This week, we attended the Global Mobile Broadband Forum, held in London, and found several interesting points we thought we would share. Much of the focus of the conference was about 5G wireless networks, and since the show was in London, many of the service providers who we met with and listened to were European. The sponsor of this event was Huawei.
Back on 5/9/17, we discussed how Alcatel-Lucent Enterprise (ALE) had announced its in-house developed enterprise-class WLAN products. A couple days ago (on 9/20/17), ALE announced further developments to its WLAN product line and now has a broadening product line of Stellar WLAN products. Initially, ALE announced a lower end Stellar product. Now, with this 9/20/17 announcement, in Stellar products have moved up-market and include the AP1220, AP1230 and AP1251. ALE continues to offer the HPE Aruba products to customers, but it is clear, in looking at the amount of space on the WLAN products page at ALE's website, that it is increasingly promoting its in-house Stellar brand - and why not?
It is encouraging to see a new set of products enter the enterprise-class WLAN market with ALE's announcement. We will be tracking ALE's progress in the coming quarters, but initial results of the Stellar product line have shown it is growing strongly as a proportion of total WLAN revenues.
Yesterday, Comcast announced its ActiveCore SDN platform. We are attending Comcast’s analyst day and learned quite a bit on day one, but wanted to focus this blog on Routing.
To date, there has been an argument of SD-WAN and it ability to replace expensive telco MPLS solutions. If a customer continues using MPLS, it is likely they will keep their old router or buy a new router. But what happens when a startup uses ActiveCore without a legacy infrastructure or builds a new branch(greenfield)? In many cases, the CPE box provided by Comcast and 1 Gbps bandwidth is more than enough, especially for a mobile Cloud based workforce(many new companies fall into this category).
We continue to believe MPLS will live on and have a very long tail, but are seeing capable platforms threaten traditional vendors and the branch/access router market. It will be interesting to see what other SPs around the world do for SD-WAN as well as how traditional vendors and startups address this changing dynamic in businesses of a mobile workforce that uses Cloud platforms and a VPN tunnel is enough to connect back to headquarters without MPLS and/or without the need for a traditional router.
We attended the Deutsche Bank Tech conference this week and met with a ton of companies. It is always interesting to see the difference in questions from investors vs. those directly in the industry. During the conference, each company put spin and had different definitions of Data Center Interconnect (DCI) that helped address their specific portfolio. This is very similar to the early Cloud days where every vendor and component manufacturer said they sold into the Cloud. Fast forward to today, and very few vendors sell to the Cloud. We see a similar end game with many suppliers being squeezed out of the DCI market as it matures.
The lack of clarity created confusion amongst the investors as they went from session to session and we think is a short term negative to the market.
We are very excited to have holistic DCI coverage. One that looks at legacy approaches around Optical and the new approach of using switching and routing. We are hopeful that the market will move towards one consistent definition of DCI as that will be better for the market itself and the suppliers in that market, but see that as unlikely as many vendors seem to be digging into a definition that is self serving and more focused on legacy products vs. what customers will want in the future.
We look forward to many future conversations on DCI.
Last week we attended Huawei Connect conference in Shanghai which is turning into a massive event for Huawei with significant customer attendance. It was tons of fun to talk to customers, catch up with friends, and the different parts of Huawei while on the show floor. While there are ton of highlights from the show, here are a few highlights that peaked our interest.
We attended the Nokia analyst meeting for its Fixed Access business, where the company explained its priorities for the upcoming year. these include: (a) an expansion to its In-Home WiFi focus, (b) an aggressive push to move all but physical layer functions into the Cloud, and (c) the launch of fixed broadband wireless. Last year's priorities included a push into the Cable broadband market (through the acquisition of Gainspeed) and Internet of Things (IoT). The business leaders seem to be focused on what we'd consider to be the current trends in broadband, and Nokia is taking advantage of the competitive environment as the broadband market is consolidating around a shrinking number of players.
