Today I attended the Extreme Analyst day at the NASDAQ in New York. 

Extreme’s 4Q18 switch revenue grew over 10% and in our preliminary view of 4Q18, it took  share.  The company highlighted over 30,000 customers and over 6,000 partners in a one-Extreme approach that has integrated the acquisitions of Avaya and Brocade.

The company also highlighted that in 4Q18 it saw nearly 20 deals over $1M which is indicative of a rebound in its' business from large enterprises.  We believe  the company is  maintaining a good portion of its' Extreme and Avaya installed based.

Extreme  emphasized software as a driver for higher margin sales. We agree, software is the general direction of where campus switching is going with vendors looking to get incremental revenue from software instead of hardware.  We have maintained for over two years now that campus switching would be a positive growth market led by software to help manage a more converged (Unified Access) market.  We also see IoT and the inclusion of securing and monitoring IoT traffic as an additional growth drive for the campus market.
 

Arris held its annual investor day late last week on March 28, 2018.  It was interesting: the company said "Everything is going wireless," which is an interesting admission for a company that, until about a year ago, was essentially a pureplay on wired broadband.  To be sure, the company has diversified into wireless with its acquisition of Ruckus and has benefitted from the inclusion of Wi-Fi capabilities to its broadband CPE.  The company sees this wireless future - and is pivoting towards it.

Arris management highlighted that it expect its future to include the following growth avenues:

• Cloud Wi-Fi
• DELL OEM
• CBRS 3.5 GHz LTE Small Cell
• IoT (Residential and Industrial)
• FTTx (10Gb EPON / NGPON-2)
• Consumer Mesh Wi-Fi
• Campus Ethernet Switching

Additionally, the company discussed its expectations for each division, which using its 2017 mix and various projections, calculates to a 4.7% CAGR from '17 to '21.

Enterprise Networking (Ruckus).  Overall, the company's Enterprise Networking division, also known as Ruckus Networking, includes its Enterprise WLAN business (formerly Ruckus Wireless), the Brocade ICX Ethernet Switch product line (referred to by the company as Campus Switching), and other revenue streams such as CBRS 3.5 Ghz LTE Small Cells, as well as IoT radio modules that plug into the Ruckus Access Points like Bluetooth, LoRa and Zigbee.  The company is targeting 20%+ growth for the Ruckus Networking group, which is far above the industry growth rates we expect for Enterprise plus Outdoor WLAN and Campus switching. This aggressive growth rate either implies share-taking, or growth in other products such as CBRS, Bluetooth, LoRa and Zigbee, or the the non-WLAN parts of what used to be Ruckus Wireless, such as Cloud-managed Wireless LAN services (that, for instance compete with Cisco's Meraki, Aerohive services and Mojo Networks).  The company cited an expected Enterprise WLAN revenue growth projection slightly above our projection for the period '17 to '21, even if cloud-managed WiFi services were included.

​Network and Cloud Segment.  The company said this market is growing 5% annually, and described the market generally as the Cable Modem Infrastructure, optical nodes and cable video networks market.  The company generally expects to take share, compared to this market viewpoint, projecting a 4-7% long-term annual growth expectation for this business segment.  It was interesting that the company said that the "mobile device explosion [is] driving offload demand," because it has been several years since "Wi-Fi offload" was a growth driver, but dissecting the comment a bit more, the company is pointing to cable operators as being "well positioned to handle [the] offload."  We think Arris' strong supplier position with the major Cable MSOs in the US, especially, may indicate that there should be a strong build up of WiFi and cable infrastructure coming in the future.  And, this corroborates with our own research and statements from MSOs such as Comcast.  In fact, the company showed a "future" network diagram that indicates it expects its MSO customers will be delivering 5G radio, Remote OLTs (PON) and Fixed Wireless Access instead the of cable modem (DOCSIS) equipment that was indicated in the "now" chart.  This implied shift from DOCSIS to PON/5G/FWA would be a dramatic shift in the company's product portfolio.  Very interesting, indeed.

