Google, the largest US Hyperscaler by revenue, reported Search and Social results that declined Y/Y for the first time while IaaS revenue grew nearly $1B Y/Y. We were a little surprised at Facebook’s robust growth compared to Google’s. Google’s results were in line with our overall expectations for Search and Social decline in 2020 as consumers and advertisers resetting to the new normal. We expect more targeted ads throughout 2020 as consumers live and work from home, and many students live and study from home during the fall semester.
Google has made big bets and investments in IaaS, and we continue to see AI as an area where they will attack AWS and Azure. It is unclear if IaaS is compatible with the culture withing Google, which could put an upper limit on the verticals and companies Google can sell to. During 1H20, Google was surpassed by Amazon in our supply chain interviews as the company with the most influence on the technological direction of industry-wide future products.
We see a passing of the guard as AWS CAPEX is now much higher than Google’s, and the supply chain sees Amazon as more significant revenue potential. We expect this change to reverberate throughout the supply chain, primarily based on how each Cloud provider uses custom or semi-custom semiconductors in their data center infrastructure. This is something we are happy to talk about as we prepare our 2Q20 results and our fall readouts.
-- Alan Weckel, Founding Analyst, 650 Group
Microsoft acquired Israeli startup, CyberX Labs today in a move that gets Microsoft Azure into the IoT security market. We have been tracking CyberX for a couple years and have generally categorized it as an emerging player in the Operational Technology Access Control (OTAC) market. More recently, it has smartly repositioned itself as an IoT network discovery, posture assessment and management company. We see OTAC as an adjacent market to an existing, more IT-oriented security market called Enhanced Network Access Control (ENAC). Microsoft explains that CyberX will extend its Azure IoT security capabilities towards devices used in industrial IoT, Operational Technology and infrastructure scenarios, and that, it will allow customers to discover their existing IoT assets, manage and improve security posture of these devices.
We see this move by Microsoft as encroaching into the network security space a bit further than it had before. And, it is using IoT and industrial operations as a means to enter. We sill see the CyberX portfolio as an OTAC company, but since many IoT devices are just Internet Protocol (IP) connected devices, the CyberX portfolio can perform many of the tasks of that of an ENAC system. And so, this puts Microsoft quite closely in competition with the existing leaders in the much-larger ENAC market, namely, Cisco, HPE Aruba, Forescout and Fortinet (listed as a partner on the CyberX Labs website). Cisco and Forescout have announced OTAC products recently, as well. HPE Aruba, a big player in ENAC, had integrated CyberX into its Clearpass ENAC product in 2019 and featured CyberX at its user conference in 2019.
So, given Microsoft is acquisitive these days and clearly has an interest in beefing up its Azure IoT capabilities, and given that Forescout is in the midst of a failed merger bid from investor Advent, perhaps it is time for Microsoft to take a closer look at Forescout.
Microsoft announced that it had acquired privately-held Affirmed Networks today. This isn't the first software/services based telecom acquisition it has made, with the 2011 acquisition of Skype being the most prominent one. Other competitors to Microsoft have made forays into the telecom market, including Facebook's 2014 purchase of WhatsApp, Oracle's 2013 acquisitions of Tekelec and Acme Packet.
Microsoft's acquisition can be viewed as both collaborative with mobile network operators or competitive with them, and it certain pits the giant against telecom equipment vendors like Ericsson, Nokia and Huawei. Let me explain.
Federated Wireless announced that it will offer a managed service that will be offered to enterprises that plan to operate private cellular networks (both 4G and 5G). For companies to use Citizens Broadband Radio Service (CBRS) spectrum (3.5 GHz) in the US market, a service provider called a SAS is required; Federated is a pioneer in this SAS market. What the company announced today, though, is that not only is it going to offer SAS services to customers, but it will now offer discovery, planning, design, building, operations and support services that will allow enterprise to get the benefit of cellular coverage in their facilities.
