzer products for Gigamon. Prior to Gigamon, Mr. Leong served as

Principal Engineer at Ciena, after its acquisition of Cyras, leading the development for

solutions for metro data products. Prior to Ciena, Mr. Leong was the Manager of High

Speed Products at the Sniffer Division of Network Associates, leading the development of

Wan and Gigabit Ethernet Sniffers. Mr. Leong also holds a Ph.D. in Applied Physics from

Columbia.

Thomas Cheung, VP of Technology (Co-Founder): Mr. Cheung has over 15 years of

research, design, and engineering experience across the Telecom and Networking

industry. Previously, Mr. Cheung served as principal hardware designer at Cyras, which

was acquired by Ciena in 2000. While at Ciena, Mr. Cheung led teams designing telco and

networking subsystem products.

Duston Williams, CFO: Mr. Williams has extensive experience at both private and public

companies in administrative and financial roles. Prior to becoming CFO at Gigamon, Mr.,

Williams served as Chief Financial Officer for SandForce, advising its sale to LSI in

January 2012. Mr. Williams has served as Chief Financial Officer for many technology

companies, including Infinera (where he helped lead a successful IPO), Maxtor

Corporation, Aruba Networks, Rhapsody Networks, and Western Digital.

Peter Finter, Chief Marketing Officer. As Chief Marketing Officer, Mr. Finter is

responsible for developing and advancing marketing objectives at Gigamon. Prior to

Gigamon, Mr. Finter held various positions at Juniper Networks, including leading

Americas Marketing, Global Marketing Operations, and Vice President Marketing. Prior to

Juniper, Mr. Finter served various Vice President positions at Nortel, including Americas

Marketing & Sales Operations, Global Marketing Strategy & Operations and EMEA

Marketing.

David de Simone, Vice President of Engineering and Worldwide Support: Mr. de

Simone is responsible for development, delivery, and support for the entire GigaVUE

product portfolio. Prior to joining Gigamon, Mr. de Simone served in various leadership

roles at Blue Coat Systems, including Engineering, Product Management for the entire

company, Business Development, Worldwide Support, Manufacturing and IT. Prior to Blue

Coat, Mr. de Simone led the growth of Brocade’s storage switching platform. Mr. de

Simone has more than 30 years of engineering, operations, and business development

experience in computer systems, software, and networking technologies.

Paul Shinn, General Counsel: Mr. Shinn is in charge of managing legal issues, including

contracts, governance, compliance, mergers and acquisitions, employment, and litigation.

Prior to Gigamon, Mr. Shinn worked at Hewlett Packard, where he served as Vice

President and Associate General Counsel of HP’s Enterprise Group focusing in multiple

disciplines, including corporate issues and securities and mergers and acquisitions. Prior

to HP, Shinn served as senior counsel at Wilson Sonsini & Rosati.

Shehzad Merchant, Chief Strategy Officer: Mr. Merchant has over 2o years of

experience in the high-tech industry. Prior to Gigamon, Mr. Merchant served as Chief

Financial Officer at Extreme Networks. Prior to Extreme, Mr. Merchant served as co-

founder and Vice President of Products at Polytime Systems. Additionally, he has held

senior architectural and research roles at Allied Telesyn, Nevis Networks, ands SRI. Mr.

Shehzad is also the author of several networking and communications patents.

Mike Hoffman, Vice President, Worldwide Sales: Mr. Hoffman specializes in network

analysis and monitoring. Prior to Gigamon, Mr. Hoffman was Vice President of Enterprise

Sales for MRV Communications. Prior to MRV, Mr. Hoffman was Regional Director for

Fluke Networks within Fluke Corporation, and helped develop Fluke Networks to an over

08 July 2013

Gigamon (GIMO) 45

$500 million stand-alone company. Over his career, Mr. Hoffman has sold a variety of

networking products.

08 July 2013

Gigamon (GIMO) 46

Financial Models Exhibit 52: Gigamon Annual Income Statement in thousands, except per share data

2011 2012 2013E 2014E

Total revenues 68,105 96,715 132,438 172,371

% change yoy 46.7% 42.0% 36.9% 30.2%

Cost of goods sold 14,428 20,185 29,685 39,355

Total gross profit 53,677 76,530 102,753 133,016

Gross margin (%) 78.8% 79.1% 77.6% 77.2%

Sales and marketing 19,356 38,459 51,073 61,774

as % of sales 28.4% 39.8% 38.6% 35.8%

Research and development 12,522 17,230 27,699 36,603

as % of sales 18.4% 17.8% 20.9% 21.2%

General and administrative 4,764 9,565 11,463 13,649

as % of sales 7.0% 9.9% 8.7% 7.9%

Total operating expenses 36,642 65,254 90,235 112,026

as % of sales 53.8% 67.5% 68.1% 65.0%

Operating income 17,035 11,276 12,518 20,990

Operating margin (%) 25.0% 11.7% 9.5% 12.2%

Interest & other, net (12) (6) (20) (20)

