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.
 

Chris DePuy, founding analyst for 650 Group will deliver the ONF Connect Friday keynote: CORD TAM Research Update at ONF Connect 2019 happening Sept 10-13th in Silicon Valley.

Telecom operators including AT&T, Comcast, DT and Comcast, along with big cloud providers like Google Cloud, are participating in the Open Source network infrastructure movement. They are building large-scale network deployments addressing broadband, edge cloud, optical and RAN.  

Chris DePuy's Friday keynote session at ONF Connect (Santa Clara Marriott, September 13th at 11:30am) provides Insight into the latest 650 Group custom research exploring the scale and scope of the market impact of CORD will be shared. 650 data is sourced from comprehensive market research, survey data from top global telecom operators and executive level conversations covering these emerging trends in depth. Please visit the Keynote session link: https://onfconnect2019.sched.com/event/Tkxx?iframe=no

We attended the Qualcomm Wi-Fi 6 event held in San Francisco today. Representatives from partner companies who attended included HPE Aruba, Cisco, Commscope, Boingo, Netgear, Rivet Networks, AMD, and Microsoft. The principal announcement at the event was that Qualcomm announced its Networking Pro Series Platforms which are focused on Wi-Fi 6 capabilities, semiconductor systems which are in initial stages of availability and expected to be available on systems in coming months and quarters. The new Networking Pro Series chip systems hit four price points generally segmented by the number of antennas (more at the higher end) and are primarily targeted to the enterprise market, though we learned that some of the high-end consumer ("prosumer") vendors plan to use these chips as well. The new Networking Pro products have unique features compared to previous Wi-Fi 6 chips introduced from Qualcomm, including upstream MU-MIMO and upstream OFDMA and the design claim is that these can support 1,500 simultaneous users both upstream and downstream.

In the past, it could be said that Wi-Fi and cellular compete in some markets. We found it interesting that Qualcomm said that it expects that Wi-Fi 6 mesh products will be the way to get 5G millimeter-wave signals indoors. Several Qualcomm executives echoed the message that Wi-Fi and cellular are complementary, even though many Qualcomm service provider and cellular equipment partners do not subscribe to this point of view.

Qualcomm shared some impressive numbers. It ships approximately 1B Wi-Fi device chips per year at a run-rate; it has shipped over 4B Wi-Fi chips since 2015; and by comparison, had shipped 1/2B chips by 2010. It has shipped Wi-Fi chips with MU-MIMO capabilities to a total of 0.75B client devices. Qualcomm claims it has found that Target Wait Time (TWT) can improve cell phone battery life by as much as 60%.

HPE Aruba President, Keerti Melkote, presented and shared with the audience that it had won the Wi-Fi project to the nearby Chase Center, where the NBA's Warriors play and that it should operating soon. Additionally, Melkote emphasized that Aruba had recently begun shipping its price-competitive Instant ON product and the take-up has been strong. Cisco SVP Engineering, Anand Oswal, primarily discussed Cisco's Open Roaming initiative that focuses on seamless and secure public Wi-Fi onboarding. It was interesting that Cisco did not focus its comments on Wi-Fi 6. Morgan Kurk, CTO Commscope and acting President of Ruckus Networks spoke about the benefits of Wi-Fi 6 to venues, primary and secondary educational institutions, including AR & VR, 1:1 and online assessment use cases. Derek Peterson, CTO Boingo, a Wi-Fi/cellular venue services provider shared that it is now serving 1B consumers per year. Its goal is to get 100 MHz to each user, and that it will reach this goal by using all available spectrum, licensed and unlicensed. Peterson also shared its observations of the benefits from using Wi-Fi 6 at its trial that began in April of 2019 at the John Wayne Airport in Irvine, CA. Morgan Teachworth, Head of Hardware Platforms of Cisco Meraki, shared observations of several events it has been involved with, including the US Open Pebble Beach 2019 event, where, to its surprise, upload traffic exceeded downlink traffic. David Henry, SVP Connected Home Products from Netgear, hinted that it plans to introduce its Wi-Fi 6 mesh product, saying wait for details next week. We also learned that Netgear would leverage the highest end Qualcomm Network Pro chips intended for enterprise-class devices. 

