08 July 2013 Americas/United States Equity Research IT Hardware

Gigamon (GIMO)
Rating Price (03 Jul 13, US$) Target price (US$) 52-week price range Market cap. (US$ m) NEUTRAL* [V] 27.20 27.00 28.47 - 25.70 801.35 INITIATION
*Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. Target price is for 12 months. [V] = Stock considered volatile (see Disclosure Appendix).

Improving Network Visibility but Shares Already Reflect Growth Potential

Initiate with Neutral and $27 TP: Gigamons 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, Gigamons 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 Gigamons 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 $27. We would look to turn more constructive on any pullback.
Financial and valuation metrics Year EPS - (Excl. ESO) (US$) EPS (CS adj.) (US$) Prev. EPS (CS adj.) (US$) P/E (CS adj., x) P/E rel. (CS adj., %) Revenue (US$ m) EBITDA (US$ m) Net debt (US$ m) OCFPS (US$) P/OCF (x) Number of shares (m) BV/share (Next Qtr., US$) Net debt (Next Qtr., US$ m) Dividend yield (%)
Source: Company data, Credit Suisse estimates.

Research Analysts Kulbinder Garcha 212 325 4795 kulbinder.garcha@credit-suisse.com Vlad Rom 212 325 5442 vlad.rom@credit-suisse.com Matthew Cabral 212 538 6260 matthew.cabral@credit-suisse.com Talal Khan, CFA 212 325 8603 talal.khan@credit-suisse.com Andrew Ruben 212 325 4798 andrew.ruben@credit-suisse.com Ray Bao 212 325 1227 ray.bao@credit-suisse.com

Share price performance

30 29 28 27 26 25 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 2011A 2012A 2013E

Q1 0.10 -0.04 0.02

Q2 0.24 0.18 0.04

Q3 0.33 0.22 0.08

Q4 0.32 0.29 0.11

12/11A 0.98 0.98 27.6 68.1 17.8 -13 1.25 29.46 -77.6

12/12A 12/13E 0.65 0.26 0.65 0.26 42.1 104.9 265.6 708.1 96.7 132.4 12.6 14.8 -19 -74 1.60 0.38 72.2 Price/sales(x) P/BVPS (x) Dividend (current, US$)

12/14E 0.36 0.36 75.8 568.3 172.4 23.9 -84 0.51 53.3 6.39 -31.9

DISCLOSURE APPENDIX CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, INFORMATION ON TRADE ALERTS, ANALYST MODEL PORTFOLIOS AND THE STATUS OF NON-U.S ANALYSTS. US Disclosure: Credit

Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS

BEYOND INFORMATION Client-Driven Solutions, Insights, and Access

08 July 2013

Table of contents
Executive Summary Addressing Network Visibility Product Portfolio and Strategy Key Feature Overview Long-Term Strategy Addressing a $3 Billion TAM Gigamon Targets $3bn of an $11bn Tools Market Capturing the Shift to 10GbE A Competitive Product Portfolio The Current Competitive Landscape Stand-alone Competitors Bundled Offerings Networking Vendors An Effective Business Model Strong History of New Customers Recurring RevenuePredictable and Growing Revenue with Room for Growth ValuationFV of $27 per Share Key Investment Risks Management Financial Models 3 5 12 13 16 19 19 20 22 22 23 25 27 28 28 30 32 36 42 43 46

Gigamon (GIMO)

08 July 2013

Executive Summary
Gigamons 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 Revenues Cost of goods sold Gross profit Gross margin Operating expenses % of sales Operating income Operating margin Pretax income Income tax Tax rate Net income EPS Shares (diluted) 68,105 14,428 53,677 78.8% 36,642 53.8% 17,035 25.0% 17,023 17,023 $0.98 17,300 FY 2012 96,715 20,185 76,530 79.1% 65,254 67.5% 11,276 11.7% 11,270 100 0.9% 11,170 $0.65 17,303 FY 2013E 132,438 29,685 102,753 77.6% 90,235 68.1% 12,518 9.5% 12,498 4,438 35.5% 8,061 $0.26 31,100 FY 2014E 172,371 39,355 133,016 77.2% 112,026 65.0% 20,990 12.2% 20,970 8,508 40.6% 12,462 $0.36 34,725 23-28% 49-52% 75-77% Target model

Source: Company data, Credit Suisse estimates.

Addressing Network Instrumentation with GigaVUE Product Portfolio: As background, Gigamons 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 Gigamons 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 companys 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, Gigamons 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

Gigamon (GIMO)

08 July 2013

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 Gigamons 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 Gigamons more immediate competition would be smaller networking companies, as Gigamons 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 Gigamons more immediate competition would be smaller, private, network packet brokers and tools vendors, as Gigamons 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 Gigamons niche, with SDN serving as the path. For now, Gigamons 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 Gigamons 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 Gigamons 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.

Gigamon (GIMO)

08 July 2013

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.

Gigamon (GIMO)

08 July 2013

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 Network Management Software and Appliance Application Performance Management Software Security Firewall IDP Total Source: IDC. 2,356 1,882 8,700 2,390 1,960 9,322 2,420 2,079 9,996 2,425 2,203 10,667 2,415 2,334 11,368 2,390 2,474 12,096 0.3% 5.6% 6.8% 2,532 1,931 2012 2,760 2,212 2013 2,994 2,503 2014 3,234 2,805 2015 3,476 3,143 2016 3,720 3,513 2011-2016 CAGR 8.0% 12.7%

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

Network performance monitoring IPS/IDS Security Application performance Packet capture/network Other types of tools 0% Currently use
Source: ESG.

86% 69% 61% 58% 38% 12% 16% 25% 22% 25%

9% 4%1% 14% 1% 13% 1% 16% 25% 4%

10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Do not use, but interested Do not use, have no plans

Do not use but plan to

Gigamon (GIMO)

08 July 2013

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

Greater than 5,000, 11%

Less than 25, 2%

Between 2,501 and 5,000, 13%

Between 26 and 50, 5% Between 51 and 100, 12%

Between 1,001 and 2,500, 9%

Between 101 and 250, 18%

Between 501 and 1,000, 14%

Source: ESG.

Between 251 and 500, 18%

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

Gigamon (GIMO)

08 July 2013

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.)

Gigamon (GIMO)

08 July 2013

Exhibit 7: Tap Sending Traffic to One Tool

Network point A

Exhibit 8: Tap Sending Traffic to Two Tools

SPAN or mirror port

Instrumentation/tool (Application/network performance, security, forensics)

Tool A

Tool B

Network point B
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.

Gigamon (GIMO)

08 July 2013

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 Switch Switch

Switch Switch

Gigamon

Tool 1
Source: Credit Suisse.