Pre-tax income 17,023 11,270 12,498 20,970

as % of sales 25.0% 11.7% 9.4% 12.2%

Income tax expense - 100 4,438 8,508

Tax rate (%) 0.0% 0.9% 35.5% 40.6%

Non-GAAP Net Income 17,023 11,170 8,061 12,462

Net margin (%) 25.0% 11.5% 6.1% 7.2%

Non-GAAP EPS (ex-options) $0.98 $0.65 $0.26 $0.36

GAAP Net Income 16,931 7,531 (25,367) (5,529)

GAAP EPS $0.98 $0.44 ($0.82) ($0.16)

Diluted shares outstanding 17,300 17,303 31,100 34,725

Source: Company data, Credit Suisse estimates

08 July 2013

Gigamon (GIMO) 47

Exhibit 53: Gigamon Annual Balance Sheet in thousands, unless otherwise stated

2010 2011 2012 2013E 2014E

Cash and cash equivalents 5,804 13,102 18,675 74,244 83,827

Accounts Receivables, net 7,425 16,397 20,677 23,920 39,329

Inventories, net 5,584 7,437 3,736 3,466 4,832

Prepaid and other assets 1,068 4,962 3,407 6,384 8,775

Total current assets 53 303 447 528 643

Property and equipment, net 905 2,017 2,686 6,567 11,777

Other assets 90 80 2,316 2,888 2,888

Total assets 20,876 43,995 51,497 117,469 151,427

Accounts payables 623 2,665 3,221 2,836 3,890

Accrued and other current liabilities 2,667 7,871 13,889 13,639 13,639

Deferred revenue 9,152 18,437 23,917 31,747 41,694

Total current liabilities 20,436 41,715 45,848 48,223 59,223

Deferred revenue, non current 4,000 3,525 6,903 8,443 10,929

Other liabilities, non current 172 456 447 478 478

Total Liabilities 22,577 45,696 53,198 57,144 70,630

Commitments and contingencies

Series A preferred units 24,030 26,108 28,344 28,929 28,929

Stockholders' Equity:

Common stock 1,625 1,625 1,625 - -

Additional paid in capital 147 159 1,522 - -

Accumulated deficit (15,034) (17,124) (20,723) - -

Treasury Units (12,469) (12,469) (12,469) - -

Total Stockholders' Equity (25,731) (27,809) (30,045) 31,396 51,868

Total Liabilities, Preferred, and Equity 20,876 43,995 51,497 117,469 151,427


08 July 2013

Gigamon (GIMO) 48

Exhibit 54: Gigamon Annual Cash Flow Statement in thousands, unless otherwise stated

Cash Flow ($ thousands) 2011 2012 2013E 2014E

Net income / (loss) 16,931 7,531 (5,567) (5,529)

Non-cash adjustments

Depreciation and amortization 743 1,354 2,287 2,919

Stock compensation expense, net tax 12 3,599 31,393 26,000

Inventory Writedowns 3,227 1,543 - -

Loss on disposal accounts 16 - - -

Provison for doubtful accounts - - (18,800) -

Other

Changes to Working Capital 688 13,601 2,400 (5,679)

Accounts receivable (8,988) (4,280) (3,243) (15,408)

Inventories (4,811) 3,004 447 (1,366)

Prepaid expenses and other assets (3,894) 1,650 (2,977) (2,392)

Other assets 10 (29) 2 -

Accounts payable 2,042 398 (292) 1,053

Accrued and other liabilities 5,488 4,000 (908) -

Deferred revenue 10,841 8,858 9,370 12,433

Other liabilites - - - -

Net Cash From Operating Activities 21,617 27,680 11,713 17,711

Cash Flow from Investing Activities:

Purchase of PPE (2,124) (2,006) (6,289) (8,129)

Net Cash From Investing Activities (2,124) (2,006) (6,289) (8,129)

Cash Flows from Financing Activities:

Distribution of income to members (12,195) (18,181) (4,821) -

Proceeds from issuance of preferred units - - - -

Proceeds from issuance of common stock - - 80,000 -

Stock issuance costs - - (25,000) -

Payment of deferred offering costs - (1,920) (34) -

Payment for common unit redemption - - - -

Net Cash From Financing Activities (12,195) (20,101) 50,145 -

Net Change in Cash & Cash Equivalents 7,298 5,573 55,569 9,583

Cash and Cash Equivalents, Beginning 5,804 13,102 18,675 74,244

Cash and Cash Equivalents, Ending 13,102 18,675 74,244 83,827


08 July 2013

Gigamon (GIMO) 49

Companies Mentioned (Price as of 05-Jul-2013)

