Facebook revenue grew robustly in 2Q20, and its CAPEX guidance remained consistent for 2020 compared to previous revisions in the last two quarterly results.
Facebook’s results were counter trend to our expectations that many advertisers would pull back spending do to COVID-19 based on lack of supply (no need to advertise consumer staples) or from consumer spending put on pause (cars that people don’t need while sheltering at home). We believe Facebook benefited from more time on the platform and from the targeting of specific adds on areas of discretionary spending that did grow like sports equipment (good luck finding a bike, kayak, or other social distancing sports gear) and WFH (consumers shifting patterns of spending more for their residents while WFH or just making the home more comfortable due to extended hours in it).
Facebook, like Google, is under government scrutiny for its scale and size. We are closely monitoring the trends of government oversight from the US government and well as other countries like Australia which is forcing Facebook to pay for news as well as Microsoft’s potential purchase of Tik Tok (as of writing this over the weekend, they were still pursuing them). It seems like the duopoly here is not preferred by most governments at this stage and expect election results to polarize the losing party against social media companies into 2021.
Big themes at the show were WiFi-6, 6 GHz, and 802.11ah. We share some comments about the following organizations: WiFi Alliance, Commscope, Newracomm, Celeno, Cambium, Juniper Networks, On Semiconductor, Extreme Networks, Webb Search, Facebook, UK's Ofcom, Huawei, and 650 Group.
The WiFi Alliance and a handful of other speakers commented that WiFi-6 has lower latency than 5G, but the Alliance conceded that cellular had better mobility. We think the WiFi community is not doing enough to promote WiFi-6’s low latency capabilities
Commscope expects 6 GHz 802.11ax products to be shown at the CES show in January 2020 and that FEM and filters are not available today but will be by year-end or early 2020.
Newracomm is an 802.11ah (900 MHz WiFi) chip company that had won an award at the show. It claims to be an early leader in the market and based on comments made during presentations, we expect by 2H20, we will see systems and IoT services based on these types of chips.
Celeno, a stand-alone WiFi chip company, demonstrated radar on WiFi chip capability - the company won multiple award at the show. The company expects that a year from now, its Doppler on WiFi will emerge in products from SPs such as BT, Orange, and Comcast. The Doppler service only consumes about 3-5% of throughput capability when using Doppler and enables some very interesting capabilities such as fall detection, proximity detection, people counting and arm gestures.
ON Semiconductor's Quantenna group won an award at the show.
Cambium, in a presentation, explained that it is looking at an expansion to CBRS, 5G FWA backhaul, and 60 GHz.
Juniper Networks has been hiring in Europe as it expands its enterprise sales capabilities. It’s recently hired team made a positive impression on the audience. We tweeted about how great and fun the presentation by recent hire Jussi Nivikiemi’s presentation.
Extreme Networks presented its view that Artificial Intelligence won’t replace IT workers - it will just make them better.
A spectrum consultant - Webb Search - said that DFS is not working in the UK in 5 GHz and wastes a lot of bandwidth - most WiFi products don’t bother trying to operate one the spectrum covered by DFS. He advocated for using a database in the sky approach similar to what is being proposed for 6 GHz.
UK's Ofcom representative, Christina Data, explained that it is researching both 5 GHz and 6 GHz as a comprehensive solution. Ms. Data acknowledged that DFS may have some challenges and was diplomatic in response to questions about how 6 GHz will emerge.
Huawei advocated for an unpopular viewpoint (at a WiFi show) that 6 GHz device makers should register for IMT designation. In a panel that included German WiFi equipment vendor Lancom and Commscope, the other two vendors made counterpoints, including that this move to IMT will delay the rollout of 6 GHz by at least four years.
Facebook is advocating a non-AFC approach to low power 6 GHz in the US market. We have learned through multiple sources that it has recently a demonstrated a prototype of an AFC, however.
650 Group. The Chris DePuy presentation hit on three topics: unlicensed and shared spectrum impact on WiFi, WiFi and WiFi-6 shipments, and WiFi semiconductors.