Another very interesting facet to the Federated Wireless entry to managed services is that it has also announced selling partnerships with Amazon Web Services and Microsoft Azure. In summary, customers can visit each AWS or Azure sites, click some buttons and then Federated will show up and build and operate the cellular network to allow services such as critical communications (like employee-to-employee communications), mobility services (such as trucks moving onsite), Wi-Fi backhaul (without the need for installing new conduit and wires), IoT sensor deployment, and many other uses.
Federated will be an enabler to companies who don't want to work with traditional mobile network operators in order to expand cellular coverage to their corporate locations. What this means is in the US market, companies may contact AT&T, Verizon or T-Mobile to get licensed cellular, but now they can contact Federated Wireless to get their own shared-spectrum, in this case CBRS, network that carries only their traffic.
There were two main announcements, a new relationship with Google Cloud Platform and a new flash device - the AFF A800. Also, in our interviews with NetApp, we learned about the future of Fibre Channel at the hyperscalers.
Google. Google Cloud Platform now integrates NetApp Cloud Volumes as a drop-down menu capability as part of the Google console. This allows enterprise customers, for instance, to use Cloud Volumes to manage their data on Google's cloud service while simultaneously managing their data on premise. This relationship with Google now rounds out the NetApp relationships with the main hyperscalers - it already has in place relationships with both Amazon (AWS) and Microsoft (Azure). NetApp Cloud Volumes on Google Cloud Platform is currently available as a "preview" capability (sign up at www.netapp.com/gcppreview) and is expected to go to commercial status by the end of 2018. Customers will pay Google for the use of NetApp Cloud Volumes.
AFF A800. New flash hardware available from NetApp, which besides having impressive density and low-latency capabilities supports NVMe-over-Fibre Channel. Of course, the product also supports 100 Gbps Ethernet. From a historical standpoint, it is interesting that NetApp, a company whose heritage was driven by storage over Ethernet, is touting Fibre Channel. But, that's what its customers are asking for in order to accelerate their on-premise workloads such as database (Oracle), ERP (SAP) and other mission-critical enterprise workloads. In our interviews with NetApp, we were told that Fibre Channel is growing faster than Ethernet - this makes sense given the company's foray in recent years to flash and low-latency workloads.
Fibre Channel at the hyperscalers? We asked about what is going on with the hyperscalers' architecture to adapt to AI/Deep Learning workloads. NetApp executives explained that AI workloads are different from traditional workloads; they are random, low latency workloads connecting to GPUs. This type of workload, we were told by NetApp, works very well when attached to Fibre Channel. From NetApp's perspective, if customers want to run AI workloads fastest, they would likely do so on-premise, using Fibre Channel. Yet, many customers run their workloads on hyperscalers, all of which use Internet Protocol and the underlying Ethernet infrastructure. We have always been skeptical that hyperscalers would adopt Fibre Channel. We believe the hyperscalers may work with vendors such as NetApp to develop additional software capabilities to address the changing workloads relating to AI/ML/GPU workloads in the future - on top of IP/Ethernet infrastructures.
At NetApp's analyst meeting today, CEO George Kurian sees opportunity in selling HCI (introduced F2Q18, 4-5 months ago), AFA, share-taking in SAN, and public cloud software and services. Every large customer NetApp talks to, according to Kurian, is using multiple cloud service providers and/or SaaS services and most are using the hybrid cloud, which means using workloads both on the customer premises and public cloud. According the company's marketing and sales executives, the company's sales and marketing strategy is focused on leveraging the company's entrance to the cloud services software market.
Substantial future announcements that were made by NetApp:
Summary of presentations
Joel Reich, EVP Products and Operations discussed trends in data center flash:
• NVMe over Fabrics
• Storage-class memory as cache
• Persistent memory in server
• Quad level cell NAND
Reich made some interesting comments:
Brad Anderson, SVP and GM, Cloud Infrastructure BU, said that NetApp’s “Converged” (selling NetApp storage with non-NetApp servers) FlexPod business is now at a $2B run rate and >4,000+PB shipped. The company recently initiated a Fujitsu partnership on March 26, 2018. Anderson also said that NetApp’s Hyperconverged product, which has only been selling for the past 4-5 months, hit its financial targets in the first full quarter of shipments. He also said that the HCI product is based upon on recently-acquired SolidFire technology and conceded that the company is hiring people with virtualization capabilities to further augment the product line. HCI customers that were discussed during this presentation were: ConsultelCloud (Austrialian SaaS company) and Imperva (security company).