Aruba Networks (ARUN.OQ, $15.85) Cisco Systems Inc. (CSCO.OQ, $24.59) Citrix Systems Inc. (CTXS.OQ, $61.9) Danaher Corporation (DHR.N, $63.63) F5 Networks (FFIV.OQ, $69.32) Fortinet (FTNT.OQ, $17.98) Fusion-io (FIO.N, $13.7) Gigamon (GIMO.N, $27.2, NEUTRAL[V], TP $27.0) Infoblox (BLOX.N, $29.77) Ixia (XXIA.OQ, $17.76) Juniper Networks (JNPR.N, $19.3) Mellanox Technologies Ltd. (MLNX.OQ, $49.02) NetScout Syst (NTCT.OQ, $24.02) Palo Alto Networks (PANW.N, $42.9) Rackspace Hosting Inc. (RAX.N, $40.21) Red Hat (RHT.N, $47.85) Riverbed Tech (RVBD.OQ, $15.68) Salesforce.com Inc. (CRM.N, $38.55) SolarWinds (SWI.N, $39.22) VMware Inc. (VMW.N, $65.59)

Disclosure Appendix

Important Global Disclosures

Kulbinder Garcha and Vlad Rom, each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows:

Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.

Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.

Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.

*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non -Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; Aust ralia, New Zealand are, and prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12 -month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:

Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.

Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.

Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.

*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant se ctor. An analyst may cover multiple sectors.

08 July 2013

Gigamon (GIMO) 50

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%)

Outperform/Buy* 43% (53% banking clients)

Neutral/Hold* 40% (49% banking clients)

Underperform/Sell* 15% (38% banking clients)

Restricted 3%

*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relati ve basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment obje ctives, current holdings, and other individual factors.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.

Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research and analytics/disclaimer/managing_conflicts_disclaimer.html

Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

Price Target: (12 months) for Gigamon (GIMO.N)

Method: Our target price of $27 for GIMO is derived from a blended average of a peer group EV/Sales multiple, DCF, and HOLT valuation. The companies that we believe to be the closest comparables to Gigamon trade at an average of 4.3x EV/Sales and we assume a similar multiple for Gigamon. Our discounted cash flow analysis for Gigamon suggests a fair value of $25, which is based on revene growth slowing to 5% ten years out before growing at 3% in perpetuity. We also assume EBIT margins of 25%. HOLT values Gigamon at $28 based on the assumption that CFROI rises to 18% long term.

Risk: While we believe Gigamon is well positioned within a fast growing market, given the early stage of the company, we would highlight the following risks to our $27 target price. There may be increased bundling from tool vendors, such as NetScout, Ixia, Danaher. While these products are not perceived to be as strong as Gigamon’s, maturation of the products may prove to be “good enough”. Moreover, while Gigamon is perceived to be a best of breed vendor, continued consolidation in the space my leave it with fewer go-to-market partners. Gigamon technology is also complementary to the focus of larger networking vendors, and would be an improvement to the network monitoring functionality they currently offer. Nevertheless, as companies like Gigamon expose the market opportunity, it is possible that these larger networking vendors will offer similar monitoring functionality. Further, while Gigamon's strategy of increasing sales to large service provider customers may lead to large, individual deals, these deals may be sporadic. Gigamon may also have potential conflict with tool vendors. One way for Gigamon to increase functionalities is to add those that are currently offered by the tool vendor partner companies, creating a potential conflict. Gigamon is also susceptible to technology disruption, as the network appliance monitoring space is quite fragmented with many solutions on the market. Further, the market may become saturated. The market segment in which Gigamon participates is nascent and seeing high growth rates, but this could change if the market sees saturation. Finally, reseller concentration is a risk. Nevertheless, until broader diversification occurs, the concentration poses a risk.

Please refer to the firm's disclosure website at www.credit-suisse.com/researchdisclosures for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names

The subject company (GIMO.N) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.

Credit Suisse provided investment banking services to the subject company (GIMO.N) within the past 12 months.

Credit Suisse has managed or co-managed a public offering of securities for the subject company (GIMO.N) within the past 12 months.

Credit Suisse has received investment banking related compensation from the subject company (GIMO.N) within the past 12 months

Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (GIMO.N) within the next 3 months.

As of the date of this report, Credit Suisse makes a market in the following subject companies (GIMO.N).

Important Regional Disclosures

Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.

08 July 2013

Gigamon (GIMO) 51

The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (GIMO.N) within the past 12 months

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Additional information about the Credit Suisse HOLT methodology is available on request.

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08 July 2013

Gigamon (GIMO)

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