Yesterday, analyst Chris DePuy joined Water Tower Research analyst John Roy in a discussion about the 60 GHz wireless market. If you want to learn more about this emerging market, please listen in to this 30 minute interview about 60 GHz.
During the interview, John asked Chris about how fast and far 60 GHz systems can go, and Chris cited some information from Facebook Terragraph's experiences with Fixed Wireless Access (FWA) deployments in Europe. Coincidentally, Chris received an email from Ubiquiti, an equipment vendor in the 60 GHz market, in which Ubiquiti cited recent 60 GHz results about a contest it is holding with users of Ubiquiti's new 60 GHz Point to Point (P2P) product. The results shared in this email (dated Jan 21, 2021) are stunning, with 60 GHz P2P ranges of up to 17.87 km and throughputs as high as 1.62 Gbps.
650 Group Take: Juniper’s Announced AcQuisition of Apstra - A Move to Software, Day 2 Operations, Automation
Disaggregation has been around in the networking space for nearly a decade, especially in hyperscalers data center Ethernet Switches. The insatiable demand for bandwidth, control, and cost reductions drove the white box from the Google science project to the dominant consumption model for Ethernet Switching in the hyperscalers. The high-scale SP Router market has lagged. Broadcom’s launch of Jericho gave the industry its first truly merchant ASIC, with companies like DriveNets providing the operating system, networking services and orchestration to create the compelling solution and ecosystem.
Traditional Routing Doesn’t cut It
Up through and including the current generation of 100 Gbps based routers, the western market had to choose between three options (Cisco, Juniper, and Nokia), all vertically integrated with little flexibility other than a service provider having multiple vendors deployed to keep pricing pressure and innovation moving. Cloud providers might have done the same thing; however, the price points, port density, and availability of products were not where they needed to be. Can you imagine the Cloud today with 4-8 ports of 100G per box and $10,000 price points per port over millions of ports? It just would not have worked financially or space/power-wise to continue down that path. The Cloud, without legacy infrastructure, became a market dominated by ASIC capabilities and software, and branded system vendors have been playing catch-up ever since.
High-Scale Network Transformation to Disaggregation
As Telco SPs become more cloud-like in design and procurement and we enter the next wave of product availability, there is a tremendous opportunity for the high-scale router market to go through its own disaggregation transformation. Our end-user interviews indicate a strong preference to move in this direction during the next two product upgrades (400 Gbps x56 Gbps SERDES and 400/800 Gbps x112Gbps SERDES).
While hyperscaler Cloud providers will fully embrace SP Router disaggregation with the 400 Gbps upgrade cycle starting next year, the rest of the Cloud and traditional SP industry is not that far behind. Disaggregated routers with OS, ASIC, and optics purchased individually and potentially from multiple suppliers will become more common - both 1RU routers used at the edge as well as larger high-scale routers used for core and aggregration that are based on clusters of white boxes.
Disaggregated Routing Growth
We expect the market for Disaggregated Routing to grow substantially during the next several years as RFPs and plans turn into production traffic and revenue (Figure 1), replacing traditional routers. Disaggregated routing and the consumption model associated with it will become a significant portion of the Router market over the next several years and create a significant opportunity for vendors that embrace the transformation.
Disaggregated Routing Market Players
Several vendors, including Cisco have entered the disaggregated routing space. Another contender is DriveNets, a startup who’s software is used by AT&T to build a disaggregated core network. The highest-scale backbone in the US is now running on a disaggregated network model.
In conjunction with its recent Rakuten earnings call this week, Rakuten Mobile disclosed some more of its plans. This mobile operator is becoming a telecom vendor. Specifically, it said that “by expanding the Rakuten Communications Platform (RCP) globally, Rakuten aims to evolve from a Japan-headquartered tech company to a global leader in telecom.” We see this as an explicit statement that the company plans to sell its telecom software and related services to operators worldwide. For instance, Rakuten Mobile just announced a partnership with Saudi-based operator, stc. This move pits Rakuten against Microsoft (who just acquired telecom companies and runs a cloud), Oracle (who runs a cloud and made telecom company acquisitions), and the rest of the telecom industry (traditionally Nokia, Ericsson, Huawei, ZTE, Amdocs, Netcracker and others).