Tool 2

Tool 1

Tool 2

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.

Gigamon (GIMO)

10

08 July 2013

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

Source: Company data.

Gigamon (GIMO)

11

08 July 2013

Product Portfolio and Strategy

Gigamons 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, Gigamons core value proposition is aggregation and filtering, with data manipulation serving as an add-on to Gigamons 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 Gigamons 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 Model GigaVUE-212 GigaVUE G Series GigaVUE-420 GigaVUE-2404 GigaVUE-TA1 GigaVUE H Series GigaVUE-HD4 GigaVUE-HD8

Maximum 1Gb ports Maximum 10Gb ports System size (Rack units)

12 2 1

20 4 1

4 24 2

N/A N/A 1

Max 44 Max 32 5

Max 44 Max 32 14

Optional GigaSECURE Optional GigaSMART Line card capacity Series Model

No No N/A

No No N/A

Yes Yes N/A

No No N/A Network TAPs G-TAP A Series

Yes Yes 4

Yes Yes 8

GigaSecure

G-TAP

G-TAP A Series

1Gb ports 10Gb ports

4 ports 8 ports

Yes Yes

Yes Yes

Yes Yes

Source: Company data.

Gigamon G-Series: Gigamons 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: Gigamons 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 Gigamons fully featured products. The product is used to aggregate 10GbE ports with low utilization and does not have Gigamons Intelligent Flow Mapping technology, which routes the right traffic to the right tool.

Gigamon (GIMO)

12

08 July 2013

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 tools 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 Gigamons, 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.) GigaVUEVM: 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.) GigaVUEFM: 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, Gigamons 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 companys 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 tools 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

Gigamon (GIMO)

13

08 July 2013

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
Series Model GigaPORT-X04G44 Gigamon GigaVUE H Series GigaPORT-X12G04 GigaPORT-Q02X32 GigaPORT-X12-TS

Maximum 1Gb ports Maximum 10Gb ports Maximum 40Gb ports Packet Forwarding Packet Aggregation Packet Filtering Packet Replication

44 4 N/A Yes Yes Yes Yes

16 4 N/A Yes Yes Yes Yes

N/A 32 4 Yes Yes Yes Yes

N/A 12 N/A 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 tools efficiency, allowing it to receive just the needed data to make monitoring and forensic tasks more efficient.

Gigamon (GIMO)

14

08 July 2013

Exhibit 13: GigaSMART Cards Extend Functionality

Source: Company data.

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: Gigamons 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.

Gigamon (GIMO)

15

08 July 2013

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, Gigamons 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

Gigamon single view

Virtual Machines

Physical network

Software-defined
network

Source: Credit Suisse.

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.

Gigamon (GIMO)

16

08 July 2013

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

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.

Gigamon Sends appropriate traffic from the network to tools and passes network altering tool feedback back

Source: Credit Suisse.

We detail the four phases of the Gigamons specific strategy and note that SDN can be both a friend and foe, depending on the customers preference to use Gigamon as a hub feature. In our view, while one possible development is using only TAPing functionality and intelligence from SDNs, Gigamons 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 Gigamons 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 SDNs and traditional networks as well as security, application, and network performance management tools through software.

Gigamon (GIMO)

17

Gigamon (GIMO)

Exhibit 16: Gigamons Long-Term Strategy

Phase 1: Tap into SDN

Phase 2: Unify networks

Phase 3: The active network

Phase 4: The living 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 Gigamons 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 SDNs and traditional networks as well as security, application, and network performance management tools through software.

Source: Company data, Credit Suisse estimates.

08 July 2013

18

08 July 2013

Addressing a $3 Billion TAM

Gigamon Addresses Two Significant Growth Trends of Networking: Gigamons 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 companys 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 Gigamons 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 20122017. (See Exhibit 17.) As network architectures become more complex with faster data speeds, Gigamons 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 100MbE 1GbE 10GbE Total Source: Gartner. 201 155 4 360 2011 189 187 9 385 2012 169 207 16 391 2013 146 227 25 398 2014 122 247 33 403 2015 101 265 41 407 2016 81 279 50 409 2017 62 283 58 403 CAGR 2012-17 -18.1% 6.5% 29.5% 0.6%

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

Gigamons Current Portfolio Addresses a Nearly $3 Billion TAM: Gigamons 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 IDCs market size for network tools and Gigamons specific addressable market.

Gigamon (GIMO)

19

08 July 2013

Exhibit 18: Gigamons Portfolio Addresses a Nearly $3 Billion TAM

in billions, unless otherwise stated. Market Segment Application performance management Network performance management Firewall (IPS and IDS) Total Percent of tool sale allocated to Gigamon-type products Gigamon-specific TAM Source: Company data, Credit Suisse estimates, IDC, Gartner. Total Addressable Market (2015) ($USD Bn) $3.1 $3.3 $5.0 $11.4 25% $2.85

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, Gigamons 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 11 10 9 7.5 8 7 6.0 6 4.9 5 3.6 4 3 2 1 0 2010 2011 2012 2013 Source: Gartner

Exhibit 20: Number of 10GbE Ports Up 3 Times in 2012-17

in millions, unless otherwise stated
60 50 40 33 30 25 16 9 4 2010 2011 2012 2013 2014 2015 2016 2017 50 58

8.4

8.8

9.1

9.4

41

20
10

2014

2015

2016

2017

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, Gigamons 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.

Gigamon (GIMO)

20

08 July 2013

Exhibit 21: 1/10GbE to Be 70% of Ports Shipped in 2014

100% 90% 80% 70% 60% 50%

Exhibit 22: 30mn+ 10GbE Ports Will Be Shipped Next Year

in millions, unless otherwise stated
450 400 350

1% 43%

2%

4%

6%

8%

10%

12%

14%

49%

53%

9
187

16

25

33

41

50

58

57%

61%

300

65%

68%

70%

250 200 150 100

155

207

227

247

265

279

40% 30% 20% 10% 0%

283

56%

49%

43%

37%

30% 2014

201

189

25% 2015

20% 2016

15% 2017

50
0

169

146 2013

122 2014

101

81

62 2017

2010

2011

2012

2013

2010

2011

2012

2015

2016

100 Megabit

1 Gigabit

10 Gigabit

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
20 18 16 14 12 10 8 6 4 2 0
100%

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

8% 7% 5% 4% 47% 3%

3.0

2.3

2.0

1.6

1.3

1.0 9.1

0.7 8.7

0.5 8.0

90% 80% 70% 60% 50%

17%

13%

10%

11.3

10.9

10.9

10.1

9.5

63%

60%

58%

52%

50%

48%

45%

40%

3.6 2010

4.9 2011

6.0 2012 10 Gigabit

7.5

8.4

8.8

9.1

9.4

30% 20% 10%

0%

20%
2010

27% 2011

32% 2012

39%

44%

47%

49%

52%

2013

2014

2015

2016

2017

2013

2014

2015

2016

2017

1 Gigabit

100 Megabit

10 Gigabit

1 Gigabit

100 Megabit

Source: Gartner.

