650 Group Blog
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Extreme Networks held its investor day and highlighted multiple themes. The company highlighted its Networking-focused Cloud-management capabilities, its large addressable market, how the company can benefit from the 5G market and its pivot to growth markets. CEO Ed Meyercord addressed Cloud, 5G and artificial intelligence themes. For us, we thought that Extreme's focus on 5G was new and incremental to what the company has talked about in past presentations. And, of course, Extreme's playing up its market position in Wi-Fi cloud-managed services makes sense because this trend has been growing and Extreme is ranked second. We see cloud-managed services as a continuing growth trend for the next several years and we highlight these details in our WLAN and Campus switching research programs.        Meyercord explained that as workers, data and computing become increasingly distributed, cloud-managed networking becomes critical. Meyercord cited 650 Group research confirming that Extreme CloudIQ revenues rank number two in the industry. The company cited a $26B total addressable market relating to Enterprise Networking and a $3B addressable market associated with the Service Provider market. The company cited that the 5G market is expected to benefit Extreme Networks, explaining that 80% of the Mobile RAN market will be 5G-related by the year 2025; it cited that 5G-related is a "longer-term growth opportunity". Extreme sees its next fiscal year will be at least in part driven by: (a) taking share in high-growth networking industry segments, (b) cross-selling and driving cloud-adoption (it cited 5M installed base but only 1.5M cloud installed base), (c) new product introductions such as Universal Platform and Co-Pilot Artificial Intelligence (AI).
Extreme invited Major League Baseball to its investor day. We were encouraged to hear that MLB sees that 5G and Wi-Fi 6 are complementary, as opposed to competitive. This debate about two of the main types of wireless has been very active and an important industry player like MLB confirming that it sees the two as complementary validates our own view that Wi-Fi and cellular play together well.
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AWS (Amazon Web Services) grew nearly 30% Y/Y, remarkable results for a $10B a quarter business. 650 Group enterprise interviews indicate that IaaS is the preferred platform for new application development in the new-normal COVID-19 world. We do expect at some point enterprises will move some of these workloads back to the premise, but don’t expect a headwind. Still, more of normalization as this premises-based move in 2021 will be occurring right as AI workloads add a new leg of growth to IaaS providers. AWS Custom ASIC and semi-custom ASIC development include many projects beyond Annapurna’s Smart NIC and Amazon’s investment into satellite connectivity with a $10B investment in project Kuiper for low earth satellites in direct competition with SpaceX’s Starlink will make the company's Cloud platform even more popular. Also, if satellite connectivity is just for media, which we see as unlikely, the way consumers connect their devices over the next decade is going to go through a significant transformation, and this is just the best-case will have a minimal impact.  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 Over the next five days, we will highlight each of the US Hyperscalers and the results they had during 1H20 and 2Q20. Today we will start with the overall trends in the market. US Hyperscaler revenue grew 20% in 2Q20 compared to a year ago, setting a new record. US trade war activities, mainly against Huawei, caused significant lead time increases in many critical components for Cloud data center build-outs during the quarter as the 5G battle against China is having ripple effects into the Cloud supply chain. Custom ASIC and semi-custom ASIC development in the Cloud continue to expand with multiple new initiates around #AI #ML., #SmartNICs, accelerators, and #CPUs underway. This is not to mention Amazon Web Services (AWS) getting into #6G with a $10B investment in project #Kuiper for low earth satellites in direct competition with @SpaceX Starlink. There are over 50 custom ASIC projects in the Cloud. Each one has implications on the supply chain and immediate potential to shift market share from each Cloud provider. Our overall projections for data center spend in switching, servers, and storage remain relatively unchanged since our previous forecast. Current results affirm our forecasts as we shift to vendor performance over the next two weeks, which we expect to be dependent on each company’s vertical and enterprise exposure.   Alan Weckel: This week, HPE Aruba announced its planned acquisition of Silver Peak for $925 million with an expected close date during HPE's fiscal 2020, so we expect the deal to close in calendar 4Q20. SD-WAN is becoming a battleground for vendors as an increasing portion of enterprises want single-pane and cloud-managed solutions for their branch equipment. Our research indicates the average branch employee connects to over one dozen cloud services daily and the edge-to-cloud experience has never been more critical in the COVID and post-COVID world as businesses try to engage with customers across an increasing amount of physical and virtual locations. Enterprises will accelerate the retirement of MPLS links for more advanced WAN architectures with Cloud-first principles in their physical branches. Enterprise will also deploy a mix of hardware and software into employee's houses as Work-From-Home (WFH) changes every employee's residence into a new branch extension of the enterprise. We have conducted significant research into the Branch in 2020 and how it will transform across verticals and product categories (SD-WAN, legacy routing, WLAN, switching, and security) based on long-term structural changes to the market as well as the sudden changes forced on customers by COVID-19. We project SD-WAN as the fastest-growing component in the Branch over the next five years. Silver Peak's advanced SD-WAN portfolio (both hardware and software), completes HPE Aruba’s breadth of WAN offerings, strengthens Aruba ESP (Edge Service Platform) and complements Aruba's strong position in Ethernet Switching, and WLAN, especially Aruba's newer WiFi 6 APs and custom ASIC-based 6200/6300 Access switches. We expect that AI/ML will increasingly become part of the Branch market in each year of