We attended the Comcast Business analyst event in Philadelphia.  We find the Business Services part of Comcast is interesting, and so do customers, because it is growing rapidly.  It installs a “new Ethernet every four minutes,” and has “40-45K installs per month.”  The company shared with the audience that it is expanding the breadth of its services to grow its potential revenue it can get from each customer, and in many cases is either acquiring or developing this technology itself.  We see these development efforts as moving up the technology stack.
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To understand Comcast Business, you have to know that it has unique approaches to its different customer segments.  The organization addresses customers of different sizes, and it does not use the same terminology as some others do: SMB (<20 employees), Mid-market (20+ employees), Enterprise (Fortune 1000).  We think it is more common that small is considered 100 employees and smaller, which would include SMB and Comcast’s Mid-Market, and that mid would be 101 employees or greater.  Here are the Comcast Business market views:

More details about customer segments.  In addition to attacking three customer size groups with distinct approaches, it also serves two verticals (carriers and government) segments with different strategies and recently acquired Deep Blue (May 2019) that serves WiFi to venues and hospitality verticals.  Each served customer type uses different combinations of third-party developed technology and Comcast in-house developed technology.  The company has 4,000 people developing in-house technology.  As a mix of total systems sold to customers, today, Comcast Business uses a higher mix of in-house developed technology when serving its small and mid-market customers than it does when serving large enterprises.  The group that serves Enterprise Solutions serves large enterprises using mostly using third-party technology from vendors like Cisco, Fortinet, and HPE.
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On the other hand, the company serves smaller-sized customers using fully or partially in-house developed technology.  Comcast Business’s SVP Product Management, Bob Victor, summed up its approach to working with third-party vendors by saying, “We want to totally commoditize hardware.”  We assume he means this is a long-term goal because, during the event, the company told us of new hardware and software relationships announced with new vendors. 
For small and mid businesses, the company has developed several in-house technology systems that compete with vendor-supplied technology.  One such example is its WiFi Pro service, which combines internet connection and WiFi service.  In WiFi Pro, which was introduced a couple of years ago to small businesses and is available at up to four Access Points, the company sources WLAN access points from a non-branded access point.  Based on our discussions at this conference, we would not rule out that at least some of the in-house developed technology may be supplanted by vendor-supplied technology if there is a compelling reason.  However, on multiple occasions, we learned that the direction the Comcast Business is going is to develop in-house technologies and bring these directly to customers, first with smaller customers, and perhaps very long term to large enterprises.

Managed Services.  The company delivers both transport/network services and transport bundled with other services; there is a case to be made that Comcast Business’ bundled services could be called Managed Services.  However, even Comcast says there is some confusion about using the terminology “Managed Services,” because of customer expectations; some customers see it as a very high level of services, where customers do nothing, while others see it as Comcast Business is “working with” the customer to deliver the service.

Playing to Strengths.  On an overall basis, Bill Stemper, who runs Comcast Business, says the company’s strategy is to focus on serving the wireline needs of businesses in the US.  He says, “this is where we invest.  We expect to focus this way for decades.” 

Small Business details.  Stemper said that the company would bring “mobile to small business.”  It will bring mobile to this segment when “all the systems are squared away, and when sales reps are capable of selling this additional service without slowing down customer purchasing decisions on the existing suite of services.”  It is currently offering mobile in selected markets to learn more about selling this new service.  We expect mobile to small business to be offered sometime in 2020.

Growth Avenues in Mid-Market.  The company made it clear that it believes the mid-market is an enormous growth opportunity.  And, starting in 2020 and beyond, the company says, it is putting more investment into it to improve coverage, its focus, and its reach.  Today, the company has 800 reps targeting the in mid-market and plays to strengths in certain verticals such as government, education, and healthcare.  

Large Enterprise Opportunities.  Approaching the Fortune 1000, the company has its most meaningful exposure in finance, healthcare, restaurants, retail, hospitality verticals.  The company is finding customers who, according to Comcast, are replacing MPLS service with broadband and getting a 50% cost reduction and an order of magnitude speed improvement.  Comcast introduced a leader from a large finance company to the audience, and though we cannot name the customer, the company shared that it had moved initially to use Comcast transport, and is currently doing a proof of concept for voice and Comcast’s ActiveCore SD-WAN service.  Comcast reiterated its plans to use Cisco, Fortinet, and HPE at large enterprise (Fortune 1000), though implied it is entering another phase that it internally calls Enterprise 2.0 for its Enterprise Solutions group.  In Enterprise 2.0, the company hinted it might develop more in-house technology and further implied its ActiveCore (SD-WAN is one service it offers in ActiveCore) might find a home in some large enterprises.  Comcast’s customer endorsed the idea of using white box universal CPE loaded with “best of breed services” instead of buying vendor-supplied routers so it will not have to replace 15,000 routers when it comes to upgrading time or transitioning. 

