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Nokia reiterated its commitment to 25G PON in its two-day briefing with industry researchers this week. It also shared some interesting commentary about is progress with Fixed Wireless Access (FWA) and its consumer Wi-Fi devices. But, what makes Nokia’s 25G announcement so interesting is that there is significant controversy associated with the 25G standardization process; 50G PON is also in the race for standardization, too. It seems that the world will split into two purchasing groups: Chinese and Western. We think the fact that two purchasing groups will emerge is a material negative for the telecommunications industry and is a sign of things to come. Nokia has decided to chart its own path, find partners, and make the best of this controversy. Our view is that Nokia’s 25G PON offerings will see more demand than 50G PON in the upcoming years, and when 50G finally becomes necessary, Nokia can move to support it. For background, in May 2020, Huawei announced to analysts that it is backing a 50G standards process, in cooperation with the ETSI. Huawei calls its 50G development “F5G,” which stands for Fixed 5G. It demonstrated over a video presentation an FPGA-based prototype, and it and explained that it expects this technology to be adopted first by the mobile infrastructure market for connecting RAN radio systems to baseband systems and for backhaul. Then Huawei expects the market will develop for residential PON, and later for enterprise campus connectivity (to replace Ethernet switches). Huawei explained that in February 2020, it has the support of Chinese operators, ETSI members in Switzerland, a European operator, Altice Portugal, and Chinese operators. On the other hand, Nokia had developed a chipset that specifically supports both GPON and next generation PON technologies; it is called Quillion and has been available for nine months. Nokia had consistently explained on several occasions in the past several months that during a February 2020 ITU meeting relating to 25G PON, 18 members of the ITU were in favor of initiating the 25G standardization project (including ATT, BT, Korea Telecom, nbn Co, Telecom Italy, SK Telecom, Telus etc). However, there was a minority coalition led by operators and vendors from China that objected to the proposal on the grounds that 25G PON would pre-empt their futuristic vision of 50G PON. This in turn resulted in no consensus being met. In response, Nokia has worked with operators and suppliers interested in pursuing 25G PON in the near-term, which we interpret as the next 1-2 years. This MSA (multi-source agreement) strategy is used by various groups in the technology industry when there is sufficient buying power to move ahead of (or in this case, without) standards ratification; we see if used frequently by hyperscalers when building their bleeding-edge data center infrastructures. We understand that there are a handful of operators, including Chorus (New Zealand), Chungwa Telecom (Taiwan), and NBN (Australia) and several technology suppliers including AOI, MACOM, MaxLinear, Ciena, Tibit and others. The MSA has a website with more information.  Nokia explains that 25G PON shares the same optical technologies as those used in Ethernet Switches that are common and used by data centers and campus switching environments. Sharing common optical technologies with high volume data center deployments will reduce costs . Our view is that in a few years, data center switching demand for 25G optics will continue to rise, and this is perfect timing for Nokia and others who are going to use 25G for PON because the supply will be there and this technology will be mature and lower cost.
There’s one other thing to consider that pits Nokia against others. It decided to develop its own semiconductors to power its infrastructure PON systems (OLTs). Nokia’s chip system is called Quillion, and its introduction means it won’t be dependent upon OLT chip vendors. What’s even more interesting about this whole debate is just how future-looking it is. PON has moved through two main generations, GPON (2.5 Gbps), 10 GPON (XGS and XGPON), and now we are talking about two different generations, 25G and 50G. Huawei’s 50G “F5G” approach is a “if you can’t join ‘em, beat em” strategy, where Huawei will leverage its home market telecom operators’ volume and a few others to work outside its home territory. Huawei will leverage this technology to three markets over time: 5G backhaul, residential PON and enterprise networking. On the other hand, Nokia is taking matters into its own hands in that it has developed its own chips. What’s happening now is not uncharted waters, but it is rare for the telecommunications industry to splinter into multiple buying groups – usually standards are developed and followed for the benefit of the industry. This time, in the absence of standards, Nokia has forged on ahead on its own and its headstrong ways are likely to benefit it because many Western operators and now actively seeking to diversify away from Huawei in their procurement of fixed network equipment.
