According to news reports and press and social media announcements by high-ranking members of US government, the US government has put Huawei on its so-called "Entity List" of the Bureau of Industry and Security (BIS). Our read on this is it similar to what happened with ZTE during C2Q18 last year, a move that severely curtailed ZTE's shipments and revenue until ZTE made concessions and was removed from the list. Many, but not all, Huawei products use technology only available from US suppliers. US-made semiconductors are the most significant Entity List target that Huawei needs to ship its products. Significant US semiconductor suppliers to Huawei include Intel, Xilinx, and Broadcom.
Huawei is such a significant vendor in many of our coverage areas, including Mobile Radio Access Networks (RAN), Ethernet Switching, and Servers, for instance, that we feel it is a good time to point out that 2019 market-level estimates may be at risk. Additionally, since Chinese cloud services players, like Baidu, Alibaba and Tencent cannot delay their capital infrastructure build-outs, alternate suppliers may benefit.
We think it comes as no surprise to Huawei that the US is putting it under pressure. Just over a year ago, we attended the Huawei analyst summit (April 16, 2018) and its then-chairman said in response to the question "Will Huawei find alternate suppliers for data center products, "Today, Intel is the dominant player. Our point of view, we look forward to a more diversified landscape; but we work with Intel mainly now." Additionally, at Huawei's most recent analyst summit (mid-April 2019), the three main keynote speakers, all high-ranking executives of the company spoke about how much progress Huawei has made in developing in-house semiconductors and what its plans are to continue developing more. We do, however, think that despite Huawei's diversification efforts that it still has significant reliance upon key US chip companies.
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.