Anthony Lye, SVP Cloud Data services BU, joined a year ago and is responsible for the company’s efforts to build software that runs on and with public cloud services. He describes this software as one that operates above the storage layer, to allow customers to manage their data, whether in cloud, SaaS applications or on premises. It offers backup, disaster recovery, and for securing data, and then binds those services and data in context of applications and business policy using the orchestration Engine. OnCommand is product name. The underlying technology NetApp uses is called ONTAP Data Management, which Mr Lye explained was separated from its engineered systems (hardware) and port it to public clouds five years ago. We remember when NetApp announced its plans to separate ONTAP as a software for the cloud at its analyst meeting a few years ago when Kurian took over as CEO.
Lye explained that “later this year,” NetApp will release cloud-based OnCommand performance management/monitoring tool to manage workloads in hybrid cloud environment.
Henri Richard, EVP Worldwide Field and Customer Operations said "Cloud is soon to be GA.” Richard explains this as its “Cloud Volume” product. Richard explained that what is new this year is the hyperscaler relationships, starts a demand creation engine for the sales organization.
Jean English, SVP Chief Marketing Officer said the company will focus on “cloud first” to reach new “global” buyers (e.g. multinational organizations), will lead with HCI and Cloud to enterprises.
Ron Pasek, EVP and CFO explains that FY18 is almost over and the company is beating FY18 plans (low-single digits growth), driven by flash. The CFO said that the new accounting rule, ASC 606 impact to guidance will be immaterial to the P&L , though will result in slightly higher product revenue recognition.
Additionally, Pasek said that a year ago, he said revenue growth will be “low-single digit growth” (FY18-20) and now he is saying “mid-single digit growth,” driven by Flash, HCI, cloud data services. Pasek said that in FY19 cloud data services will represents one point of growth. (As an aside, we calculate FY19 cloud data services revenue, using the “one point of growth” metric at $60M, based on the latest quarter of total revenues, F3Q18 which was $1.52B, multiplied by 4, then multiplied by 1%). So, cloud services revenue is expected to grow to FY19 of $60M and reach FY21 targets of $400-600M. The company declined to state its FY18 cloud data services revenue when asked by the audience, so we take it that it is small.
There were 3,100 attendees at the Atmosphere show in Las Vegas, most of which appeared in attendance at the keynote. Artificial Intelligence and Cloud were the main topics. Specifically new for the show: cloud-managed SD-WAN, NetInsight, ArubaEdge Partner program, Cape Networks acquisition. Cloud-managed SD-WAN – June/July ’18 availability (dynamic path selection, VPC direct to AWS or Azure). NetInsight is a data-collecting and cloud-analysis AI platform that finds anomalies and allows improvements to wireless LAN operation. Cape Networks acquisition to allow user-experience simulation for cloud-services connection quality measurement.
Keerti Melkote, President of Aruba, discussed financials: FY17 was up 15% Y/Y, reaching $2.5B, split 49% to wired and 51% to wireless. (650 note: for C17, we measure WLAN + non Data Center Switch + Enhanced NAC product revenues at $2,260M).
A key message of the presentation was that as enterprises embrace cloud-services applications like dropbox, Salesforce and Office 365, this means enterprises become more focused on edge access than ever. Citing statistics like that 80% of advanced attacks use valid credentials, 8 weeks average gestation period of typical attacks, and 84% of those who’ve deployed IoT have been breached, the company said that securing the edge is more important than ever and discussed the Aruba 360 Secure Fabric.
Aruba had customers on stage to endorse various products, including Accenture, Ohio State University, and CBRE. Other customers mentioned on slides included Lufthansa Technik, Purdue University, Rajasthan, Disney, Time Warner, University of Minnesota, University of New Hampshire, University at Buffalo, Northwestern University, University of Washington, Bucks, Virginia Tech, University of Iowa, Illinois, and Lenovo.