We attended the Mobile World Congress last week in Barcelona along with an estimated 104,00 others from nearly every country in the world. We met with over 42 companies and nearly 200 people at the show and attended many press announcements. While most of the MWC19 headlines were about 5G, we were struck that much of the hyped growth will in fact be the result of deployments in enterprises and could be served using unlicensed (or lightly licensed) spectrum. Many of the presentations and product announcements suggested as much, if you read between the lines. We'll step through these two, enterprise and unlicensed next.
The Enterprise opportunity. A major theme we picked up at the Mobile World Congress show is simple: that for the mobile telecom market to grow, 5G must expand to the enterprise. We see ample evidence that without an expansion to the enterprise, the cellular market as we know it will likely experience declines as consumers expect more bandwidth for less in the future. The 5G narrative at the MWC19 show was straightforward: German & Chinese robots, trucks and drones need 5G to unlock the potential for future growth. There were robots, drones and trucks bleeping and whirring to make the point for visitors. We wouldn't argue with the contention that robots and very fast moving vehicles that are controlled remotely need very low latency; yet, there are so many use cases that don't actually need such low latencies.
Wireless is just a small part of "Enterprise." Enterprise 5G use cases being presented at MWC, including the wirelessly controlled robot, involved far more than just a wireless connection to succeed. To automate a workplace with robots, there is far more technology that has to be brought to market, including software, integration, wireline networking and the list goes on. None of these capabilities have traditionally been delivered by telecom equipment vendors; they have been delivered by vendors who have served the enterprise market (examples would be Cisco, IBM, Oracle, etc.).
Unlicensed Opportunity is Robust. In both the enterprise market and the outdoor market, unlicensed spectrum has tremendous potential. This goes for a) WiFi, which is already immensely popular, b) for in-building 'lightly licensed' CBRS (a US-only market), c) the soon-to-be released 6 Ghz spectrum, as well as d) outdoor mid-band spectrum like 5 Ghz (already very popular), e) outdoor 60 Ghz (like the kind relating to the Facebook Terragraph project) and f) 900 Mhz LoRa. While each of these unlicensed (or lightly licensed) frequencies was discussed at the show, 5G licensed was so overwhelmingly promoted it was hard for these exciting unlicensed markets to get any airtime. We think this lack coverage relatively speaking is a dis-service and we'll touch on just a few of them in this post.
Wi-Fi isn't going away. Related to the enterprise 5G topic, we found points and counterpoints about 5G versus WiFi interesting. Huawei's Enterprise group issued a press release about its 802.11ax (WiFi-6) expectations and how important WiFi is for the enterprise market. On the other hand, Huawei's telecom group was pursuing a press agenda about partnering with Operators to pursue the 5G market. Few companies on earth possess as broad a produt portfolio as Huawei, who has ample expertise, market share and credibility in both the mobile wireless market and the enterprise wireless market. We felt this dual-message (5g AND WiFi) was well-balanced. On the other hand, vendors and operators who have historically focused on cellular-only were pushing a "5G will displace WiFi" or at least a "5G is the only solution for mission critical enterprise" agenda. We feel that 5G-only in the enterprise message is to broad-based; we think 5G in the enterprise is far more nuanced because:
802.11ax/WiFi-6 is cellular-like. 802.11ax, which was launched commercially in 4Q18, incorporates many cellular-like capabilities. Many of the technical merits debates presented at MWC compared older 802.11ac WiFi against LTE and 5G NR. This is not a fair comparison because both 5G NR and 802.11ax actually began shipping commercially generally at the same time (4Q18 and 1Q19).
There is very little overlap between the Wi-Fi opportunity and that for cellular. The overlap in opportunities being discussed as the 5G enterprise opportunity at MWC have surprisingly little overlap with the vertical industries currently being served by Enterprise-class WiFi. Take manufacturing, which represents 9% of the Enterprise WLAN market by units in 4Q18. Or the outdoor WLAN market, which is only 3% of total Enterprise-class market in 4Q18 by shipments. The point is, there is very little overlap between the Enterprise WLAN market and the 5G enterprise market being discussed at MWC.