our forecast driven by further product integration by vendors and the need to control and monitor an increasing amount of user and device (IoT) traffic. As the AI engines learn, self directly networks will move towards self-driving as automation of tasks beyond simple device management become common across networks. The ability to use AI at this scale in networking today is limited to the largest hyperscalers, but will quickly make its way to campus and branch networks. We expect overall Branch spending to increase above its 2019 run rate during the forecast period (post-COVID) and single-pane management to nearly triple during that timeframe. HPE Aruba's acquisition of Silver Peak will help them address the fastest-growing part of SD-WAN and Branch networking. While there are dozens of SD-WAN, campus switching, WLAN, and security vendors vying for Branch spend, there are only 6 US-based vendors that have a holistic portfolio that customers want and need. Posted by Alan Weckel, founding technology analyst. 650 Group to deliver keynote presentation on open source network market at onf connect '198/29/2019  Chris DePuy, founding analyst for 650 Group will deliver the ONF Connect Friday keynote: CORD TAM Research Update at ONF Connect 2019 happening Sept 10-13th in Silicon Valley. Telecom operators including AT&T, Comcast, DT and Comcast, along with big cloud providers like Google Cloud, are participating in the Open Source network infrastructure movement. They are building large-scale network deployments addressing broadband, edge cloud, optical and RAN. Chris DePuy's Friday keynote session at ONF Connect (Santa Clara Marriott, September 13th at 11:30am) provides Insight into the latest 650 Group custom research exploring the scale and scope of the market impact of CORD will be shared. 650 data is sourced from comprehensive market research, survey data from top global telecom operators and executive level conversations covering these emerging trends in depth. Please visit the Keynote session link: https://onfconnect2019.sched.com/event/Tkxx?iframe=no F5 kicked off its #F5Agility18 conference with over 1,300 attendees. The company’s themes was “Any app, anywhere,” and words repeated included “Automation” and “as a service.” The company is moving towards selling security as a standalone offering. Accompanying the show, there was a press release announcing Gi LAN traffic management and Gi Firewall VNFs generally available September 2018 focused on mobile operators, available on capacity-based consumption model. A striking difference between this year’s conference in Boston and last year’s conference in Chicago was that a significant portion of the management team is different: new CIO, CFO, regional VP, Chief Strategy Officer, two new SVP/GMs of business units, EVP HR, EVP Services. Generally, the company is planning on delivering new capabilities:
Here are the three eras of market development for F5:
The company is putting significant investment into SP, software, automation. “Any app, anywhere” vision.
 F5 strategy slide: Every App, Everywhere from #F5Agility18 Growth strategy:
 Not quite a year ago, Cisco and Google announced a Cloud partnership. Today, at the very first keynote at Cisco Live 2018, Diane Greene, CEO of Google Cloud joined Chuck Robbins on stage to talk about the partnership, highlighting Kubernetes and a unified security policy. Both Chuck and Diane want a large ecosystem of partners and developers. Later on, Chuck mentioned Cisco passing the 500K developer milestone for DEVNET.
Chuck touched a litter on routing, mentioning next-generation branch and highlighting intent based networking activity in the SP space. For example, one of their SP customers updates 60,000 routers each night using automation. He then quickly got back to the Catalyst 9K switch, highlighted as the fastest ramping product ever in Cisco history. Children’s Hospital of Los Angeles was highlighted as a customer of the Cat 9K. As a customer, they have over 35,000 connected devices. They purchased over 2,000 WLAN APs and over 200 Cat 9300 switches. They are also deploying ISE and have done over 23,000 different device profiles/identifications and are track to start policy enforcement. They are now in the process of deploying at their branch locations. They noted 550k blocked threats over the first few months of deployment. My key takeaways are that there is an explosion of devices and data on the network, much of which is encrypted and a human can only do so much; thus the network must scale and automate. Cisco is looking to use AI, automation, and its architecture to allow the customer to scale with those IoT devices and to have the network automate many tasks, especially around security. Monetization for Cisco will occur both in the hardware, but also in the solution sale. An ideal customer would be end-to-end Cisco, but Cisco will also support open APIs in order to allow partners and customers to operate with their preferred solutions. 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. Cloud and DCI – Vendors with Different Definitions talk up DCI at Deutsche Bank Tech Conference9/13/2017 We attended the Deutsche Bank Tech conference this week and met with a ton of companies. It is always interesting to see the difference in questions from investors vs. those directly in the industry. During the conference, each company put spin and had different definitions of Data Center Interconnect (DCI) that helped address their specific portfolio. This is very similar to the early Cloud days where every vendor and component manufacturer said they sold into the Cloud. Fast forward to today, and very few vendors sell to the Cloud. We see a similar end game with many suppliers being squeezed out of the DCI market as it matures.
The lack of clarity created confusion amongst the investors as they went from session to session and we think is a short term negative to the market. We are very excited to have holistic DCI coverage. One that looks at legacy approaches around Optical and the new approach of using switching and routing. We are hopeful that the market will move towards one consistent definition of DCI as that will be better for the market itself and the suppliers in that market, but see that as unlikely as many vendors seem to be digging into a definition that is self serving and more focused on legacy products vs. what customers will want in the future. We look forward to many future conversations on DCI. |
CHRIS DePUY
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