VK Jones, VP of Technology, Qualcomm Atheros, spoke about future products and standards work. He said by 2020, we should expect 6 GHz, and, by 2022, 802.11ax Release 2 features including scheduling and spatial re-use to improve old device capabilities. 6 GHz requires a third-party service provider to coordinate what frequencies each access point uses.

On August 8, 2019, publicly-traded Cambium announced that it had completed the acquisition of the Xirrus products and cloud services from privately-held Riverbed Technology, Inc.  Xirrus has been a vendor in the Enterprise WLAN market for a while now and has been associated with its high-performance enterprise-class WLAN products as well as its cloud-managed services.  In our research, we find Xirrus has done well in the large venues, the education, government, and retail markets.

We interviewed the team at Cambium today and learned that the company is committed to using channels as a distribution strategy for the combined portfolio.  Additionally, the team told us it will be supporting both Cambium WLAN customers as well as Xirrus customers, and that, over time, the products and services will be converged.  We think it makes sense to rationalize the products, which will allow future customers to take advantage of developments made at each of the organizations.  The team explained that Cambium will be focusing primarily on medium and small-sized customers and that it will not be pursuing large enterprises associated with the Fortune 1000, instance.

The timing of Cambium’s acquisition makes sense on several counts.  First, it just completed its Initial Public Offering and is more well-capitalized than when it was a privately-held company. Second, during its IPO, Cambium identified that it expects its exposure to the enterprise market is key to its growth, so getting more exposure here will increase it further.  Third, several other companies have acquired enterprise WLAN vendors, and Cambium is part of this greater trend.  For instance, Arista Networks completed its acquisition of Mojo Networks in late 2018 and Juniper Networks closed its acquisition of Mist Systems at the end of 1Q19.
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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. 

Today, Huawei announced 1H19 results were CNY401.3B, up 23.2% Y/Y.  Carrier business 1H19 revenues were CNY146.5B, with 50 commercial 5G contracts and shipments of more than 150,000 base stations.  Enterprise 1H19 revenues were CNY31.6B.  Consumer Business 1H19 revenues were CNY220.8B, with 118M smartphone units, up 24% Y/Y.  The company said "revenue grew fast up through May.  [and that] we continue to see growth even after we were added to the entity list."

The fact that Huawei says it is still experiencing growth despite being placed on the US Entity List is important because it says that despite the efforts of the US to stymie Huawei, it is still growing.  Huawei has typically provided semi-annual results to the public, so it is not odd that has not provided 2Q19 results, which were almost certainly weaker than 1Q19 results given the US efforts to slow Huawei.
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Extreme Networks announced plans to acquire Aerohive, which has most of its revenues in Enterprise WLAN.  The deal was a surprise, as evidenced by the 40% price premium paid on on HIVE.  After this deal closes, Extreme's WLAN business will be the combination of three WLAN businesses - the traditional WLAN business from Enterasys (Ottawa based team), the Motorola Wireless WLAN business (acquired by Zebra, then sold to Extreme) and Aerohive.  Each of these three businesses had strengths, for instance, the Ottawa team had designed a product line that had high performance in crowded venues - Extreme has enjoyed a long relationship with the NFV; the Motorola team had designed systems that were effective in retail and logistics (as a consequence of Motorola's ownership of Symbol Tech, a bar code scanner company); and Aerohive, which was as of 1Q19 the #2 revenue player in cloud-managed WLAN services and with a strong presence in the US K-12 vertical.  While there is certainly some risk that Extreme does not integrate the Aerohive business effectively, there are some interesting aspects to this deal.
#1: Aerohive's cloud-managed WLAN services is a significant player in the market.  We expect many small and medium businesses will adopt cloud-managed WLAN, and Extreme had a less mature offering here.  We see this as the primary benefit of the Aerohive acquisition.
#2: Aerohive's vertical market exposure in US K-12 (education) market and the managed care part of the health care industry are a nice addition to Extreme.  These markets are additive.
#3: Aerohive had a SD-WAN product that while not a big revenue generator will be important for Extreme in selling to small and medium sized businesses.  We expect the SMEs and branch offices will be upgrading using a SD-Branch approach, where upgrades to WLAN, switching and SD-WAN will be done at once.  Extreme had a hole here and Aerohive fills it.
#4: Aerohive had a new product, A3, which we categorized as Enhanced Network Access Control.  The front end of this product is very modern.  Extreme also had its own NAC product.  Our hunch is the company will merge the two, taking the best of both.  We see larger enterprises as demanding this type of support.  HPE Aruba sells its Clearpass product in a wireless+wired+ENAC bundle to larger sized business, just as Cisco sells its ISE and wireless+wired bundle.  
#5: Aerohive has 802.11ax products.  We expect that increasingly, as customers adopt 802.11ax, with its expected throughput under high loads exceeding 1 Gb/sec, this will drive an upgrade cycle to switches with MultiGigabit support.  Extreme cited "cross selling" in its announcement of this deal, and we agree that customers in the 802.11ax world will be increasingly buying new switches when they adopt new wireless.