Source: Gartner

Gigamon (GIMO)

21

08 July 2013

A Competitive Product Portfolio

We view Gigamons 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 Gigamons more immediate competition would be smaller networking companies, as Gigamons product is conside red 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.

Gigamon (GIMO)

22

08 July 2013

Exhibit 25: Portfolio Has More Scale and Breadth than Competitors

Solution scale

Breadth and Applicability of Vision

Source: Company data.

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 cPackets 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.

Gigamon (GIMO)

23

08 July 2013

Exhibit 26: cPackets Product Portfolio

cPacket Series Model cVu 120G cVu Traffic Monitoring Swtich cVu 240G cVu 320G

Maximum 1Gb ports Maximum 10Gb ports System size (Rack units) SPIFEE
Source: Company data.

24 12 1 Yes

24 24 2 Yes

34 32 3 Yes

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: APCONs Product Portfolio
Series Model APCON IntellaFlex Time Stamping/Packet Slicing Packet Controller

IntellaTap

ApconTap

Maximum 1Gb ports Maximum 10Gb ports System size (Rack units) Deduplication Packet Slicing Packet Aggregation Time Stamping

18 18 1 No Yes No Yes

4 4 1 Yes No No No

16 16 1 No No Yes No

32 32 2 No No Yes 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

Gigamon (GIMO)

24

08 July 2013

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 Model iTap 2 Port Aggregator iTap 10 GigaBit Fiber Port Aggregation iTap Gigabit Fiber Port iTap Triple-speed GigaBit Fiber SFP Dual Port Tap

Maximum 1Gb ports Maximum 10Gb ports System size (Rack units) Remote Monitoring Packet Slicing Time stamping Traffic Monitoring

N/A 4 1 No No Yes No

N/A 2 1 Yes Yes Yes No

2 N/A 1 Yes No No ww

4 N/A 1 Yes No Yes Yes

2 N/A 1 Yes No No Yes

4 N/A 1 Yes No 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 Ixias acquisition of Anue, NetScouts acquisition of Simena and ONPATH, and Danahers 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 Gigamons, 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 Gigamons 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.

Gigamon (GIMO)

25

08 July 2013

Exhibit 29: NetScouts Product Portfolio

NetScout Series Model nGenius Infinistream Infinistream 1900/2900 Infinistream 6900 Infinistream 7900 nGenius Switches and TAPs Packet Flow Switch 1500 Packet Flow Switch 3900

Maximum 1Gb ports Maximum 10Gb ports System size (Rack units) Deep Packet Capture Packet Slicing Packet Aggregation Packet Filtering Real-time network analysis

4 N/A 1 Yes No No No Yes

Eight 10 Gb interfaces Four 10 Gb interfaces 3 Yes No No No Yes

Four 1 Gb interfaces Two 10 Gb interfaces 3 Yes No No No Yes

N/A 48 1-12 yes No Yes Yes No

24 24 1 No Yes No Yes 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 companys 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. Ixias 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: Ixias Product Portfolio
Ixia Series Model Ixia Anue NTO 5204 Ixia Anue NTO 5236 NetTool Optimizer Ixia Anue NTO 5273 Ixia Anue NTO 5288 Ixia Anue NTO 5293

Maximum 1Gb ports Maximum 10Gb ports System size (Rack units) Event Logging Syslog Line card capacity

28 4 1 Yes Yes 2

28 24 1 Yes Yes N/A

28 24 2 Yes Yes 5

Max 64 Max 64 2 Yes Yes N/A

Max 64 Max 64 2 Yes Yes 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.

Gigamon (GIMO)

26

08 July 2013

Danaher offers VSSs 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 Monitorings Product Portfolio
Series Model VSS Monitoring (Danaher) vBroker 200 Series 300 Series

100 Series

400 Series

Maximum 1Gb ports Maximum 10Gb ports System size (Rack units) Packet Filitering Packet Forwarding Load Balancing

28 4 1 Yes Yes Yes

12 12 1 Yes Yes Yes

N/A 32 1 Yes Yes Yes

N/A 32 1 Yes Yes Yes

Source: Company data

Networking Vendors
Larger networking companies such as Cisco, Juniper, Arista, and Big Switch could absorb Gigamons 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 companys 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 Ciscos Open Network Environment initiative (ONE), in February, it announced that a controller with features similar to those of Gigamons in several ways. Tapping: Similar to Big Switchs Big Tap, Ciscos 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.

Gigamon (GIMO)

27

08 July 2013

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 Gigamons technology. As of March 2013, Gigamons total customers exceeded 1,000 and included 60 of the Fortune 100 and 50 of the top 100 global service providers. Gigamons 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.

Gigamon (GIMO)

28

08 July 2013

Exhibit 32: Many of the Top Global Companies Use Gigamons 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
1,200 1,000

1,010
919

100 90 80 70

Total Customers (thnds)

843
521 641 545 587 42 24 54 724 83 47

800 600 400 200 -

72

60
50 40 30 20

437 469 298 326 353 380 405 27 28 27 27 32 25 32

52

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

Total Customers

New Customers

Source: Company data.

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.)

New Customers

771

76

91

Gigamon (GIMO)

29

08 July 2013

Exhibit 34: Over 25% of Gigamons Bookings Have Been from New Customers
% of bookings.

29%
28% 27%

28%

27%
26% 25% 24% 23% 22%

24%

2010
Source: Company data.

2011

2012

Recurring RevenuePredictable 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 Gigamons 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
2006 Top 25 Customers 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Enterprise Service Provider Service Provider Enterprise Enterprise Service Provider Service Provider Service Provider Service Provider Service Provider Service Provider Enterprise Enterprise Enterprise Enterprise Service Provider Service Provider Service Provider Service Provider Enterprise Enterprise Enterprise Government Service Provider Enterprise Initial Purchases Repeat Purchases Q1 Q2 Q3 Q4 Q1 2007 Q2 Q3 Q4 Q1 2008 Q2 Q3 Q4 Q1 2009 Q2 Q3 Q4 Q1 2010 Q2 Q3 Q4 Q1 2011 Q2 Q3 Q4 Q1 2012 Q2 Q3 Q4

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

Gigamon (GIMO)

30

08 July 2013

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

45 40 38x

Muiplte of Initiasl Purchase

35 30 25 20 15 10 5 0
Initial Purchase All Customers All Customers Prior to 2010 Top 25

8x 1x 3x

Source: Company data.

