Today, Amazon announced that it will acquire eero, a consumer mesh WiFi equipment company that as of 3Q18 had 13% revenue share. In 3Q18, the consumer mesh WiFi market measured just over $150M, which was up just over 34% Y/Y. The number one player by revenue was NETGEAR in 3Q18, followed very closely by Google, who had retained the number one spot for the 5 quarters before 3Q18. Now, with Amazon's acquisition of eero, just three players will have well over 3/4th of the consumer mesh WiFi market. What's interesting here is that two Internet titans, Google and Amazon, are attempting to disrupt the consumer networking market that up till 2015 was dominated by hardware players such as NETGEAR, Linksys, TP-Link, D-Link (consumer WiFi vendors) and adjacent players such as Technicolor, Arris, Huawei, ZTE and Nokia (Broadband Customer Premises Equipment vendors).
So, what does it mean that now both Amazon and Google are battling for primacy in the home networking market?
It is complementary to their interactive speaker business. Both Amazon and Google have introduced various hardware products for the home, but most successful have been both of their interactive speaker products, which for Amazon has been the Echo and Dot and for Google Home. These speakers are generally in an "always-on" mode, which allow them to listen to all sounds nearby, and which also means they are generally always connected to the WiFi devices in the home. By always being connected, these speakers consume much of the available WiFi bandwidth in the home, deteriorating the available spectrum for other devices. One obvious solution, which is being made available by wireless chip giant, Qualcomm, is to integrate WiFi chips with speaker chips. That's the direction that both Amazon and Google may pursue - to integrate Home with Google WiFi and Echo with eero. This will mean that multiple WiFi mesh devices will also represent multiple interactive speakers in the home, all while combating the over-use of WiFi spectrum in the home.
These Internet giants can, and probably will, attempt to overwhelm the market with low prices, subsidized by primary businesses. We already see that Google's price for a 3-pack is 37% lower than eero's comparable system. Our working theory is that Google has been selling close to no margin and that eero has been experiencing a 30's percent margin. This is probably not good news for the following companies who either do have gross margins above 30% or we assume do, like NETGEAR, TP-Link, D-Link, and others mentioned above.
The main theme of the the Huawei HAS 2018 meeting keynotes was Artificial Intelligence and, secondarily, nearly ubiquitous networks connections across the world. Huawei expects 86% of enterprises to have experimented with AI by 2025 (<5% in 2018). It is leveraging AI across nearly all its products and will offer a full stack AI solution to all Huawei partners at its @Huawei Connect 2018 conference (Oct 10, 2018).
More specifcially, Huawei is using AI to elevate products & solutions to new levels: cloud, networks, devices, EI, SoftCOM AI, and Intelligent phones. The company's strategy has changed over time and is now AI-focused:
2006-2011: Single strategy: All IP
2012-2017: SoftCOM: All Cloud
2017+: All Intelligence: SoftCom AI (autonomous networks / services 2.0) - this reduces operating and maintence costs
The company expects that networks will be 10x more efficient in the operation of equipment as a result of AI.
By 2025, Huawei expects 440M AR/VR users, 40% of cars to be 'connected," 80% of users with access to mobile broadband, usage of 1 Gbps / user / day (versus .03 in 2018) and 20B connected devices worldwide.
Connected Devices Forecast (Huawei) by 2025: 40B sensors and 100B connections. This thinking is based on data including that there are:
The company's product lines are very diverse; to wit, the company introduced a helmet for the blind, which will be available soon.
Huawei expects NB-IoT (LTE-based IoT capability) to reach almost full coverage in China in 2018. Additionally, the company expects NB-IoT to reach 100 networks by the end of 2018 (versus 39 in 2017) and to be available on 1.2M base stations (from 0.5M in 2017) and to be connected to 150M connections (versus 10M in 2017).
The company boasted about several developments:
Q&A after keynote:
Mr. Eric Xu, Rotating Deputy Chairman of Huawei dodged several important questions relating to trade tariffs, cloud business unit revenue targets, growth rates of each major business units, specifics about AI full-stack claims made during the keynote, and instead focused generally on the AI theme. Xu did, however, however, answer a handful of questions that were quite interesting: Huawei won't acquire DRAM, Flash companies; and that 5G is not so revolutionary - it is just an evolution following LTE. Additionally, Xu mentioned that in 2H18, Huawei will launch end to end 5G solutions and by 3Q19, it will launch 5G capable phones. Xu said Huawei will continue to work with Intel on x86 for the foreseeable future.
More Q&A specifics:
Trade Tariffs and ZTE. (In a moment of levity, however, Eric Xu smiled when the words ZTE were mentioned - recall that a day earlier, ZTE was penalized by the US). We will focus on our customers and will ultimately survive.
Cloud 1.5B by 2020, will you hit the target? Will offer cloud services to telco service providers. Huawei smartphones will leverage the Huawei cloud. Enterprise customers will consume cloud services such as video, computing. In future, trend will be enterprises will move to hybrid cloud and public cloud will take a major share. Huawei cloud provides compute/storage/networking to enterprises and government. 200K x86 servers in Huawei cloud. Revenue with external customers - won't share it with you - maybe .
AI chipset question: We don't position chipset as a standalone business - won't sell to external customers. Will be used to differentiate Huawei products. Smartphone - we use multi-vendor strategy always; in other worlds; have multiple Qualcomm, NTK and others. Remain committed to multi-vendor strategy. Don't want vendor lock-in, however. If we only have one vendor, what might happen to our smartphone business, Xu asked.