In offering RCP to other operators around the world, its unique value, as we see it, is that Rakuten has successfully built an LTE and now a 5G network based on Open RAN. What we find interesting is that the company has developed a significant amount of intellectual property in-house or through technology sharing. In an interview today with Tareq Amin, Rakuten Mobile executive, we asked what technology has been developed in-house by Rakuten. Here’s what we learned.
Some other components are not developed by Rakuten (the radios come to mind), but this is an exciting development. RCP would be delivered as a “private cloud” on the premises of carrier customers (partners). The terminology Rakuten is using for this “private cloud,” is it’s a “pod.” RCP’s plans are a very interesting development in the industry.
There is one more thing. Rakuten said it is working with a technology supplier that will sell Rakuten a server card that would allow a combined router and RAN processing function to co-exist on a server. Today, the servers it uses to support its Open RAN radios use an FPGA NIC. These servers can support up to 16 base stations. We see the addition of routing to this card as an extension of the capability – but it means there may be a diminished need for cell site routers.
Ericsson Capital Markets Day Part Two:
Networks summary: When asked how it took market share (North American has 53% share 2Q20, up 5% vs 2018), management pointed to having made more significant R&D investments in radio than competitors. It cited Dynamic spectrum Sharing and its cost-efficient radio-related ASICs as examples of valuable features to customers.
The company expects O-RAN will continue to evolve, with limited uptake starting in 2023. Cited IPR challenges as one challenge. Elsewhere in the presentation, it said it is #1 contributor to 5G standards; we take it that this IPR gives Ericsson leverage to slow ‘O-RAN’ down.
The team said the split of Digital services for T4Q 3Q20 as (excluding IPR, consulting, and learning services):
• BSS 20%
• OSS 25%
• Comm services 15%
• Packet core 20%
• Cloud and NFV infra 10%
The Digital Services team has:
• addressed 37 of the 45 ‘critical and non-strategic’ projects
• revised its BSS strategy, and it is now 5G focused
• 75% of its portfolio exposed to growth as of 3Q20 sales
• Cloud infrastructure has 200 customers
• 5G Cloud core has 80 customers (includes “5G” EPC and 5GC SA contracts). Packet core should grow faster than the others
• 5G SA count is now at 30. 5G SA revenues should begin in 2021 from most of these contracts.
• BSS has 120 contracts, 9 of which were competitor swap-outs
• Orchestration has 100 customers
Dig Services software + support in T4Q 3Q20 was about 55% of total revenues, and it expects 60% by 2022. It has about 40% recurring revenue T4Q 3Q20 and expects it to be about 55% by 2022. Expects Japanese and Korean operators to deploy SA by the end of 2021; expects Japanese 5G market to ramp very soon because it is a heavy user of iPhones. It expects 600K 5G base stations in China in 2020 and the same number in 2021.
Emerging Markets Summary:
Recently acquired Cradlepoint has > 60% GM and a recurring revenue SaaS model. 200K enterprises, 3,000 public agencies, 1,500 channel partners. It has won 30 dedicated network deals.
650 Group attended the company's recent showcase for investors. This blog will be a two part series.
In Summary: Management lowered Digital Services margin targets due to a revenue miss in 2020 as legacy systems dropped faster than expected, relative to what was communicated to investors a year ago. It expects to grow faster than the “>1% CAGR market forecast” set by industry analysts by taking share, expanding in the enterprise market, growing with IoT opportunity, and through M&A (like Cradlepoint).
We see that the company is betting on the enterprise market for growth, and our take on the implied message was Ericsson would make more acquisitions to beef up enterprise exposure. While the company was careful to repeat that it is working with SPs go to market, its recently acquired Cradlepoint acquisition has 1,500 channel partners (mostly not SPs).
• Margin targets for the Network group will remain the same in 2022 as in 2020 (by 1% higher than was communicated in 2019)
• Margin targets for Digital Services are 4-7% in 2022 vs. 10-12% as communicated in 2019 (lower because legacy is declining faster than expected and because it is increasing R&D commitment to greater levels)
• Margin targets for Managed Services are +1% versus year-ago targets
• Total margin targets are 12-14%, same as a year ago (on increased networks and Managed Services, offset by Digital Services.