Number of Large Orders Continues to Grow: Gigamons 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.

Gigamon (GIMO)

31

08 July 2013

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

120 90%

78%
100
80 60

97 59% 53%

80%
70% 60%

43%
36 41 27 4% 28%

73 43 61

62

50% 40%

40
20 -

15 5

26

26

28

17

40

46

35%

30%

33% 20%
10% 0%

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: Gigamons 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.

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 65% 72% 74% 35% 28% 27% 26% 32% 29%

28%

31%

36%

32%

29%

29%

73%

68%

71%

72%

69%

64%

68%

71%

71%

0%
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13E 3Q13E 4Q13E 1Q14E 2Q14E 3Q14E 4Q14E

Product
Source: Company data, Credit Suisse estimates.

Service

Gigamon (GIMO)

32

08 July 2013

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. Gigamons 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 Service Providers Distributed Enterprises Market Focus Enteprise Finance Cloud Providers Solution Evolution Performance, Scale Usability Density Performance/scale across platforms Security Most complete portfolio Virtualization Differentiation by Market Increased chassis capacity 200+% 100GbE connectivity Platform Evolution 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) Intelligence: Active and Living fabric solutions for Enterprise, SP, Telco Nano-second timing Inline IPS distribution SDN product introduction End-to-end configuration management and GigaVUE-VM monitoring
Source: Company data.

For 2013, Gigamon plans to increase its penetration with service provider customers. As previously mentioned, seven of Gigamons 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. Arrows decision to resell Gigamon highlights the companys 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

Gigamon (GIMO)

33

08 July 2013

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 In USD mlns Interlink Percent Total Y/Y % change Arrow Percent Total Y/Y % change Other Dist./Direct Percent Total Y/Y % change CS Estimates Implied Total Upside to CS Est's Percent Upside 68.11 68.11 -17% 96.72 96.72 0% 132.44 140.99 8.55 6.5% 0% 172.37 186.57 14.20 8.2% 42.91 35.78 35.70 25.20 37% 60.93 63% 142% 85.28 65% 40% 20.00 15% 110.87 65% 30% 40.00 24% 100% 35.70 2012 2013E 2014E

Source: Company data, Credit Suisse estimates.

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.

Gigamon (GIMO)

34

08 July 2013

Exhibit 41: America Continues to Dominate, with EMEA and APAC to Grow
% of bookings.

100%

90%
80% 70% 60% 50%

8%
13%

7% 16%

5% 12%

40%
30% 20% 10% 0%

79%

77%

83%

2010 America
Source: Company data.

2011 EMEA APAC

2012

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.

100%

90%
80% 70% 60% 50% 40% 30%

57%

58%

66%

29% 14%
2010 Government

20%
10%

33% 9%
2011 Telco and Service Provider

27%

0%

7%
2012 Enterprise

Source: Company data.

Gigamon (GIMO)

35

08 July 2013

ValuationFV 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 companys 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) Approach EV/Sales DCF Analysis Credit Suisse HOLT Blended Average 934,283 813,021 865,838 871,047 5.0x EV/sales Term. growth of 3%, WACC of 10.4% R&D life of 7 years 28.57 24.86 27.56 27.00 Valuation Value/Share ($)

Source: Company data, Credit Suisse estimates.

EV/Sales Multiple Suggests FV of $29 per Share We apply an EV/Sales Multiple of 5.0 on Gigamons 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 Diluted Share Count Market Cap Net Debt Enterprise Value Peer Group High-Growth Networking Companies Next-Generation Datacenter Gigamon Sales EV/Sales Multiple Enterprise Value Cash Market Cap FV per share for Gigamon Source: Company data, Credit Suisse estimates. 3.2x 3.6x 172,371 5.0x 856,684 77,600 934,283 28.57 27.20 32,700 889,440 -77,600 811,840

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 Gigamons competitive product and growth profile, we form a peer group of comparable companies divided into three groups: 1) 2) 3) high-growth networking companies; next-generation datacenter companies; and 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

Gigamon (GIMO)

36

08 July 2013

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.

Gigamon (GIMO)

37

08 July 2013

Exhibit 45: Gigamon Trades at 4.7x EV/Sales on 2014 Revenue, Roughly In-line with the Closest Comps
Company P/E 2013E Next-Generation Datacenter Rackspace Hosting Salesforce.com Red Hat VMware Citrix Systems Riverbed F5 Networks SolarWinds Fusion-io Mellanox Average High-Growth Networking Companies Palo Alto Networks Inc Infoblox Fortinet Inc Riverbed F5 Networks Ruckus Aruba Average Other Networking Companies SolarWinds NetScout Ixia Average 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 25.4 17.0 18.3 20.2 21.2 15.0 16.4 17.5 8.7 2.6 2.7 5.2 7.0 2.3 2.4 3.9 8.0 2.3 2.6 4.8 6.4 2.0 2.3 3.6 25.2% 11.7% 23.4% 20.6% 24.4% 11.2% 13.8% 16.5% 13.8% 11.6% 25.7% 21.4% 19.4% 13.6% 11.9% 15.0% 95% 80% 81% 85% 149.8 77.4 36.8 15.8 15.1 83.3 24.5 57.5 81.5 47.5 30.0 13.0 13.4 49.4 21.0 36.5 6.5 6.1 4.6 2.4 3.6 3.8 2.8 4.3 4.8 5.0 4.0 2.1 3.2 3.0 2.5 3.5 5.9 5.4 4.1 2.5 3.3 3.3 2.2 3.8 4.4 4.4 3.6 2.2 2.9 2.7 2.0 3.2 45.1% 26.1% 12.4% 28.1% 7.3% 20.8% 13.4% 21.9% 35.2% 21.6% 14.5% 11.3% 11.7% 25.0% 13.0% 18.9% 70.1% 91.9% -7.7% 0.3% 4.8% -70.4% 2.1% 13.0% 83.8% 63.0% 22.7% 21.2% 12.8% 68.8% 16.8% 41.3% 73% 79% 72% 79% 84% 66% 72% 75.1% 62.5 98.0 36.1 20.0 20.0 15.8 15.1 25.4 NM 35.4 36.5 47.9 67.5 31.1 17.5 17.6 13.0 13.4 21.2 46.9 18.9 29.5 3.5 5.8 6.0 1.6 3.9 2.4 3.6 8.7 3.1 5.0 4.4 3.0 4.6 5.2 1.4 3.4 2.1 3.2 7.0 2.3 3.9 3.6 3.5 5.8 5.6 4.6 3.7 2.5 3.3 8.0 2.3 4.1 4.3 3.0 4.6 4.9 4.0 3.3 2.2 2.9 6.4 1.8 3.2 3.6 16.3% 29.3% 15.3% 12.4% 14.6% 28.1% 7.3% 25.2% 9.2% -15.9% 14.2% 17.0% 26.6% 14.4% 14.7% 12.9% 11.3% 11.7% 24.4% 33.7% 28.3% 19.5% -14.3% -2.2% 9.8% 15.2% 7.6% 0.3% 4.8% 13.8% -92.4% -61.5% -11.9% 30.6% 45.1% 15.9% 14.4% 14.1% 21.2% 12.8% 19.4% 816.8% 87.7% 107.8% 69% 80% 86% 88% 87% 79% 84% 95% 50% 68% 79% P/Sales EV/Sales Sales Growth 2013E 2014E EPS Growth (%) 2013E 2014E GM 2013 2014E 2013E 2014E 2013E 2014E