Enteprise business growth? Declined to comment on specifics, but said he encourages each to grow rapidly.
How do customers get to 86% AI usage (the question was asked by an audience member by incorrectly referring to the statistic that was made during the keynote - specifically, Huawei said AI experimentation will be 86%, not AI usage)? Will give clearer answer at Huawei Connect 2018. For now, can share that we will use AI on ourselves first, then help customers on various functions such as finance, human resources, networks, etc.
Supply chain - will you acqire your suppliers? We do joint innovation with suppliers to meet Huawei's needs; push multi-source strategy, however. Will not invest in DRAM, display, flash.
5G wasn't mentioned much in the presentation, why? We don't have as high expectations as some others; 5G is just one of many products we offer and is just a natural evolution from 4G. You don't have a fundamental difference between 4G and 5G - consumers just see faster speed and lower latency. LTE already support autonomous driving. Past couple years, governments have regarded 5G as too important. June 2018, will only address eMBB - faster speeds. 2019 - will have fully 5G compliant system that does low latency. 4G is pretty robust; we don't see 5G as a national coverage network - it'll just focus on city centers. However, once one carrier announces 5G, then all others must. 50% of Chinese have wireless connection capable of 4K but there are still no 4K stations.
2H18, end to end 5G solutions available. 3Q19, will launch 5G capable phones.
Share trends for Huawei at operators. Revenue growth of telecom services is a challenging topic. This revenue growth topic is why titan operators express concern about moving to 5G; instead, Huawei thinks moving to improved intelligence will assist operators. Video will become more and more important as telcos become media companies too.
Will AI become a privacy concern? Any technology has double-sided effects. With AI, some believe it can be dangerous. Xu believes in the wisdom of man. Look back to history of mankind, and our humanity can do same for mankind.
Will Huawei find alternate suppliers for data center products? (Xu also smiled about this question before answering). Today, Intel is dominant player. Our point of view, we look forward to more diversified landscape; but we work with Intel mainly now.
Nokia was bullish on its technology developments and cautious on telco capex. CEO Rajeev Suri described the telecom market as having tough market conditions and expects telco equipment market revenues down in 2018. He said the Swedish competitor pricing aggressively and that it will be difficult to keep share in China with 5G ramp. He said Nokia is executing on plan to grow non telco verticals – and it will take 3+ years before it is sizable enough to potentially offset telco challenges. He emphasized a key strength is its focus on cost reductions. He highlighted success in cable MSO market and that its FP4-based router will ship in a few days. Suri thinks 5G could roll out in China first, maybe tied with US. Nokia CEO's comments were quite similar about 5G rollout timing expectations compared to comments made at Huawei’s recent conference (2019 initial deployments; chipsets 2019; broadening deployments in 2020).
Some more details from Rajeev Suri's presentation:
Ericsson. We were surprised that the CEO of Nokia took the opportunity to take some digs at Ericsson. He said that Ericsson is pricing aggressively; it also shared some quantitative statistics about competitive take-outs of Ericsson installed base. He argued that it has broadest portfolio in industry (fixed, software are examples).
China. Two interesting comments about China – a) will be difficult to maintain share in China as 5G rolls out, b) China might be first to deploy 5G.
Emphasized that Amazon Web Services is making a presentation at this conference. Said its new FP4-based routers are more efficient than any competitor and will be so for at least the next year.
Other presenters made comments about 5G mainly. Here are some interesting comments:
Artificial Intelligence. The company has a lot of network automation technology that is it working on but would not share details about this technology. We guess Nokia is more open with its customers and that it'll make announcements at MWC '18 in Barcelona.
5G Radio. Beamforming is a key technology that will be highlighted in 5G. Also, the company's separation of Stage 1 and Stage 2 MIMO processing makes the bandwidth needs from baseband to array be much less than competitors. Additionally, the company explains that its expected systems will have dramatically higher efficiency than competitors - again, the company kept its secrets here under wraps. Late 2018 will see first 5G deployments, going into 2019.
IP/Optical. Basil Alwan, President IP/Optical division said the first FP4-based product went to production end of the last week. Major customers will take shipment before the end of this quarter. The company will ship its 57 Terabit router during 1Q18. SD-WAN will replace MPLS VPNs over time, perhaps at a rapid pace.
Service Provider presentations:
Amazon Web Services IoT. Satyam Yadav, GM of AWS IoT made a presentation at this meeting. The presentation focused on how Amazon's IoT software and its services would be used in a partnership with Nokia to deliver Amazon IoT services.
Sprint. Ron Marquardt, CTO. He is not sure how much customers might pay for lower-latency connections available from 5G. Now that the uncertainty of the T-Mobile US acquisition is beyond us, Sprint says it is rapidly focusing on spending to upgrade its network. Sprint also said it plans to deal with fewer vendors in the future.
Elisa. The Finnish operator presented data about its extraordinary data traffic growth and its per-subscriber data usage being far above competitors as well as other service providers in the world.
This week, we attended the Global Mobile Broadband Forum, held in London, and found several interesting points we thought we would share. Much of the focus of the conference was about 5G wireless networks, and since the show was in London, many of the service providers who we met with and listened to were European. The sponsor of this event was Huawei.
Last week we attended Huawei Connect conference in Shanghai which is turning into a massive event for Huawei with significant customer attendance. It was tons of fun to talk to customers, catch up with friends, and the different parts of Huawei while on the show floor. While there are ton of highlights from the show, here are a few highlights that peaked our interest.