Customer Premises Equipment (CPE) Segment.  The company claims a #1 Set Top Box (STB) market share, and #2 Broadband CPE market share, with a mix of 60% video CPE and 40% broadband revenues in 2017.  The company expects to grow broadband CPE to a mix of 50%+ by the year 2021, consistent with the market growth rates it cites - 4% CAGR for broadband and -.8% for video.  Generally, the company is projecting long term sales trend of -5% to +1%, indicating that it lacks the direct to market exposure that would get it to a growth expectation in this segment.  The company confirmed it is using NBASE-T (Multi-Gigabit Ethernet) interfaces on its home networking devices and it is planning to release 802.11ax capabilities on its portfolio, as well.  Arris CPE will also include Extenders / Adapters to, at least partially, address the growth now occurring in the Consumer Mesh market.

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.

• 5G is expected to deliver 10 times the bits per second for each dollar spent compared to LTE.  This is according to Johan Wibergh, CTO of Vodafone. 
• 2 year payback on microcells (small cells).  Telus EVP Eros Spadotto explained that the Canadian operator installed small cells in locations where 10% of traffic was occurring, and shortly after they were installed, these began carrying 30% of traffic.  Telus believes it met untapped demand.  The company views its strategy going forward to be installing more small cells and no more macro sites.
• The 5G timeline appears to be for end of 2018 Fixed Wireless deployments, 2019 mobile trials and 2020 commercial deployment.  We consider the following in assessing this timeline: 
  • According to Huawei, the Chinese government is pressuring China Mobile to be first to deploy 5G Mobile.  Additionally, Huawei's work with radio chip companies leads it to believe that the 5G capable chips that enable smartphones will not be available in early 2018, and its assessment it will take a year to make 5G smartphones once the chips are available, so 2019 is the earliest smarphones can be available.  Huawei says it expects to deliver its own 5G CPE hardware for fixed mobile by later 2018.
  • BT Group CEO Gavin Patterson expects to have 5G commerical in 2020 
  • Deutsche Telecom CTO Dr. Bruno Jacobfeurborn expect 5G in 2020
  • Orange SVP Radio Arnaud Vamparys expects 5G commerical launch in mid 2020
  • Telefonica CTO, CIO Enrique Blanco expects 5G not before 2020
  • Softbank VP Mobil Networks Makoto Noda expects 5G in 2020 before the Olympic Games
  • NTT DoCoMo CTO Hiroshi Nakomura expects 5G to be commerically ready in early 2020.
• Huawei said millimeter wave 5G won't be used for outdoor mobile, only potentially indoor and fixed wireless.  28 Ghz and similar frequencies are not suited for weather and obstacles, according to the company.
• Huawei, like others large vendors, expects cellular baseband processing for the lower layers (PHY and MAC) will remain a specialized hardware function.  However, higher layer functions such as cell selection may end up in virtualized systems running CPUs.  We heard similar viewpoints from baseband processor company, Caviuum, at the MWC Americas show a couple months earlier.
• Tower sharing is a major trend for the future.  All things being equal, as tower infrastructure gets shared by multiple operators, this reduces capital spending.  We expect tower sharing to be a major trend, which will put pressure on capex for many years to come.
• There are two camps in 5G, largely surrounding spectrum and major vendors.  The first camp are Western vendors (Nokia and Ericsson) and the US operators, who seem to be embracing relatively low frequencies for 5G as well as millimeter wave, and then there is the 3.5 Ghz frequency camp, which has suporters in China, Europe and major vendor, Huawei.  We realize this may be an oversimplification of the industry dynamics, but there's a case to be made that China + Europe may end up with a supply chain somewhat unique from the US-centric chain.
• IoT is a major trend, and from what we heard from most operators is it'll be running on LTE for a long time, despite how 5G is expected to be a big IoT capable network.  
• 5G business case still not there yet.  Most European operators are saying they haven't seen a compelling business case to deploy 5G yet (BT, DT, Orange) and Telefonic said it'll deploy 5G when it needs to competitively.
• Fiber good.  Microwave not mentioned.  Every European carrier that we met or who spoke with (plus Telus in Canada) expects to deploy fiber to cell sites and made no mention of microwave.