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 Gigamons 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.

Gigamon (GIMO)

38

08 July 2013

Exhibit 46: Gigamon DCF Yields a Value of $25

in thousands, except per share data. 2013E Revenue yoy% Gross Profit GM% S&M as % of sales R&D as % of sales G&A as % of sales EBIT EBIT Margin D&A (+) as % of sales EBITDA EBITDA Margin% Capex (-) as % of sales Total Cash Flow before Tax Cash Taxes Tax rate (%) Free Cash Flow Summary PV of Free Cash Flow Terminal Value PV of Terminal Value Enterprise Value Plus: Cash & ST Investments Less: Debt Equity Value 12-month share price target 234,747 1,351,508 500,674 735,421 77,600 813,021 $24.86 132,438 36.9% 102,753 77.6% (51,073) 38.6% (27,699) 20.9% (11,463) 8.7% 12,518 9.5% 2,287 1.7% 14,806 11.2% (6,289) 4.7% 10,916 4,445 35.5% 6,471 2014E 172,371 30.2% 133,016 77.2% (61,774) 35.8% (36,603) 21.2% (13,649) 7.9% 20,990 12.2% 2,919 1.7% 23,909 13.9% (8,129) 4.7% 10,101 8,516 40.6% 1,585 2015E 224,145 30.0% 172,216 76.8% (75,313) 33.6% (44,157) 19.7% (15,690) 7.0% 37,056 16.5% 3,796 1.7% 40,852 18.2% (10,268) 4.6% 40,614 14,809 40.0% 25,804 2016E 280,182 25.0% 214,339 76.5% (92,460) 33.0% (55,196) 19.7% (19,613) 7.0% 47,071 16.8% 4,763 1.7% 51,834 18.5% (12,608) 4.5% 47,532 16,475 35.0% 31,057 2017E 336,218 20.0% 255,526 76.0% 33.0% (63,881) 19.0% (21,854) 6.5% 58,838 17.5% 5,716 1.7% 64,554 19.2% (15,130) 4.5% 52,171 20,593 35.0% 31,578 2018E 403,462 20.0% 306,631 76.0% 32.0% (70,606) 17.5% (24,208) 6.0% 82,710 20.5% 6,859 1.7% 89,568 22.2% (16,138) 4.0% 78,276 28,948 35.0% 49,328 2019E 463,981 15.0% 352,625 76.0% 31.0% (81,197) 17.5% (25,519) 5.5% 102,076 22.0% 7,888 1.7% 109,963 23.7% (18,559) 4.0% 97,542 35,727 35.0% 61,815 2020E 510,379 10.0% 387,888 76.0% 30.0% (81,661) 16.0% (25,519) 5.0% 127,595 25.0% 8,676 1.7% 136,271 26.7% (20,415) 4.0% 126,362 44,658 35.0% 81,704 2021E 535,898 5.0% 407,282 76.0% 30.0% (85,744) 16.0% (26,795) 5.0% 133,974 25.0% 9,110 1.7% 143,085 26.7% (21,436) 4.0% 137,867 46,891 35.0% 90,976 2022E 551,975 3.0% 419,501 76.0% 30.0% (88,316) 16.0% (27,599) 5.0% 137,994 25.0% 9,384 1.7% 147,377 26.7% (22,079) 4.0% 145,921 48,298 35.0% 97,623

(110,952) (129,108) (143,834) (153,114) (160,769) (165,592)

Diluted share count Terminal Growth Rate WACC

32,700 3.0% 10.4%

Source: Company data, Credit Suisse estimates.

Gigamon (GIMO)

39

08 July 2013

Exhibit 47: Weighted Average Cost of Capital (WACC) Calculation for Gigamon
WACC calculation Beta Risk free rate Equity Risk Premium Avg cost of debt (pre tax) Tax rate Cost of Equity Avg Cost of debt (post tax) Equity Debt E/V D/V WACC Source: Company data, Credit Suisse estimates. 1.2 3.0% 6.0% 5.0% 35.0% 10.4% 3.3% 100% 0% 100% 0% 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 22.0% 23.0% 24.0% 25.0% 26.0% 27.0% 28.0% 29.0% 30.0% 31.0%

0.0% 18.86 19.29 19.72 20.15 20.58 21.01 21.44 21.87 22.30 22.73

1.0% 19.96 20.43 20.91 21.38 21.86 22.34 22.81 23.29 23.76 24.24

2.0% 21.32 21.85 22.39 22.92 23.45 23.98 24.51 25.05 25.58 26.11

3.0% 23.05 23.66 24.26 24.86 25.47 26.07 26.67 27.28 27.88 28.48

4.0% 25.32 26.02 26.72 27.41 28.11 28.81 29.50 30.20 30.90 31.59

5.0% 28.42 29.25 30.07 30.90 31.72 32.55 33.37 34.20 35.02 35.85

6.0% 32.92 33.93 34.94 35.96 36.97 37.98 38.99 40.00 41.01 42.02

Source: Company data, Credit Suisse estimates.

