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cWe attended the upbeat Alcatel-Lucent Enterprise (ALE) Connex18 conference, where the company said its strategy is focused on three pillars: verticals, cloud and services. In its networks business, most significantly, the company announced: its Omnivista Cirrus cloud-managed network services offering, the WLAN indoor Location Based Services system and its plans for its Network On Demand offering. Finally, the company has retained the use of the Alcatel-Lucent Enterprise brand name for the next few decades, shutting down speculation of a rebranding.
Verticals. Company has organized its development and selling efforts around five vertical markets: transportation, government, healthcare, education and hospitality. Last year, the company achieved over 100% growth in its transportation vertical, benefiting from Internet of Things (IoT) trends. Our view is the transportation vertical and, more generally, industrial, has the opportunity to grow faster than other verticals due to the growing number of IoT use cases emerging. Cirrus. The company will soon offer a cloud-managed network services capability to customers that use its WLAN and switch products. In this respect, ALE is taking on Cisco's Meraki and Aerohive, among others. Customers can choose from its free offering or its premium offering, depending on what features are needed. We expect that the company will be aggressive about moving customers to this service. Pricing was not announced, though we expect the company will set prices generally at a modest discount to those of Meraki, both on product and services. WLAN & Location Based Services (LBS). The update focused mainly on the in-house developed Stellar WLAN product line. Its capabilities have improved over the past year, its management capabilities have improved and will soon include cloud based management (called Cirrus), and the devices are being offered using new business models (including NOD). The wireless product line is being specialized to support the new verticals discussed earlier. Generally, Stellar is moving up market. The Stellar WLAN product line is much broader than it was last year and has increased capabilities, including far greater scalability - Stellar will support 4,000 APs per campus will soon be possible. ALE exepects Stellar WLAN to support 802.11ax by 4Q18. The company made a big deal about Location Based Services. Today, Bluetooth (specifically BLE) is the wireless technology being used. BLE is incorporated into high end APs and is available using USB ports on the rest of the WLAN Access Points, or BLE beacons are available, too. The company will offer WiFi LBS later in '18. Examples of capabilities enabled by LBS include geopositioning and wayfinding, geofencing notifications, people tracking/flow, analytics (geofencing based). For instance, for healthcare, the company demonstrated a 'Way Finder' capability that runs on patient smartphones that uses WiFi and Bluetooth capabilities from its WLAN APs to allow patients to navigate themselves through the healthcare facility. Another example is for the transportation industry, where the company's ruggedized switches are finding a home, the Outdoor ruggedized APs are matched well. Network On Demand (NOD). The company has signed up about 40 customers to use its NOD offering, which allows customers to use ALE switches and wireless products while paying a monthly fee instead of purchasing the equipment up front. NOD was introduced in 4Q17 and is currently available for in-house developed products like OmniSwitch and Stellar WLAN. NOD may be offered for third party devices, such as those from HPE Aruba, but are currently not available. We understand that the network architecture is designed by ALE. The company gave a few examples of customer types, mainly surrounding the idea that a quick decision had to be made on upgrading the network but there was a lengthy approval process for capital spending but a short one for operational spending, or that there was insufficient budget for the capital spending.
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Apple Inc. announced plans to accelerate spending in the United States, citing $350 billion of spending over the next five years. The company has cited recent tax rules and its status as being the largest US taxpayer. The company specifically earmarked "over $10 billion" for "investments in data centers across the US." We estimate that this will add about $2 billion more per year than the company was already spending, which the company says has resulted in datacenters in seven US states, including North Carolina, Oregon, Nevada, Arizona and a planned project in Iowa. Based on these estimates, we believe Apple's US datacenter spending rate will now challenge the capital spending rates of Facebook. The company also announced plans to build a Reno, Nevada datacenter.
This capital spending acceleration on datacenters has been timed with the completion of its Cupertino-based mega-campus, which was a significant capital expenditure. With Apple's datacenter plans are clearly accelerating, it is poised to tap suppliers for more datacenter equipment. We expect that the main suppliers of network equipment will be fighting hard for Apple's business. Examples of such suppliers competing for the new capital spending plan will likely be, in optical equipment, Nokia, Ciena, Finisar, in routing, Nokia, Cisco, and in switching, Cisco, Broadcom, and Arista. It is possible that with Apple's increasing scope of datcenter building, it may seek to bring more equipment design in-house, more similar to larger datacenters, including Facebook, Microsoft, Amazon and Google. Additionally, as the datacenters become more numerous and larger, it will almost certainly require that Apple will implement different network architectures. The market is in a period of rapid adoption of higher speeds led by the hypserscalers. The industry used 2016 and 2017 to adopt 25 Gbps and 100 Gbps port speeds based on 25 Gbps SERDES technology. As we enter 2018, those same hyperscalers are about to adopt 50 Gbps, 200 Gbps, and 400 Gbps port speeds based on 50 Gbps SERDES at a record shattering pace. In the data center alone, there are now eight unique port speeds, with countless more unique variations of form factor and pluggable distance.
The market will need additional bandwidth beyond what is currently available today. Several of these technologies were highlighted at the OIF Forum conference. 100 Gbps SERDES will help drive the industry towards that goal. Looking forward, 100 Gbps SERDES will help drive wave two of 400 Gbps, which will help enable Ethernet to extend its reach well outside of short reach data center distances. At the same time, it will also have a long life, with use cases ranging from enterprise to service provider. The big question often asked is why after so many years for the market to adopt 10 Gbps, will we suddenly see a more rapid pace of adoption going forward? There are many reason why, but we should look at a few things are different this time. First, the hyperscalers are a new type of customer. Hyperscalers truly bring a new scale to networking and compute in a way that makes the traditional SPs look small. Second, SDN, the hyperscalers have done something unique here that often gets overlooked that is occurring right now, in the second half of this decade. Hyperscalers are increasing the utilization rate of their compute and networking resources. For compute, this is approaching 100% utilization so the industry is in a period where hyperscalers, using SDN are able to grow network bandwidth at a pace faster than what the CPU is scaling. This more rapid pace will not continue forever, but is one of the reasons why innovation over the next several years will occur more rapidly than historic norms and why it will be important for the industry to think about how to invest across speeds and technologies in order to better leverage existing investments. If not, the pace of innovation will simply be too much to recoup investment in the compresses timelines we are currently in. |
CHRIS DePUY
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