In-Home WiFi. While some of the the company's Passive Optical Network (PON) Optical Network Terminals (ONTs) are currently shipping with Wi-Fi capabilities, it represents a growing trend among operators to offer a full function gateway. The company plans to enhance its In-Home WiFi capabilities to entice its Service Provider customers to purchase these slightly more expensive devices. The company ships something on the order of 3 million ONTs each quarter, generally on par with the number of in-home WiFi devices sold by one of the leaders of in-home WiFi, Netgear. There has been a long-running trend whereby cable modems and DSL modems have incorporated WiFi, which has reduced the market opportunity for stand-alone WiFi routers, mainly in North America and European markets (where cable and DSL are popular). However, where PON is popular, like in Asian countries (China included), PON modems have generally not incorporated WiFi until recently and WiFi capable ONTs represent a small fraction of all ONTs that ship. Nokia plans to introduce a solution that extends and enhances WiFi beyond the gateway at some point - we've seen WiFi Extenders and now WiFi mesh experience significant growth in recent years. What Nokia may be able to bring to the table, though, is WiFi extending products with deeper integration to the Service Provider operations. This is a capability that will likely be embraced by operators in order to reduce the number of customer service calls to the operators themselves. We have seen vendors like Arris make similar pronouncements of enhancing their WiFi strategies to include devices such as Extenders (but mainly for cable and DSL), so Nokia is not alone in being a broadband modem vendor recognizing the 'whole home' trend. From a consumer WiFi perspective, Nokia's move to enhance its WiFi capabilities will put most pressure on standalone WiFi vendors that sell to Asian countries - these include D-Link, TP-Link, Buffalo, and Zyxel.
Broadband to the Cloud. The Network Functions Virtualization (NFV) trend has now hit full steam, with nearly all mobile operator RFPs requiring vendors to offer software-based functions such as EPC, routing, IMS and other functions that can be run in so-called "Telco Clouds." The broadband group at Nokia is expected over time to deliver on a portfolio that, where possible, will be running on these server-based environments. We, similar to Nokia's expectation, expect that most fixed broadband "NFV" systems will be run in separate "clouds" from the mobile "clouds" for the next few years.
Fixed Wireless. We've all heard a lot about fixed wireless broadband trials at telcos in recent months. Yesterday, for instance, AT&T announced an expansion of its trials. Nokia will deliver on Fixed Wireless through its Fixed Broadband business group, an organizational acknowledgment that this is quite different from mobile wireless and will more likely be used to augment wired broadband strategies in difficult-to-reach locations. Generally, Nokia's view is that fixed wireless is relatively more expensive than many wired broadband systems - we share this view. It is hard not to be somewhat skeptical about fixed broadband wireless given the failed attempts to bring it to market going back as far as the early 1990's (AT&T's Project Angel), and then MMDS and LMDS efforts in the early 2000's, and of course WiMAX (more recently). Nonetheless, Nokia is smartly positioning its plans to support fixed wireless as a way to augment wired broadband. And, we know that fixed wireless works - Ubiquiti Networks has shipped tens of millions of fixed broadband wireless links to its customer base of Wireless Internet Service Providers (WISPs).
Tomorrow, at 8:30 AM, we are presenting at the Flash Memory Summit 2017 and will share our views on the storage infrastructure market. We expecting growth in segments such as hyperconverged, All Flash Arrays, and SDS. We expect growth from customer groups such as Cloud Service Providers, as well as Telecom Service Providers, while traditional enterprises are expected to experience declines.
From a technology standpoint, we are bullish on NVMe technology as well as 3D Xpoint and expect that Hard Drive based systems will experience long, slow declines.
For those in attendance at Flash Memory Summit (#FMS2017), we will be presenting slides. If you are interested in learning more about our views on the storage infrastructure market, please contact us.
We attended the F5 analyst meeting, the first with new CEO, Francois Locoh-Donou. It is clear that the new CEO understands the impact the growth in the cloud has on F5, and VP Sales John DiLullo even went so far as to say that beginning about 18 months ago, his customers are embarrassed to admit they actually own a physical on-premises infrastructure (picture). Also relatively new to the F5 team is Ben Gibson, CMO, who joined about a year ago.
We break this write-up into a few different parts: a) the new technical strategy, b) the shift to subscriptions, and c) new products.
New Technical Strategy
The company’s message was similar to its recent earnings call, though with a lot of technical details, the focus being that the company is pursuing opportunities where its technology will be made:
Shift to Subscriptions
The company recently began offering its software versions of its products using a software subscription business model. This differs from its other contract methods it has used with customers in the past. The first subscriptions were made available since the new CEO has joined.
F5’s shift to subscriptions is not particularly unique in the marketplace. Many traditionally network hardware-focused companies have begun the transition, as well. Cisco is a good example, having very recently (June 2017) announced a software subscription model to pair up with its newly launched Campus Ethernet Switches, the Catalyst 9K series. Though this wasn’t discussed at the meeting, we expect that new accounting standards that come to the marketplace about a year from now may result in only a modest impact to revenues as a result of a shift to subscriptions.