Gigamon (GIMO)

40

08 July 2013

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 NPV of Future Investments + Market Value of Investments Total Economic Value + Share Issuance - Debt & Equivalents - Minority Interests Warranted Market Cap. Shares Outstanding Warranted Share Price (USD) Source: Company data, Credit Suisse estimates. 79 767 0 845 57 2 0 901,059 32.7 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 CFROI Transaction CFROI Normalized Real Growth Rate Real Growth Rate Sales Growth EBITDA Margins Asset Turns Gross Cash Flow Non Depreciating Assets Gross Investment Life Country Specific Discount Rate Size Differential Leverage Differential Company Discount Rate Discount Rate Used 2012 27.64% 27.64% -3.71% 12.80% 42.01% 9.34% 1.65 27 -4 59 4.0 5.60% 0.00% 0.00% 5.60% 2013 16.98% 16.98% 17.21% 193.31% 36.94% 11.18% 0.76 41 53 175 6.5 5.03% -0.02% -0.98% 4.03% 5.03% 2014 17.44% 17.44% 19.45% 25.57% 30.15% 13.87% 0.77 55 68 224 6.3 2015 18.85% 18.85% 22.62% 24.00% 30.04% 18.23% 0.79 73 83 283 6.2 2016 19.42% 19.42% 24.28% 22.57% 25.00% 18.50% 0.79 91 95 353 6.2 2017 18.49% 18.49% 24.32% 22.28% 20.00% 19.20% 0.76 113 115 440 6.2

Source: Company data, Credit Suisse estimates.

Gigamon (GIMO)

41

08 July 2013

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 Gigamons, 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 Gigamons, this will reduce the number of go -tomarket 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.

Gigamon (GIMO)

42

08 July 2013

Management
As shown in Exhibit 51, Gigamons management has extensive leadership experience at other networking and communication equipment companies, including Ciena, Brocade, Extreme Networks, and Infinera, where Gigamons CFO, Duston William, led a successful IPO. Exhibit 51: Gigamons 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 - Principal Engineer at Ciena - Manager High Speed Products, Network Associates - Ph.D. in Applied Physics - Principal hardware designer at Cyras - Led hardware development at Ciena - Over 25 years of experience - CFO at SandForce, Maxtor, Infinera, Aruba, Rhapsody Networks, and Western Digital - Vice President of Marketing for Juniper - Americas Marketing & Sales, Global Marketing Strategy & Operations and EMEA Marketing at Nortel - Over 30 years of experience - Previous executive positions with Blue Coat, Brocade and Tandem - Associate GC, Enterprise Group, HP - Previous experience at Wilson, Sonsini Goodrich, and Rosati - CTO of Extreme Networks - VP of Enterprise Communications for MRV Communications

7.0% 40k options Patrick Leong* CTO, Co-Founder

6.0% Thomas Cheung* VP, Technology, CoFounder

Duston Williams

Chief Financial Officer

Mar-12

0.3% 33.3k options

Peter Finter

Chief Marketing Officer

Jun-13

Dave de Simone

VP of Engineering

Paul Shin

General Counsel

Shehzad Merchant Mike Hoffman Other Co-Founders Ted Ho King Won Thomas Gallatin

Chief Strategy Officer VP of Worldwide Sales 14.9% 7.4% 80k options 4.7% 2.8%

Source: Company data, Credit Suisse estimates.

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

Gigamon (GIMO)

43

08 July 2013

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 Brocades 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 HPs 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 cofounder 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

Gigamon (GIMO)

44

08 July 2013

$500 million stand-alone company. Over his career, Mr. Hoffman has sold a variety of networking products.

Gigamon (GIMO)

45

08 July 2013

Financial Models
Exhibit 52: Gigamon Annual Income Statement
in thousands, except per share data 2011 Total revenues % change yoy Cost of goods sold Total gross profit Gross margin (%) Sales and marketing as % of sales Research and development as % of sales General and administrative as % of sales Total operating expenses as % of sales Operating income Operating margin (%) Interest & other, net Pre-tax income as % of sales Income tax expense Tax rate (%) Non-GAAP Net Income Net margin (%) Non-GAAP EPS (ex-options) GAAP Net Income GAAP EPS Diluted shares outstanding Source: Company data, Credit Suisse estimates 68,105 46.7% 14,428 53,677 78.8% 19,356 28.4% 12,522 18.4% 4,764 7.0% 36,642 53.8% 17,035 25.0% (12) 17,023 25.0% 0.0% 17,023 25.0% $0.98 16,931 $0.98 17,300 2012 96,715 42.0% 20,185 76,530 79.1% 38,459 39.8% 17,230 17.8% 9,565 9.9% 65,254 67.5% 11,276 11.7% (6) 11,270 11.7% 100 0.9% 11,170 11.5% $0.65 7,531 $0.44 17,303 2013E 132,438 36.9% 29,685 102,753 77.6% 51,073 38.6% 27,699 20.9% 11,463 8.7% 90,235 68.1% 12,518 9.5% (20) 12,498 9.4% 4,438 35.5% 8,061 6.1% $0.26 (25,367) ($0.82) 31,100 2014E 172,371 30.2% 39,355 133,016 77.2% 61,774 35.8% 36,603 21.2% 13,649 7.9% 112,026 65.0% 20,990 12.2% (20) 20,970 12.2% 8,508 40.6% 12,462 7.2% $0.36 (5,529) ($0.16) 34,725

Gigamon (GIMO)

46

08 July 2013

Exhibit 53: Gigamon Annual Balance Sheet

in thousands, unless otherwise stated 2010 Cash and cash equivalents Accounts Receivables, net Inventories, net Prepaid and other assets Total current assets Property and equipment, net Other assets Total assets Accounts payables Accrued and other current liabilities Deferred revenue Total current liabilities Deferred revenue, non current Other liabilities, non current Total Liabilities Commitments and contingencies Series A preferred units Stockholders' Equity: Common stock Additional paid in capital Accumulated deficit Treasury Units Total Stockholders' Equity Total Liabilities, Preferred, and Equity Source: Company data, Credit Suisse estimates 1,625 147 (15,034) (12,469) (25,731) 20,876 1,625 159 (17,124) (12,469) (27,809) 43,995 1,625 1,522 (20,723) (12,469) (30,045) 51,497 31,396 117,469 51,868 151,427 24,030 26,108 28,344 28,929 28,929 5,804 7,425 5,584 1,068 53 905 90 20,876 623 2,667 9,152 20,436 4,000 172 22,577 2011 13,102 16,397 7,437 4,962 303 2,017 80 43,995 2,665 7,871 18,437 41,715 3,525 456 45,696 2012 18,675 20,677 3,736 3,407 447 2,686 2,316 51,497 3,221 13,889 23,917 45,848 6,903 447 53,198 2013E 74,244 23,920 3,466 6,384 528 6,567 2,888 117,469 2,836 13,639 31,747 48,223 8,443 478 57,144 2014E 83,827 39,329 4,832 8,775 643 11,777 2,888 151,427 3,890 13,639 41,694 59,223 10,929 478 70,630

Gigamon (GIMO)