LTE will be the workhorse for many years. Additionally, let's consider the fact that many of the use-cases being discussed at MWC will initially be served by LTE, not 5G. In the enterprise market, the use of LTE in unlicensed (or lightly licensed, like the US's CBRS) bands is often called private LTE. The main difference between unlicensed LTE and licensed LTE is that with unlicensed, the enterprise can work directly with enterprise-focused VARs, resllers, solutions providers and complementary equipment suppliers, while with licensed LTE, the enterprise will need to work directly with its local mobile service provider who owns the spectrum, likely ensuring that the operators becomes the prime integrator of the project, or at least part of it. Private LTE will therefore have fewer parties involved (no operator), lower monthly costs (no operator) and will likely get the project to completion faster (fewer parties and a prime vendor/contractor/solutions-provider with expertise in the enterprise's vertical market). So, why not consider unlicensed/lightly-licensed LTE instead of licensed 5G to achieve the goals illustrated in many of the 5G use cases at MWC?
Where will WiFi lose out? If it has wheels or wings on it, Wi-Fi is not your friend - look to cellular.
To conclude, yes, 5G will fit some very exciting use-cases, especially those for low-latency applications. These are indeed exciting and deserve attention. We see it this way for the wireless industry: if the things involved have wheels or wings, or are of such high value that you must use cellular, there's a good chance LTE will cut it. And next, it makes sense to consider using unlicensed spectrum - which is just emerging as viable for many uses.
Mavenir held a 'virtual' analyst meeting - essentially a webinar - that conveyed the company's efforts on several new initiatives: (a) SMB UCaaS - small business unified communications, (b) Messaging as a Platform (MaaP), (c) Monetization of messaging, (d) Security Solutions (relating to toll fraud, for instance), and (d) xRAN/Open RAN/Cloud RAN. Pardeep Kohli, CEO of Mavenir explained that the company is at a $450M revenue rate.
Small Business Unified Communications - its mobile UCC service can be deployed as a service or on premise. The company sells through its service provider partners. Messaging as a Platform - the company sees its capabilities in RCS messaging as a means to enabling branding, chatbots, sale of digital goods, and enriched calling. A month ago, at Mobile World Congress in Barcelona, we saw the Mavenir MaaP system in work - it looks nothing like what is available from traditional telecom equipment vendors. Mavenir, it its re-imagined MaaP offering, looks more like an "OTT" company than a traditional telecom supplier. We hear the refrain from service providers - show us new sources of revenue; well, this system from Mavenir looks to us like a new source of revenue. On a secondary basis, to the extent Mavenir is successful in getting its MaaP system deployed at service providers, we think this can help the company grow its presence with other products.
Mavenir recently acquired Acuto, a monetization specialist company for messaging. Susie Kim Riley, Aquto's founder and CEO, now part of Mavenir, presented the company's offerings. Riley showed off the Sponsored Data system of enabling brands to provide mobile data connectivity to smartphone consumers. She explained how Facebook, Google, Alibaba and Baidu offers free access to consumers in various countries to consumers who don't pay for cellular data. The company discussed that its customers typically pay for data using Zero-Rating (where a marketer can enable users to download/use apps or browse specific sites without using any of their data plan) or Data Rewards (where a marketer can reward users with additional data buckets for taking a specific action like downloading an app). Mavenir showed how Banko Azteca offered both Zero-Rating and Data Rewards to engage with customers and had strong results. We asked the company how long it takes to get a SP up and running and Mavenir said it takes a couple months, depending on the billing system integration.
The company discussed its Radio Access Network and Telecom Core products, too. Mavenir is making "Whitebox LTE" available by integrating its Cloud RAN technology with a Universal Customer Premises Equipment (uCPE) offering, which allows enterprise-deployment of CBRS and LTE Licensed frequencies. We asked the company after the analyst meeting whether its 5G Core (5GC) is available today, and management said, in fact, it is. We think this means a pre-standard version of its 5G Core is ready for customers to take delivery of today, and architecturally, it is similar to its control user plane separated system that performs EPC for customers. Additionally, the company highlighted a new capability that it has made available to the market that is calling its breakout gateway - the goal of this product (technically, a vSAEGW) is to allow mobile operators who carry lots of video traffic for mobile customers to offload this traffic to other operators, thereby reducing carrying costs. I'm not sure how this impacts the quality of video traffic and what is effect on churn might be, but the company claims that by using this breakout gateway, it calculates that it can reduce spending on EPC/5GC by as much as two years.