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Today's big news from the FCC is that it will open up 6 GHz to Wi-Fi and other unlicensed uses. The FCC authorizes "1,200 megahertz of spectrum in the 6 GHz band (5.925–7.125 GHz) available for unlicensed use," and further explains that it authorizes "standard-power devices in 850 megahertz in the 6 GHz band. An automated frequency coordination system will prevent standard power access points from operating where they could cause interference to incumbent services." We see that this vote is very beneficial to Wi-Fi chip and systems companies that serve both consumer and enterprise markets. We also expect that outdoor systems that take advantage of this new spectrum may benefit wireless ISPs (WISPs) and their equipment suppliers. And, also, the FCC's statement that an automated frequency coordination (AFC) system will be used to prevent interference from existing microwave transmission systems. With that background, we have compiled a list of companies that will benefit from the FCC's vote.
WLAN Semiconductor companies Broadcom, Qualcomm, ON Semi, Celeno, and Intel. In our research of the WLAN Infrastructure semiconductor market, these are the vendors we expect to sell Wi-Fi radio chips to devices such as Access Points, Broadband Customer Premises Equipment (CPE) with WLAN, and Consumer Routers. A new class of Wi-Fi that takes advantage of 6 GHz is now called Wi-Fi 6E. Broadcom and Qualcomm have already made statements about Wi-Fi 6E in the past month or two, and others somewhat more recently. Historically, Broadcom and Qualcomm have enjoyed significant market shares of the enterprise WLAN Access Point market, while players in the consumer AP/router/CPE have included a wider list of players including Broadcom, Qualcomm, ON Semi (formerly Quantenna), Celeno, Intel, Realtek, Mediatek and others. Enterprise WLAN companies Cisco, HPE Aruba, Commscope, Extreme Networks and Juniper. While each of these companies has launched Wi-Fi 6 products over the past couple of years that operate in 2.4 GHz and 5 GHz, we expect this group of companies to release Wi-Fi 6E products that connect over 6 GHz over the next year. We expect initially that 6E enterprise products will sit at the high end of product portfolios, selling at higher prices than 5 GHz and lower products. The FCC commented in today's press release that "The notice also seeks comment on increasing the power at which low-power indoor access points may operate," which means that there is still some work to do in figuring out whether these Wi-Fi 6E devices can operate at powers levels more common in enterprises without needing to connect to an AFC. We are sure there is more to come on this topic. Consumer WLAN Infrastructure companies NETGEAR, Commscope, Technicolor, Amazon and Google. We expect NETGEAR to be an aggressive player in Wi-Fi 6E, just as it released super high-end Wi-Fi 6 products in its Nighthawk product line. We expect Broadband CPE vendors such as Commscope (through its Arris brand), Technicolor and others to benefit as they seek to capitalize on the new spectrum, which should allow the delivery of Wi-Fi at higher speeds and to more devices in the home. We wouldn't be surprised to see consumer mesh vendors such as Amazon (through its eero acquisition) and Google to offer Wi-Fi 6E products, but these probably come a bit later than traditional router and Broadband CPE devices. Wireless ISPs such as Etheric Networks and Common Networks (both located near the 650 area code that we used to name our company, 650 Group) will likely benefit as they will be able to offer new WISP services over the new 6 GHz spectrum. Since the spectrum is new, essentially unused and there's lots of it, we expect that these, and other WISPs in the US market, can benefit by expanding beyond the current unlicensed spectrums commonly used today, such as 60 GHz, 5 GHz, 2.4 GHz and 900 MHz spectrums. We think it might take a year or two before the WISPs can capitalize on these spectrums, but we see it as a windfall. WISP suppliers such as Ubiquiti Networks, Cambium Networks, Airspan, and others will be likely beneficiaries. These suppliers sell to WISPs and other operators to enable "last mile" services that compete with fixed-line broadband services such as cable modem, DSL and PON. As we alluded to above, the 5 GHz spectrum is quite crowded, and thus, as 6 GHz becomes available for outdoor use, we expect that a new class of equipment will take advantage of this ample spectrum to deliver broadband to a more