COMMUNICATIONS INFRASTRUCTURE SECTOR REPORT SAVVIAN, LLC 150 CALIFORNIA STREET, SAN FRANCISCO, CA 94111 | www.savvian.com | 415.318.3600 MARKET HIGHLIGHTS Inside this issue MARKETMARKET HIGHLIGHTSHIGHLIGHTS Public market deal activity was light in Q3 2007 consisting only of Airvana’s $58MM IPO and Airspan Networks’ Market Highlights $30MM secondary offering Airvana is down 14% since pricing its IPO while Airspan has gained 25% since completing its secondary Summary Performance IPOs in 2007 have generally enjoyed positive after-market performance, with Infinera, Shoretel and Starent Observations seeing stock price gains of 55%, 36% and 76% respectively; Veraz is down 12% since pricing Trading Data During this past quarter Savvian's wireless infrastructure and wireline / data networking indices were up 19% and 16% respectively, outperforming the Nasdaq (up 3% during Q3); our integrated wireline / wireless index Transaction Activity declined 14% in the quarter Savvian Update Nokia’s purchase of NAVTEQ for $8.0Bn and Bain Capital / Huawei Technologies’ $2.2Bn acquisition of 3Com represented the two largest M&A transactions announced during Q3 Q3 saw over 25 communications infrastructure M&A deals announced, representing more than $13Bn in value Over the same timeframe, our coverage universe has seen 50 companies raise roughly $650MM in the private capital markets, suggesting ongoing receptivity to the broader communications infrastructure market by venture investors, private equity players and buyout firms (1) San Francisco Office SUMMARY PERFORMANCE 150 California Street AV / Revenue AV / EBITDA Price / EPS San Francisco, CA 94111 CY 07E CY 08E CY 07E CY 08E CY 07E CY 08E Phone: (415) 318-3600 Integrated Wireless / Wireline 0.9 x 0.9 x 12.7 x 8.1 x 31.4 x 15.1 x Wireline / Data Networking 3.3 x 2.9 x 14.8 x 11.5 x 32.0 x 22.1 x New York Office Wireless 3.3 x 2.7 x 34.5 x 15.9 x 27.6 x 36.9 x * Median Multiples 7 Times Square, 120 Suite 2501 +19% New York, NY 10036 115 +16% Phone: (212) 999-7090 110 105 Chicago Office 100 +3% 71 S Wacker Drive, Suite 1230 95 Chicago, IL 60606 Price Indexed 90 Phone: (312) 212-8210 85 -14% 80 7/02/07 7/13/07 7/27/07 8/08/07 8/21/07 8/31/07 9/14/07 9/28/07 Notes: NASDAQ Composite Integrated Wireline / Wireless (1) Source: Factset Wireline / Data Networking Wireless OBSERVATIONS For further information, After selling its H3C stake last year, Huawei is partnering with Bain Capital to acquire 3Com in a bid to please contact: challenge Cisco’s market-share leading position − Huawei’s low-cost structure coupled with 3Com’s existing channel should create a solid base from which to compete with Cisco’s leadership position Mike Edwards − Initial successes will likely come in more price-sensitive emerging markets Director − Transaction may impact 3Com’s stated plans to eventually spin-off Tipping Point Phone: (415) 318-3621 Nortel again lost out to private equity buyers (TPG/Silver Lake for Avaya in Q2; Bain/Huawei for 3Com in Q3) [email protected] − Nortel and Microsoft celebrated the first anniversary of their unified communications alliance, expressing optimism based on positive early results Adam Beard Q3 also saw a number of interesting developments in the wireless infrastructure segment: Vice President − T-Mobile and Sprint Nextel introduced FMC solutions to extend coverage inside buildings and leverage existing Phone: (415) 318-3694 broadband connections (T-Mobile-WiFi, Sprint-Femtocell) [email protected] − Additional announcements are also likely, as Vodafone, Telefonica, Orange and Softbank are also trialing FMC solutions and Google and Intel have both invested in