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:
We attended the #OFC18 show and found the major theme to be the emergence of 400 Gbps modules. The next most noteworthy theme, we though, was that made by a single company, Nokia, which made its PSE-3 engine announcement. Juniper also caused a buzz with the introduction of its ACX6360 router/packet optical product announcement (paired with other announcements, too). There were countless other announcements at the show that we will touch on in our reports, but these struck us a quite noteworthy.
400 Gbps optical modules, generally, are expected to be ready for sampling in the next couple months, and then be ready for volume shipments in 1H19. Most every module vendor is planning to introduce DD-QSFP. A subset of the same vendors was demonstrating OSFP modules, suggesting it was less popular at this time. We recognized a sub-theme of the 400 Gbps theme was that vendors, including Cisco and Juniper were both demonstrating hardware designs that are capable of operating at 15 Watts, which appears to be the heat that will be generated for some of the 400 Gbps modules. At the time of the show, module companies reported to us that the DSPs that would power 400 Gbps modules were unavailable, and the way it was represented to us on multiple occassions was that there is no clear indication which DSP maker would introduce the first working part.
Nokia made its PSE-3 chip announcement in support of its Optical Transport product line. It was standing room only, with lots of customers involved in the presentation (not just a bunch of analysts and competitors). We were impressed with the marketing aspect of this announcement, but also with the the statement, "we have reached the economic Shannon's limit" with the introduction of the PSE-3 engine. The implication of economic Shannon's limit is that to achieve an even more efficient design that would asymptote even closer to the theoretical Shannon's limit would be too costly. The company is claiming 25% improvement in capacity and reach, 70% increased network capacity, 60% reduction in power per bit. Chungwa Telecom and Facebook were live, on stage, serving as references for Nokia's launch. We expect full fledged PSE-3 based products will be available in about 9-12 months based on discussions at the show.
Juniper announced its ACX6360 system (as well the announcement of the ACX5448 Universal Metro Router and the PTX10002 Packet Transport Router). The ACX6360 can operate as a packet optical device, and with a software update, can also operate as a router. The general idea behind the introduction of this product is it can serve in either the packet optical transport role or as a IP/MPLS router, thereby collapsing multiple networking layers into a single platform operating at speeds up to 200 Gbps. For many uses cases, it could reduce the number of boxes from two (packet optical plus router) to one (ACX6360).
It was great to catch up with old friends and make new friends at OCP this year. The show was highly successful with attendance at the Facebook and Microsoft booths so large that it was difficult to move around. On the switch side, most of the announcements were incremental to the market, but with new chips on the horizon, and a delay in 100 Gbps because of supply constraints, we see this as a temporary pause ahead of what will likely be some bigger announcements in 2018.
There were many highlights at OCP, but three things caught our eye while walking the show floor on both days.
• Microsoft’s project Olympus server is about to transition Microsoft away from High-Density servers and towards Rack servers. This is more in line with what other Tier 1 cloud providers are doing. We note the smart-NIC is still a multichip solution, one that could be further reduced in future generations. They also announced ARM based servers and joined Facebook on announcements in machine learning and AI optimized compute. We see this change in Cloud architectures as a good sign for the industry. The market is quickly moving into more use cases, which will help drive growth beyond just moving workloads away from the premise market.
• The white box vendors were in force at the show. Edgecore showed various Fixed and Modular form factors. We note that some of these boxes are modified for larger Cloud customers with the inclusion of large SSDs or memory. We have a pretty good sense of what is using these additions, but that is a topic for a more detailed report. We also saw Quanta and Delta with large presences on the show floor.
• This year we saw many software announcements around OCP. Arista announced their containerized EOS operating system (cEOS). We saw Apstra and Cumulus active at the show as well running into many other software vendors in attendance. OCP has done a good job at straddling the hardware/software boundary, but clearly the software needed to run these networks is quickly evolving as well.