significant number of business and consumers. The FCC has a "goal of making broadband connectivity available to all Americans, especially those in rural and underserved areas," according to its 6 GHz press release today, and we see WISPs as one of the main constituents of serving this goal. Mobile network operators AT&T, Verizon, T-Mobile, and US Cellular. Similar to WISPs, we expect that mobile operators will eventually leverage 6 GHz to deliver Fixed Wireless Access (FWA) services (and potentially mobile services) to consumers and businesses. In suburban and rural areas, we have already seen some operators, notably Verizon, deploy FWA in licensed mmWave spectrum (in 20 GHz and 40 GHz ranges) - we have seen operators pare back on plans to deliver services, though they haven't stopped deployments or anything. But, we see 6 GHz could puff some new life into FWA plans because this is a lot of new frequency and since it is lower frequency than mmWave, does not suffer as much from immovable obstacles such as tree leaves, windows and precipitation. Additionally, we see mobile services could benefit as well, as we have already seen operators such as AT&T leverage 5 GHz unlicensed spectrum in delivering mobile service on its small cells in locations such as New York City, so we would expect mobile operators to eventually take advantage of 6 GHz in a similar fashion. But, incumbent services (point to point microwave systems) are more likely to interfere with mobile operators' plans in urban areas, where paradoxically, there is more need for this extra bandwidth, so we think operators will take some time to sort this interference out. AFC services operators such as Federated Wireless. Given that the FCC announced a specific need for AFC services in its media blitz today (see above), we point out that Federated Wireless has already announced an AFC service. Just as Federated has competition in its CBRS SAS service from players such as Commscope, we would not be surprised to see new competition in AFC services. Federated Wireless, a pioneer in the CBRS SAS market, just announced its plans for an AFC for the upcoming 6 GHz spectrum in the US market. The company expects that 6 GHz products and its AFC to be commercially available sometime in 2021, and potentially as early as late 2020. For those who are unfamiliar with what is behind this announcement, let us explain. Citizens Band Radio Service (CBRS) is a 150 Mhz wide broadcast band from 3.55 GHz to 3.7 Ghz in the US market, and Federated Wireless is one of main companies offering SAS, which enables multiple spectrum-users to share the 3.5 GHz spectrum. So, now that the US FCC is planning to open up the 6 GHz spectrum as unlicensed, allowing Wi-Fi 6E and 4G/5G cellular (or other systems) to operate, there’s an emerging need to coordinate what exact frequency bands in the 6 GHz range should be allowed on a per device basis; this service is called an AFC (automated frequency coordinator).
We think the timing for Federated Wireless’ AFC announcement is good. There is considerable excitement about Wi-Fi 6E (the version of Wi-Fi 6 that will operate in this new 6 GHz spectrum). Consider that two significant Wi-Fi infrastructure chip companies, Broadcom (on January 7, 2020), Qualcomm (February 25, 2020), announced products that operator in this 6 GHz spectrum. There is some controversy as to whether the AFC service will be needed for some or all of the working device types, installation locations (indoor or outdoor) and device power output levels. There are two camps, which can be summarized as “what the Wi-Fi companies want,” and “what the incumbents want.” The Wi-Fi companies have repeatedly explained that requiring an AFC for very-low power or low-power 6 GHz use in the US will slow down the market (VK Jones, VP Technology of Qualcomm Atheros said so last August, 2019, for instance). However, Federated Wireless has studied multiple major cities in the US and found that there are some cases where, in populous areas, the new 6 GHz devices could interfere with incumbent services like microwave links of mobile operators, public safety, utilities and transportation. We understand the FCC is reviewing this information and may communicate with the public as soon as April 2020. We expect the various parties (Wi-Fi players, incumbents, FCC, AFC players) to make some concessions in the coming months. 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. 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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