This deal was a surprise because Extreme already has WLAN in its portfolio, but if Extreme executes on this business transaction effectively, it can solidify its position in the mid-market by offering cloud services and SD-WAN (through a SD-Branch bundle) and potentially move both up market (with ENAC) and if it choses, downmarket by maintaining a business practice that Aerohive rolled out well over a year ago that can be described as a "freemium" model for its cloud-managed WLAN services.

MACSec Helps Pave the Way to End-to-End Data Security

As consumers and businesses put more data in the Cloud, the importance of securing that data increases.  In just the last year, we have seen advanced threats and attacks by various entities to hack into that data and hyperscalers push back with both public and private mechanisms. Securing that data goes beyond just basic encryption or securing a server, and the role of the network is critical to better protection of data.

Many cloud customers are looking at providing end-to-end security to ensure, as best they can, that data can not be compromised.  MACSec plays an important role in the future on how networks talk to each other and how the secure transmission of data between different locations.  Security is especially important with 400 Gbps, as Cloud providers adopt 400 Gbps, it is not only being used for transmission within the data center but also Data Center Interconnect (DCI).  Cloud workloads will increasingly require secure connectivity between data centers.

Looking at the Ethernet Switch and Router markets, we project the percent of ports shipping with MACSec will increase significantly over our forecast horizon.  We expect vendors will continue to offer versions with and without MACSec, but as we move forward in time and have more purpose-built offerings for the hyperscalers that some products will only ship with MACSec.

The additional features and functionality included in Ethernet switches and Routers are positive for the industry.  It not only increases features which help grow ASPs and revenues, but it also increases the amount of Ethernet ports shipped by expanding the number of use cases.  400 Gbps DCI is a great example of feature and addressable market expansion.

By Alan Weckel, Founding Analyst, 650 Group.

Mellanox and Arista May Announcements

New Switches & Routers Spell New Possibilities 

The hyperscale, cloud and hyper converged industry — despite a pause in data center equipment growth in Q1, as we reported last week—  saw two major Ethernet product announcements so far this month. 
 
Both new platforms, announced by Mellanox and Arista respectively, are supercharged to take the data center to the next level. They play into all of the big trends of cloud hosted, mass virtualization and automation of trouble shooting through telemetry.  They also seem to set some new performance records.




Details: 
First there is Mellanox, unveiling this week its “Ethernet Cloud Fabric” (aka ECF) new switches underpinned by its  Spectrum2 chipset. Mellanox is emphasizing automated troubleshooting with telemetry, support of virtualization, scale to 400GbE, and a fully shared buffer architecture for improved performance in hyper scale cloud environments.