Carrier opportunity.  Bill Stemper, who leads Comcast Business explained that, since 2009, it has served carrier Ethernet to the mobile industry and it will pursue 5G opportunistically.  Elaborating further, Stemper said it would decide whether we can get leverage on new builds to serve 5G simultaneously with other customer types.  So, it sounds like building new plant to serve only 5G backhaul is not in the cards. 

Deep Blue WLAN.  In May 2019, the company acquired a Troy, NY-based WiFi services company.  We understand from the presentations that Deep Blue was growing at least 30%/year for several years before the acquisition and that its revenues may have hit around $40M.  The company designs/installs third-party WLAN and associated systems, then operates the networks for a recurring fee mainly in verticals such hospitality and large venues.  The wholly-owned subsidiary has developed advanced software and services capabilities that could easily be leveraged across the other parts of Comcast Business, but from what we learned, there has been no cross-fertilization as of yet.

Products.  The company is expanding the number of services it can deliver to customers, thereby increasing its possible revenues to each customer.  It began offering SD-WAN services three years ago.  It plans to expand beyond SD-WAN.  In its mid-market customer focus, the company will soon offer security (Advanced Firewall and UTM, for instance), routing, and a bit later on, voice gateway (SBC) and WiFi.  For premises-based VNFs, these are run on a universal CPE (uCPE) that today costs about $1,000 to Comcast and it will be launching a $500 uCPE with similar capabilities soon.  The company is updating the cable plant that serves business users, where 4 M businesses are passed, towards a “mid split” architecture that allows for greater upstream speeds so that initially 50 Mbps up and down will be possible, and then over time 100/100, 300/300 and longer-term 1 Gbps up and down.  The company also uses EPON for more demanding needs and places like multiple dwelling units; it won’t be moving to XG PON (10 Gbps) for the foreseeable future.

The company has a multi-vendor approach with these VNFs.  This week, it announced Fortinet UTM/security.  We expect the company could announce other security, routing and perhaps longer-term, other SD-WAN vendor options.  We think the company will stick with a single WiFi cloud controller for at least the next year or so, but indicated it could introduce at least one more vendor’s technology afterward.  The $500 uCPE device is capable of 1 Gbps SD-WAN throughput, as well as advanced firewall at 1 Gbps and has UTM at 600 Mbps. These are impressive throughput numbers, we think, especially because similar throughput capabilities are available on proprietary boxes from vendors that cost much more.

Additionally, the product called CBR2, a new version of its Comcast business router, will be coming soon.  Both the original CBR and CBR2 have WLAN as a built-in feature.  But, neither the CBR nor the CBR2 has sufficient WLAN coverage capabilities to satisfy a mid-sized business, so Comcast thinks its soon-to-be-launched WLAN plans to mid-sized businesses allow it to serve more customers.  One such new target from these added WLAN capabilities will be the E-Rate program, which is a partial funding mechanism for K-12 schools overseen by the US FCC, is one such target.


Comcast emphasized that it has spent significant time and resources developing software capabilities that allow it to orchestrate VNFs, to remotely administer customer networks, and to allow multiple VNFs from different vendors, or to allow VNFs that are developedin-house by its customers.
 

Huawei had record European revenue in 2Q19 for the Ethernet Switch market. 

Both Data Center Switching and Campus Switching showed strong performance in Europe in the quarter despite the ongoing trade war.  On an overall basis, Huawei’s Ethernet Switch results were flat Y/Y.  China results for the company were down slightly Y/Y, but we note significant competition in China from local companies like H3C, Ruijie, Sundray, as well as several others.
 
With over a dozen vendors reporting results already, Europe has performed inconsistently.  A little more half of the vendors grew Y/Y while the rest had Y/Y declines.  While we expect Europe to fluctuate, especially with vendors have unique country and deal exposure, the results are unique and imply interesting share results for the region when we publish the 2Q19 report. 

​We attended media briefings at the Keysight World conference held near San Francisco, California, yesterday.  Keysight World San Francisco showed a more integrated Ixia as well as a further push towards 5G, automotive and energy, and data center and telecom.  Much of the companies conversations during the event related to synergies between these technologies.  Such as how to push the automotive industry forward using 5G and the need for edge computing in 5G.  As Keysight is involved at the beginning of the launches of many new cellular technologies, it has good insights into the timeline and progress of the 5G market.

One of our key takeaways from the show is the increased pervasiveness of Ethernet in the telecom and automotive industry as well as the significant increase in constant data creation.  All this data will need robust, and more intelligent networks to transport it.  We were also impressed that Keysight World will actually take place in 10 cities around the world, with San Francisco being the first.

Another interesting observation was just how global Keysight was in looking at products, for example in one session that we attended, much of the automotive effort in the company was located in Germany.

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.