47

08 July 2013

Exhibit 54: Gigamon Annual Cash Flow Statement

in thousands, unless otherwise stated Cash Flow ($ thousands) Net income / (loss) 2011 16,931 2012 7,531 2013E (5,567) 2014E (5,529)

Non-cash adjustments Depreciation and amortization Stock compensation expense, net tax Inventory Writedowns Loss on disposal accounts Provison for doubtful accounts Other 743 12 3,227 16 1,354 3,599 1,543 2,287 31,393 (18,800) 2,919 26,000 -

Changes to Working Capital Accounts receivable Inventories Prepaid expenses and other assets Other assets Accounts payable Accrued and other liabilities Deferred revenue Other liabilites Net Cash From Operating Activities

688 (8,988) (4,811) (3,894) 10 2,042 5,488 10,841 21,617

13,601 (4,280) 3,004 1,650 (29) 398 4,000 8,858 27,680

2,400 (3,243) 447 (2,977) 2 (292) (908) 9,370 11,713

(5,679) (15,408) (1,366) (2,392) 1,053 12,433 17,711

Cash Flow from Investing Activities: Purchase of PPE Net Cash From Investing Activities (2,124) (2,124) (2,006) (2,006) (6,289) (6,289) (8,129) (8,129)

Cash Flows from Financing Activities: Distribution of income to members Proceeds from issuance of preferred units Proceeds from issuance of common stock Stock issuance costs Payment of deferred offering costs Payment for common unit redemption Net Cash From Financing Activities (12,195) (12,195) (18,181) (1,920) (20,101) (4,821) 80,000 (25,000) (34) 50,145 -

Net Change in Cash & Cash Equivalents

7,298

5,573

55,569

9,583

Cash and Cash Equivalents, Beginning Cash and Cash Equivalents, Ending Source: Company data, Credit Suisse estimates

5,804 13,102

13,102 18,675

18,675 74,244

74,244 83,827

Gigamon (GIMO)

48

08 July 2013

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 stocks total return is expected to outperform the relevant benchmark*over the next 12 months. Neutral (N) : The stocks total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stocks 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 stocks 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 stocks 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 stocks 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 stocks absolute total return potential to its current share price and (2) the relative attractiveness of a stocks total return potential within an analysts 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 stocks 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 analysts expectations for the fundamentals and/or valuation of the sector* relative to the groups historic fundamentals and/or valuation: Overweight : The analysts expectation for the sectors fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analysts expectation for the sectors fundamentals and/or valuation is neu tral over the next 12 months. Underweight : The analysts expectation for the sectors fundamentals and/or valuation is cautious over the next 12 months.
*An analysts coverage sector consists of all companies covered by the analyst within the relevant se ctor. An analyst may cover multiple sectors.

Gigamon (GIMO)

49

08 July 2013

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 Suisses 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 Gigamons, 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.

Gigamon (GIMO)

50

08 July 2013

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 Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml. As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.

Important Credit Suisse HOLT Disclosures

With respect to the analysis in this report based on the Credit Suisse HOLT methodology, Credit Suisse certifies that (1) the views expressed in this report accurately reflect the Credit Suisse HOLT methodology and (2) no part of the Firms compensation was, i s, or will be directly related to the specific views disclosed in this report. The Credit Suisse HOLT methodology does not assign ratings to a security. It is an analytical tool that involves use of a set of proprietary quantitative algorithms and warranted value calculations, collectively called the Credit Suisse HOLT valuation model, that are consistently applied to all the companies included in its database. Third-part data (including consensus earnings estimates) are systematically translated into a number of default algorithms available in the Credit Suisse HOLT valuation model. The source financial statement, pricing, and earnings data provided by outside data vendors are subject to quality control and may also be adjusted to more closely measure the underlying economics of firm performance. The adjustments provide consistency when analyzing a single company across time, or analyzing multiple companies across industries or national borders. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes the baseline valuation for a security, and a user then may adjust the default variables to produce alternative scenarios, any of which could occur. Additional information about the Credit Suisse HOLT methodology is available on request. The Credit Suisse HOLT methodology does not assign a price target to a security. The default scenario that is produced by the Credit Suisse HOLT valuation model establishes a warranted price for a security, and as the third-party data are updated, the warranted price may also change. The default variable may also be adjusted to produce alternative warranted prices, any of which could occur. CFROI, HOLT, HOLTfolio, ValueSearch, AggreGator, Signal Flag and Powered by HOLT are trademarks or service marks or registered trademarks or registered service marks of Credit Suisse or its affiliates in the United States and other countries. HOLT is a corporate performance and valuation advisory service of Credit Suisse. For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at www.creditsuisse.com/researchdisclosures or call +1 (877) 291-2683.

Gigamon (GIMO)