Application Security Opportunity
The company’s big bet is on application security. We view this opportunity as quite significant, though providing application security is quite different from vast majority of the company’s offerings and revenue.
F5 offered some interesting data for us to chew on, the result of the fact that the company’s iHealth offering acquires data from its customers.
Over the past three years, the main features being used on between 6,000 to 8,000 customers on Big IP devices are as follows (in order of most common):
It is clear therefore that most Big IP use relates to front-ending customer-facing services, which supports our view that the company’s big bet on software will represent a large change for the company. However, the company also shared some other interesting market-sizing data that we found useful in assessing the company’s opportunity. Across its 6-8K of customers using Big IP in the past 3 years, there are:
We got thinking about what this means, in relation to the application security opportunity upon which the company is embarking. There are orders of magnitude more physical servers, and for that matter virtual servers, than those working in conjunction with Big IP systems. If the company can succeed in having its application security software working in conjunction with this larger opportunity, then the company may have some serious room to run.
The company is developing software products. Examples are:
Application Controller. It runs in the public cloud and connects to a Big IP in Co-lo or in a private cloud and extends what the Big IP can see into the public infrastructure. The products is in General Availability now.
Virtual Edition. The company views this software-only product capabilities as potentially running as fast as its hardware-based ADCs over time. VE is benchmarked at 40 Gbps in its F2Q17 release and the company sees this getting to 100 Gbps (timeframe not disclosed). Additionally, by 1H18, the company plans to offer VE to run in a container environment.
Container Connector (CC) and Application Services Proxy (ASP). Both were released in the Spring 2017. These are both ‘in the hands of multiple customers,’ according to the company. These are intended to be used with Container environments such as Kubernetes, Mesos and/or Docker.
Additionally, the company said it is working on “Incubation” technologies that are mostly cloud-focused and R&D budgets for such efforts are large (but this wasn’t quantified for us).
The GENBAND Perspectives 2017 conference in Los Angeles did a good job of highlighting the relatively smaller division at GENBAND - Kandy. Additionally, the company highlighted its advances towards an NFV World, its participation in so-called "Network Evolution" (upgrading old PSTN and VoIP systems to new VoIP and IMS systems).
Kandy. I asked CEO David Walsh to compare its business to publicly traded Twilio. He highlighted some differences between the two:
NFV. The company highlighted its VNF Manager, and we understand that it can perform some aspects of orchestration when operating specifically on GENBAND VNFs. Additionally, the company and its partner Wind River (Intel) explained that using WIND ABS (its software virtual switch) and the DPDK capability, for many VNFs, can see as much as a 40x improvement in performance compared to running in a virtualized environment not using these two technologies.
Network Modernization. About half of GENBAND revenues last year were related to services; and a meaningful percentage of total revenues are associated with network modernization. Several customers made presentations discussing their experience in moving to new VoIP systems, replacing PSTN and older VoIP systems. We learned a few interesting things relating to this modernization:
Today, Cisco announced the Catalyst 9000 family. The first new Catalyst line in many years focused on campus networking as a unified network involving security, WLAN, and switching. This is a very big announcement for Cisco as it’s a real step towards Unified Access and not thinking of WLAN as simply an overlay network. To keep the blog short, we will focus on just a few highlights here.
New hardware – the 9300 fixed switches are the next generation 3850s which were the revenue work horse for Cisco on the campus side. The 9400 is a modular access switch, currently more focused on user connectivity then campus aggregation and core. Finally, the 9500, a Fixed form factor aggregation and core box. The 9300 supports multigig with no fast Ethernet. We suspect a modular core is likely in the works as well and future generations will shift the uplinks from 10/40G to 25/100G.
New software – This is really about a security in networking and intent based policy. In other words, these switches take less human hours to administer, allowing more things to be connected to the network and the human to scale. Software Defined should allow these new switches to scale with the IOT device onslaught that many enterprises are about to go through.
New ASICs – As we all know, I’m a fan of ASICs, Cisco’s new in-house ASICs take many design ideas from Cisco’s DC ASIC family. They allow for some pretty cool security features that will allow Cisco to differentiate from the competition.
New Subscription Model – This does not come as a surprise, but a big component of the new offering is a subscription model. We see 3,5, and 7 year options listed on the website and believe this aligns well with Cisco’s push more towards recurring revenue. Given the availability of these switches, this is a 2018 event for the market.
New upgrade cycle – the combined hardware software approach will allow Cisco to touch its entire installed base to upgrade them. This is a big benefit to Cisco as over the past few years this installed base lacked a compelling reason to upgrade. This has caused the age of the installed base to creep up recently.