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According to news reports and press and social media announcements by high-ranking members of US government, the US government has put Huawei on its so-called "Entity List" of the Bureau of Industry and Security (BIS). Our read on this is it similar to what happened with ZTE during C2Q18 last year, a move that severely curtailed ZTE's shipments and revenue until ZTE made concessions and was removed from the list. Many, but not all, Huawei products use technology only available from US suppliers. US-made semiconductors are the most significant Entity List target that Huawei needs to ship its products. Significant US semiconductor suppliers to Huawei include Intel, Xilinx, and Broadcom.
Huawei is such a significant vendor in many of our coverage areas, including Mobile Radio Access Networks (RAN), Ethernet Switching, and Servers, for instance, that we feel it is a good time to point out that 2019 market-level estimates may be at risk. Additionally, since Chinese cloud services players, like Baidu, Alibaba and Tencent cannot delay their capital infrastructure build-outs, alternate suppliers may benefit. We think it comes as no surprise to Huawei that the US is putting it under pressure. Just over a year ago, we attended the Huawei analyst summit (April 16, 2018) and its then-chairman said in response to the question "Will Huawei find alternate suppliers for data center products, "Today, Intel is the dominant player. Our point of view, we look forward to a more diversified landscape; but we work with Intel mainly now." Additionally, at Huawei's most recent analyst summit (mid-April 2019), the three main keynote speakers, all high-ranking executives of the company spoke about how much progress Huawei has made in developing in-house semiconductors and what its plans are to continue developing more. We do, however, think that despite Huawei's diversification efforts that it still has significant reliance upon key US chip companies.
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H3C and Qualcomm announced the planned availability of the WA6628 802.11ax Wireless LAN Access Point; it is slated for September 2018 shipments. This new Access Point uses the Qualcomm IPQ8078 part number - we checked the Qualcomm website and we cannot find this part on the website. So, we assume that this is a future product.
While the H3C press release is not the first 802.11ax Access Point get announced (Huawei, for instance, announced its own .11ax product in early 2017), this is important because this press announcement has a specific shipment date - September 2018. Additionally, it is generally expected that another set of announcements are imminent from vendors using Broadcom chips. Looks like Qualcomm and H3C wanted to get ahead of those announcements. The OCP Summit 2018 hit record attendance and we can can summarize the theme as that of continued disaggregation of network/server functions. Examples of demonstrations, presentations and proposals associated with disaggregation are as follows:
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. Broadcom joined both Innovium and Nephos by publicly announcing 12.8 Tbps fabrics with its Tomahawk 3 product line. We love new data center silicon from all vendors, it is something we track closely and we see these as a disruptive technologies to the networking ecosystem and an enabler of next generation cloud architectures. There will be many more such announcements in 2018. Here are some of our takeaways as we enter 2018.
More rapid innovation cycle – Even noted in the Broadcom's Tomahawk 3 press release, we see the demand requirements of the hyperscalers as driving a more rapid cycle of silicon over the next couple generations. Tomahawk 3 is being introduced less than the typical 24 months we see separating prior between generations of data center fabric semiconductors. This will put significant pressure on parts of the supply chain, especially on optics vendors. Optics vendors are still ramping for 100 Gbps and now must support both OSFP and DD-QSFP for 400 Gbps, essentially doubling their product diversity needs. Not only are there more form factors, but there are also different variations of distance and specifications that increase the complexity. What next – We see two waves of 400 Gbps, the first being based on 56 Gbps SERDES, the second coming in the 2020 timeframe based on 112 Gbps SERDES. We believe 800 Gbps is not that far off in the horizon as hyperscalers like Amazon and Google continue to grow. We note that the hyperscalers are about to be 3-4 generations ahead of the enterprise. This type of lead and technology expertise really changes the conversation around Cloud. We saw this at Amazon re:Invent with their Annapurna NIC, the Cloud is doing things that just aren’t possible in the enterprise, especially around AI, machine learning, and other new applications that take advantage of the hyperscalers size. 2018, the Year of 200 Gbps and 400 Gbps – In 2018 we will see commercial shipments of both 200 Gbps and 400 Gbps switch ports. We see significant vendor share changes because of this. Simply put the Cloud, especially the hyperscalers will be that much bigger by the end of 2018 and they buy a different class of equipment then everyone else. This will continue to cause the vendor landscape to evolve. Today Broadcom announced Trident 3. The companies third major release of a chip that drove the merchant silicon revolution in the data center and started the white box movie in the Cloud. With Trident 3, all of Broadcom’s data center switching ASICs now support speeds of at least 3.2 Tbps per chip.
Trident 3 is impressive, but a few things about it really caught my eye. First, Trident 3 will offer five different skus, two of which are really focused on campus switching. One could see a 48-port 2.5 Gbps switch out of the X3 version of Trident 3 next year. We believe the Trident family moving into the campus will be significant for the industry once products begin to ship. Second, native 25 Gbps ports. Trident is the most popular of Broadcom’s ASICs, especially in the enterprise, and with Trident 3, we expect the market to quickly move away from 10 Gbps/40 Gbps products and towards 25 Gbps/100 Gbps products. This product aligns well with our forecasts for this transition which we are excited to be publishing shortly. We still don’t see a bandwidth need in most enterprises for 25 Gbps, but the ability to future proof at the customer level and the ability to consolidate skus at a vendor level will make this compelling. Third, we see a potential for both switch vendors and customers to benefit from one family of ASICs from the campus all the way to the data center. While it is too early to know the impact of this right after the announcement, we look forward to conducting interviews over the next few months to define this impact. |
CHRIS DePUY
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