51

08 July 2013

References in this report to Credit Suisse include all of the subsidiaries and affiliates of Credit Suisse operating under its investment banking division. For more information on our structure, please use the following link: https://www.credit-suisse.com/who_we_are/en/.This report may contain material that is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject Credit Suisse AG or its affiliates ("CS") to any registration or licensing requirement within such jurisdiction. All material presented in this report, unless specifically indicated otherwise, is under copyright to CS. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of CS. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of CS or its affiliates. The information, tools and material presented in this report are provided to you for information purposes only and are not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities or other financial instruments. CS may not have taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. CS will not treat recipients of this report as its customers by virtue of their receiving this report. The investments and services contained or referred to in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about such investments or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. CS does not advise on the tax consequences of investments and you are advised to contact an independent tax adviser. Please note in particular that the bases and levels of taxation may change. Information and opinions presented in this report have been obtained or derived from sources believed by CS to be reliable, but CS makes no representation as to their accuracy or completeness. CS accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that such liability arises under specific statutes or regulations applicable to CS. This report is not to be relied upon in substitution for the exercise of independent judgment. CS may have issued, and may in the future issue, other communications that are inconsistent with, and reach different conclusions from, the information presented in this report. Those communications reflect the different assumptions, views and analytical methods of the analysts who prepared them and CS is under no obligation to ensure that such other communications are brought to the attention of any recipient of this report. CS may, to the extent permitted by law, participate or invest in financing transactions with the issuer(s) of the securities referred to in this report, perform services for or solicit business from such issuers, and/or have a position or holding, or other material interest, or effect transactions, in such securities or options thereon, or other investments related thereto. In addition, it may make markets in the securities mentioned in the material presented in this report. CS may have, within the last three years, served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities mentioned in this report or may be providing, or have provided within the previous 12 months, significant advice or investment services in relation to the investment concerned or a related investment. Additional information is, subject to duties of confidentiality, available on request. Some investments referred to in this report will be offered solely by a single entity and in the case of some investments solely by CS, or an associate of CS or CS may be the only market maker in such investments. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment at its original date of publication by CS and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. Investors in securities such as ADR's, the values of which are influenced by currency volatility, effectively assume this risk. Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility, and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct their own investigation and analysis of the product and consult with their own professional advisers as to the risks involved in making such a purchase. Some investments discussed in this report may have a high level of volatility. High volatility investments may experience sudden and large falls in their value causing losses when that investment is realised. Those losses may equal your original investment. Indeed, in the case of some investments the potential losses may exceed the amount of initial investment and, in such circumstances, you may be required to pay more money to support those losses. Income yields from investments may fluctuate and, in consequence, initial capital paid to make the investment may be used as part of that income yield. Some investments may not be readily realisable and it may be difficult to sell or realise those investments, similarly it may prove difficult for you to obtain reliable information about the value, or risks, to which such an investment is exposed. This report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of CS, CS has not reviewed any such site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to CS's own website material) is provided solely for your convenience and information and the content of any such website does not in any way form part of this document. Accessing such website or following such link through this report or CS's website shall be at your own risk. This report is issued and distributed in Europe (except Switzerland) by Credit Suisse Securities (Europe) Limited, One Cabot Square, London E14 4QJ, England, which is authorised by the Prudential Regulation Authority ("PRA") and regulated by the Financial Conduct Authority ("FCA") and the PRA. This report is being distributed in the United States and Canada by Credit Suisse Securities (USA) LLC; in Switzerland by Credit Suisse AG; in Brazil by Banco de Investimentos Credit Suisse (Brasil) S.A or its affiliates; in Mexico by Banco Credit Suisse (Mxico), S.A. (transactions related to the securities mentioned in this report will only be effected in compliance with applicable regulation); in Japan by Credit Suisse Securities (Japan) Limited, Financial Instruments Firm, Director-General of Kanto Local Finance Bureau (Kinsho) No. 66, a member of Japan Securities Dealers Association, The Financial Futures Association of Japan, Japan Investment Advisers Association, Type II Financial Instruments Firms Association; elsewhere in Asia/ Pacific by whichever of the following is the appropriately authorised entity in the relevant jurisdiction: Credit Suisse (Hong Kong) Limited, Credit Suisse Equities (Australia) Limited, Credit Suisse Securities (Thailand) Limited, having registered address at 990 Abdulrahim Place, 27 Floor, Unit 2701, Rama IV Road, Silom, Bangrak, Bangkok 10500, Thailand, Tel. +66 2614 6000, Credit Suisse Securities (Malaysia) Sdn Bhd, Credit Suisse AG, Singapore Branch, Credit Suisse Securities (India) Private Limited regulated by the Securities and Exchange Board of India (registration Nos. INB230970637; INF230970637; INB010970631; INF010970631), having registered address at 9th Floor, Ceejay House, Dr.A.B. Road, Worli, Mumbai - 18, India, T- +91-22 6777 3777, Credit Suisse Securities (Europe) Limited, Seoul Branch, Credit Suisse AG, Taipei Securities Branch, PT Credit Suisse Securities Indonesia, Credit Suisse Securities (Philippines ) Inc., and elsewhere in the world by the relevant authorised affiliate of the above. Research on Taiwanese securities produced by Credit Suisse AG, Taipei Securities Branch has been prepared by a registered Senior Business Person. Research provided to residents of Malaysia is authorised by the Head of Research for Credit Suisse Securities (Malaysia) Sdn Bhd, to whom they should direct any queries on +603 2723 2020. This report has been prepared and issued for distribution in Singapore to institutional investors, accredited investors and expert investors (each as defined under the Financial Advisers Regulations) only, and is also distributed by Credit Suisse AG, Singapore branch to overseas investors (as defined under the Financial Advisers Regulations). By virtue of your status as an institutional investor, accredited investor, expert investor or overseas investor, Credit Suisse AG, Singapore branch is exempted from complying with certain compliance requirements under the Financial Advisers Act, Chapter 110 of Singapore (the "FAA"), the Financial Advisers Regulations and the relevant Notices and Guidelines issued thereunder, in respect of any financial advisory service which Credit Suisse AG, Singapore branch may provide to you. This research may not conform to Canadian disclosure requirements. In jurisdictions where CS is not already registered or licensed to trade in securities, transactions will only be effected in accordance with applicable securities legislation, which will vary from jurisdiction to jurisdiction and may require that the trade be made in accordance with applicable exemptions from registration or licensing requirements. Non-U.S. customers wishing to effect a transaction should contact a CS entity in their local jurisdiction unless governing law permits otherwise. U.S. customers wishing to effect a transaction should do so only by contacting a representative at Credit Suisse Securities (USA) LLC in the U.S. Please note that this research was originally prepared and issued by CS for distribution to their market professional and institutional investor customers. Recipients who are not market professional or institutional investor customers of CS should seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents. This research may relate to investments or services of a person outside of the UK or to other matters which are not authorised by the PRA and regulated by the FCA and the PRA or in respect of which the protections of the PRA and FCA for private customers and/or the UK compensation scheme may not be available, and further details as to where this may be the case are available upon request in respect of this report. CS may provide various services to US municipal entities or obligated persons ("municipalities"), including suggesting individual transactions or trades and entering into such transactions. Any services CS provides to municipalities are not viewed as "advice" within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. CS is providing any such services and related information solely on an arm's length basis and not as an advisor or fiduciary to the municipality. In connection with the provision of the any such services, there is no agreement, direct or indirect, between any municipality (including the officials, management, employees or agents thereof) and CS for CS to provide advice to the municipality. Municipalities should consult with their financial, accounting and legal advisors regarding any such services provided by CS. In addition, CS is not acting for direct or indirect compensation to solicit the municipality on behalf of an unaffiliated broker, dealer, municipal securities dealer, municipal advisor, or investment adviser for the purpose of obtaining or retaining an engagement by the municipality for or in connection with Municipal Financial Products, the issuance of municipal securities, or of an investment adviser to provide investment advisory services to or on behalf of the municipality. If this report is being distributed by a financial institution other than Credit Suisse AG, or its affiliates, that financial institution is solely responsible for distribution. Clients of that institution should contact that institution to effect a transaction in the securities mentioned in this report or require further information. This report does not constitute investment advice by Credit Suisse to the clients of the distributing financial institution, and neither Credit Suisse AG, its affiliates, and their respective officers, directors and employees accept any liability whatsoever for any direct or consequential loss arising from their use of this report or its content. Principal is not guaranteed. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. Copyright 2013 CREDIT SUISSE AG and/or its affiliates. All rights reserved.

Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments.
When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.

Gigamon initiation final.doc

Gigamon (GIMO)