FMC companies (Ubiquisys & ip.access, respectively) − With muni-WiFi initiatives stalling, other carriers may follow BT and Time Warner Cable’s lead in partnering with FON for WiFi roaming COMMUNICATIONS INFRASTRUCTURE UNIVERSE PERFORMANCE (1) 60% 49% Last Month YTD 1 Year 48% 45% 42% 30% 23% 19% 15% 12% 12% 4% 2% 4% 0% (1%) (15%) (15%) (30%) NASDAQ Composite Integrated Wireless / Wireline Wireless Wireline / Data Networking Best Performers – Last Mo. Best Performers – YTD Best Performers – 1 Year UTStarcom 36% Research in Motion 131% Research in Motion 188% 3Com 34% Alvarion 116% Alvarion 127% Alvarion 25% Juniper Networks 93% Juniper Networks 112% Research in Motion 20% Nokia 87% Riverbed Technology 107% COMMUNICATIONS INFRASTRUCTURE COMPARABLE COMPANY UNIVERSE (1) $MM, Except Per Share Data Stock LTM EPS Price Price Range Equity Cash & Net Aggregate AV / Revenue AV / EBITDA Price / EPS Long Term Revenue Growth 9/28/07 Low High Value Equiv. Debt Value CY 07E CY 08E CY 07E CY 08E CY 07E CY 08E Growth PEG 08E/07E Y/Y MRQ Integrated Wireline / Wireless L.M. Ericsson Telephone Co. (ADS) $39.80 $33.66 $43.41 $64,205 $7,174 ($3,259) $60,946 2.1 x 1.9 x 8.6 x 7.8 x 15.4 x 13.5 x 10.4% 1.3 9.5% 6.4% Alcatel-Lucent (ADS) 10.18 8.53 15.43 23,571 7,599 (355) 23,217 0.9 0.9 15.3 8.4 62.2 16.5 11.2% 1.5 5.2% 51.1% Nortel Networks Corp. 16.98 15.32 31.79 7,419 4,473 1,129 8,548 0.8 0.7 12.7 7.7 34.6 13.6 8.5% 1.6 4.1% (7.8%) ZTE CORP H 5.27 3.39 5.57 8,493 522 51 8,545 2.1 1.7 25.6 19.2 28.3 19.8 21.9% 0.9 24.2% NA UTStarcom Inc. 3.66 2.43 10.92 442 658 (260) 182 0.1 0.1 2.0 NA NM NM 30.0% NM 6.8% (23.7%) Mean 1.2 x 1.1 x 12.8 x 10.8 x 35.1 x 15.9 x 16.4% 1.3 9.9% 6.5% Median 0.9 0.9 12.7 8.1 31.4 15.1 11.2% 1.4 6.8% (0.7%) Wireline / Data Networking Cisco Systems Inc. $33.13 $22.80 $33.38 $202,065 $22,266 ($15,858) $186,207 5.0 x 4.3 x NA 13.4 x 23.1 x 19.9 x 15.2% 1.3 15.4% 18.1% Juniper Networks Inc. 36.61 16.50 37.57 18,821 1,203 (803) 18,018 6.5 5.5 23.8 18.8 44.0 34.1 18.6% 1.8 19.8% 17.2% Tellabs Inc. 9.52 9.31 13.67 4,183 1,613 (1,319) 2,864 1.4 1.4 12.1 8.9 32.0 21.0 8.0% 2.6 4.3% (2.7%) F5 Networks Inc. 37.19 26.15 46.94 3,133 394 (394) 2,739 4.9 3.9 16.3 13.5 35.4 30.6 24.6% 1.2 25.3% 32.3% Ciena Corp. 38.08 22.04 41.13 3,274 1,729 (387) 2,887 3.6 3.0 28.5 19.0 28.7 22.1 18.3% 1.2 20.5% 34.4% Polycom Inc. 26.86 24.13 36.61 2,465 307 (307) 2,158 2.4 2.0 12.9 9.6 20.0 15.9 18.5% 0.9 19.7% 41.8% Riverbed Technology Inc. 40.39 16.81 49.44 2,842 218 (218) 2,625 11.6 7.5 64.3 34.1 63.0 50.7 51.8% 1.0 53.6% 199.3% Foundry Networks Inc. 17.77 11.88 19.45 2,646 747 (747) 1,899 3.3 2.9 14.8 11.5 39.6 28.6 17.1% 1.7 13.4% 32.1% ADC Telecommunications Inc. 19.61 13.40 21.06 2,304 678 (276) 2,028 1.5 1.5 11.6 11.4 17.8 16.5 11.0% 1.5 5.4% 0.7% Sonus Networks Inc. 6.10 4.71 9.03 1,586 305 (305) 1,281 4.0 3.2 27.9 12.9 53.3 26.6 21.9% 1.2 27.4% 17.1% Adtran Inc. 23.03 20.32 28.72 1,576 175 (126) 1,451 3.0 2.7 10.5 10.0 20.6 17.7 11.3% 1.6 8.8% 1.1% 3Com Corp. 4.94 3.22 5.24 1,974 501 (71) 1,903 1.5 1.4 NA 10.0 39.8 25.2 10.0% 2.5 6.0% 6.4% NETGEAR Inc. 30.42 20.01 41.33 1,065 156 (156) 909 1.3 1.1 11.0 9.5 20.1 17.4 16.0% 1.1 15.3% 25.7% Tekelec 12.10 10.96 16.50 863 465 (340) 523 1.2 1.1 7.7 6.5 23.0 18.8 14.0% 1.3 4.3% (7.7%) Acme Packet Inc. 15.42 10.25 21.97 920 126 (126) 794 7.0 5.1 27.6 19.3 45.8 33.7 32.7% 1.0 35.5% 41.1% Mean 3.9 x 3.1 x 20.7 x 13.9 x 33.8 x 25.2 x 19.3% 1.5 18.3% 30.5% Median 3.3 2.9 14.8 11.5 32.0 22.1 17.1% 1.3 15.4% 18.1% Wireless Nokia Corp. (ADR) $37.93 $18.87 $38.06 $149,131 $11,359 ($10,370) $138,761 2.0 x 1.8 x 13.3 x 11.7 x 21.4 x 18.8 x 13.1% 1.4 12.8% 28.3% QUALCOMM Inc.