Mellanox ECF Platform Highlights:

• Mellanox “What Just Happened” (WJH) Telemetry: Offers improved visibility as to the root cause of network/server problems while reducing the amount of telemetry data that needs to be stored.
• Spectrum2 chipset, developed in house, has a fully shared buffer architecture for better microburst absorption. The new switches fairly and predictably divide traffic between servers. 
  • Fairness is an issue for ESF and ECF use cases.  It is found in Hadoop, CEPH, and SAP environments. This is where fair and predictable performance matters. 
  •  For ECF in clouds. You have to stop one tenant from robbing resources of others, whereas neighboring tenants might get robbed of another performance. 
• Virtualization:  Mellanox makes better spine switches with increased visibility, performance and virtualization support of VXLANs.   
• 200 Gigabit: The 200GbE switches will be useful for high speed applications like Machine Learning and NVMEoF.  
• 200GbE will also be deployed in volume by hyperscaler / social media companies. Some large customers prefer 200G over 400G for the larger radix as it can eliminate a switching tier in a large data center

ECF Performance:

• 8.33 Billion Packets per second 
• 42MB Monolithic and fully shared packet buffer to provide high bandwidth and low-latency cut-through performance
• Robust RoCE Datapath to enable hardware accelerated data movement for Ethernet Storage Fabric and Machine Learning applications
• Half a million flexible forwarding entries to support large Layer-2 and Layer-3 networks

Next is the announcement from stalwart cloud player Arista, and it has delivered its own new products, its' R3 Series routing platforms. The emphasis is on massive throughput, density, power efficiency and price performance. 



R3 Platform Highlights

• Throughput: Packet processing offers 8X the throughput of the previous generation R1 Series and 5X the throughput of the R2 Series. 
• 400G Ethernet: high-density 400G ports across all platforms to support these next-generation networks.
• New Capabilities: New R3 packet processing silicon offers significant enhancements in route scale, security and telemetry. .
• Wide Range of Form Factors: The new R3 Series comes in a wide range of form factors, including four fixed form factors, an upgrade to our award winning 7500 family, and the brand new 7800 modular chassis with up to 460 Tbps capacity per chassis

Key Capabilities 

• The Arista 7280R3 delivers unparalleled Performance with Dynamic Deep Buffers and VOQ for Lossless forwarding
• Flexible design choices for 10G/25G/40G/50G/100G and 400G
• FlexRoute™ and EOS NetDB™ for internet peering with high density and low power
• Embedded Accelerated sFlow and IPFIX for high capacity network security and application monitoring
• Flexible pipeline for programmable features including Algorithmic ACLs and Inband Network Telemetry for flow and packet forensic

We attended the Open19 Foundation Summit 2019 in San Jose, CA.  The key message of the leadership team of the Foundation was that it expects 2019 to be the year where Open19 systems begin shipping.  Yuval Bachar, President of the Foundation explained that there are 8-10 companies that are deploying or seriously considering, including two mega data center operators in process of evaluation and at least 6 adopters in advanced evaluation/deployment.  Open19 does not specify what technology will be inside the systems; it only defines the form factor.  Interestingly, GPU and ARM designs are included and we heard about AMD CPU more often than we did Intel.  
 
VaporIO made a presentation about its edge data center systems.  Matt Trifiro, CMO of VaporIO explained that its systems nominally consume up to 165 kw in a 9 foot round datacenter.  It claims that Vapor IO is deploying in 6 cities, 3 to 4 data centers in each city.

ASUS and a new company, German Edge Cloud, both made interesting presentations.  Salim Fedel, Associate VP Enterprise Solutions Business Group, ASUS, presented a few of the company's Open19 oriented products, Alps19, Brick and its Network Switch.  Jason Rylands, VP of Data Center Strategy & International Sales, German Edge Cloud, made a very interesting presentation about its company's activities in Germany on how it is participating in the manufacturing industry in Germany.  There is reticence on putting manufacturing data and control on the cloud, but there is a desire to build a German-only computing system, driven in part by GDPR and part by the nation's focus on manufacturing - that's the opportunity.  German Edge Cloud has decided to use Open19 systems - accessing only the front of the racks is a big deal, it believes.

German Edge Cloud shared many examples of how it is engaging with manufacturers for real-time error tracking during the manufacturing process, using analytics, and sharing information between various companies in the German supply chain.