Last week, LoRa chip company, Semtech, made several announcements that should accelerate the IoT market. First, it announced LoRa Basics Modem-E, which is a software modem. Second, it announced relationships with IoT companies, Actility and Tago.IO that surround services that can be offered to drive the IoT market. Third, the company announced the LoRa Edge Tracker Reference design, which is a "device to cloud" reference design for asset tracking applications. In our IoT research, we have forecasted a near-doubling each year over the next five years for LoRa and competing devices. We believe Semtech's recent announcements as driving the market because they make it easier, cheaper and faster to deploy IoT services.
The LoRa Basics Modem-E allows customers to use modem capabilities from Semtech, where previously the customer would have had to have developed this technology itself or commissioned a third-party software design house to develop it for them. We see it as a slight increase in the "footprint," or addressable market in each IoT device that benefits Semtech. However, Semtech's Director of LoRa Product Line Management in Semtech's Wireless and Sensing Product Group, Sree Durbha, explains, using the Modem-E can reduce the total cost of ownership of an IoT application by as much as 47% over three years for a deployment of ten thousand devices or more. The savings come from both up-front savings and ongoing savings. Upfront savings are from being able to use a smaller microcontroller unit (MCU) with a smaller footprint, reduced non-recurring engineering (NRE) spending to develop the modem, and reduced certification costs enabled by the LoRa Basics Modem-E. The ongoing savings come from maintenance and testins costs for future modem releases, which Semtech will make available to its customers and partners on a regular basis.
We spent some time discussing the cloud service with Mr. Durbha, as well, and learned that Semtech's LoRa Cloud service can enable geolocation and LoRa device and application services like GNSS almanac updates. We tried to get a general sense for the prices involved on a per device basis and learned that for the asset tracking application, each device can be tracked for under $1/year. There are many variables that come into play like usage rates, for instance, that can change this number.
All told, we think that by offering reference designs, tight relationships with service providers, developing more of the footprint of an IoT system, and reducing costs to customers, Semtech is working to accelerate the IoT market - and of course, its participation with LoRa technology.
On October 14, 2020, Nokia and Google Cloud signed a strategic collaboration to transform Nokia’s digital infrastructure. We made inquiries to Nokia to learn more and had the opportunity to speak with Nokia’s Chief Digital Officer, Bhaskar Gorti, who is in charge of the relationship. Nokia’s move to Google Cloud is one of the first major policy decisions under new CEO Pekka Lundmark. In our interview with Gorti, we learned several things:
* • Nokia expects the total transition time to the cloud to take about 18-24 months
* • Nokia is moving as many of its internal IT systems to commercially available Software as a Service (SaaS) as possible, in a move that is also underway at most, if not all, of Nokia’s customers
* • When a SaaS system is not available for Nokia’s needs, it will be moving those workloads to Google Cloud.
* • For certain on-premises workloads where a move to SaaS is not available or it does not make sense to move towards Google Cloud, the company will “sunset” these applications and find other business processes as an alternative to the legacy applications.
* • For internal R&D and manufacturing needs, the teams will make a decision whether move to computing, storage and related infrastructure on premises or move them to SaaS or cloud. Each of these functional teams have product and delivery timelines that could be disrupted by a move to cloud and therefore each is being given a high degree of autonomy on the decision.
We learned that Nokia’s primary motivation in moving towards SaaS and to Google Cloud was to align its digital business practices to be more similar to those of its customers. Secondarily, over time, Nokia expects to realize some savings by moving to SaaS and to Google Cloud.
Gorti explained: “We are very confident this [move to SaaS and Google Cloud] will be of beneficial long-term economical savings. This will allow us to redirect more investment to other areas.”
Nokia is becoming more like a cloud company, and this is great for everyone as we transition to a 5G environment. Nokia is reshaping itself to be more nimble like cloud and SaaS companies in order to better serve its telecom and enterprise customers.