TBR 2020 Data Center Predictions: Hardware commoditization pushes vendors into new ventures

Hardware commoditization is pressuring traditional data center vendors to invest in related emerging technologies

The data center hardware market has been on a downward trend due to commoditization for years. As a result, vendors have had to get creative to maintain their financial performance. Some vendors that have not adjusted have been forced out of highly contested markets or had assets or whole organizations acquired. However, many vendors have adjusted by investing in new ventures to maintain hardware relevance. Non-volatile memory express (NVMe) and hyperconverged infrastructure are two examples of technologies that have upward potential in the declining hardware market.

Other vendors have chosen to explore entirely new areas, such as quantum computing, to maintain relevance. IBM is notorious for laying the tracks to new markets, and quantum is no exception. TBR believes IBM’s quantum computing investments might increase the longevity of the mainframe, as we see a future in which mainframes and quantum computers can work together to answer tough computational questions. IBM is also investing in high-performance computing, another technology that could fill this space for mainframes.

Change is the only thing in the data center market that is guaranteed. TBR believes 2020 will be marked by a lot of change, and vendors will either adapt or be left behind. Consumption-based pricing and quantum computing are just two examples of the types of change that are coming to the data center space, but there are many others still to come. Vendors that embrace change will be around for the long haul, and fast-followers are more and more likely to be left behind if they sacrifice research and development for quick returns for their capital investors. Vendors should encourage innovation around new ideas to maintain relevance while commoditization maintains its unrelenting grip on the data center hardware space.

2020 Predictions:

  • Cloud vs. on premises: A distinction without a difference
  • The rise of quantum services vendors
  • ODMs will progressively squeeze OEMs as cloud-centric data center environments become increasingly popular

Register for TBR’s 2020 Data Center Predictions webinar, Hardware Commoditization Pushes Vendors Into New Ventures, Jan. 15, 2020.

Technology Business Research 2020 Predictions is a special series examining market trends and business changes in key markets. Covered segments include telecom, cloud, devices & commercial IoT, data center, and services.

Nokia bets big on enterprise

TBR perspective

Nokia (NYSE: NOK) remains in a state of transition. The company is not only addressing challenges with its 5G New Radio (NR) products but is also contending with business disruption as CSPs increasingly migrate toward a webscale-like, next-generation network architecture, which is prompting Nokia to accelerate and broaden its own internal digital transformation to remain a competitive player. Though management provided assurances that it is addressing its 5G NR issues and that they will be short-lived in nature, the underlying challenges facing Nokia, as well as all incumbent telecom network infrastructure OEMs, remain firmly in place.

TBR believes Nokia’s big bet on enterprise, which includes webscales and other industries such as manufacturing, transportation, utilities and mining as well as the public sector, is timely and critical to ensure the vendor can make the transition from relying on CSPs for the bulk of its revenue to relying on a more diversified mix of customers (CSP and non-CSP) to hedge itself from the prevailing winds of shifting CSP spend while exposing it to adjacent growth opportunities that are aligned with its offerings and capabilities. Currently, CSPs account for around 85% of Nokia’s corporate revenue with Enterprise comprising over 5% and patent licensing fees and other corporate revenue sources contributing the remainder.

Event overview

CEO Rajeev Suri kicked off Nokia’s 2019 Global Analyst Forum by addressing “the good, the bad, and the ugly” issues the company has been contending with, specifically as they pertain to Nokia’s 5G RAN kit and how these issues are impacting the company’s financial performance and investment decisions. Suri’s message reiterated that Nokia’s management is fully aware of the problems and have taken pragmatic and decisive steps to address them, most notably shifting from a field-programmable gate array (FPGA) chipset to a system on a chip (SoC) in its 5G NR. Suri stressed these issues are temporary and that the company’s overarching strategy remains the right approach to grow revenue and margins over the long term. One of the key aspects of that overarching strategy, which was interwoven throughout the event, is that Nokia is doubling down on enterprise.

Suri was succeeded at the event by a mix of Nokia’s other C-level executives as well as a mix of business unit and regional heads, all of whom provided updates on their respective domains and how they are addressing new opportunities in the market. A few representatives from leading CSPs, namely Sprint (NYSE: S), Vodafone (Nasdaq: VOD) and Zain, also presented during the event. The customer presentations confirmed that leading CSPs are focused initially on the consumer use cases of 5G (i.e., enhanced mobile broadband [eMBB] and fixed wireless access) and are taking a wait-and-see approach toward enterprise use cases. This is in alignment with TBR’s broader research on the 5G market, which suggests nontraditional use cases of the network that are enabled by 5G are not imminent and that, aside from eMBB and fixed wireless access, other use cases for 5G will take time to become economically and technologically feasible before being commercially deployed. Though private networks represent a key growth area, TBR notes the vast majority of net-new private cellular network engagements to date are using LTE, not 5G.

Panel, small group and one-on-one sessions were also hosted at the event covering a wide range of topic areas. A demo bazaar was also provided for analysts to see new technology innovations from Nokia in areas such as network slicing, cloud RAN and network automation.

After the event, analysts were treated to an exclusive tour of Nokia’s RAN factory in Oulu to see demonstrations of how private networks can be utilized in manufacturing environments to achieve improved business outcomes. The tour was well received and thought-provoking, but it was apparent that 5G technology is not imminently ready to address operations transformation and that more work needs to be done in that arena before the technology is commercially ready.

Enterprise was in the spotlight at Nokia’s 2019 Global Analyst Forum. Though communication service provider (CSP)-centric topics were also widely covered at the event, enterprise and the opportunity to sell private networks to that customer segment were emphasized throughout, indicating Nokia is placing big bets on non-CSP customers to drive the vendor’s recovery and next phase of growth.

Quick Quantum Quips: Hardware entrants gain VC funds while established innovators partner across architectures to secure a place in the broader quantum ecosystem

The quantum market changes rapidly, and the hype can often distract from the realities of the technological developments. In our new monthly newsletter, Quick Quantum Quips (Q3), TBR will brief readers on the latest market announcements, stripping that hype to dig deeper into how recent events will impact the market as a whole. Contact Stephanie Long ([email protected]) or Geoff Woollacott ([email protected]) to schedule a time to chat on any of the insights below.

November 2019 developments:

  1. Microsoft partnered with IonQ and Honeywell, which will provide the foundational quantum hardware for Microsoft’s Azure Quantum cloud. This was a major announcement in the quantum computing space in terms of real-world application of the technology. Microsoft can now tie its traditional cloud capabilities in with quantum offerings, addressing customer demands for a hybrid computing and flexible quantum experience. TBR notes that IonQ and Honeywell both focus on trapped ion quantum computing, suggesting Microsoft deliberately chose these vendors for their unique hardware capabilities. Partnerships in the quantum space have been ramping up in general, especially between hardware and software players, as these vendors take lessons from classical computing speedbumps and streamline their processes for the quantum era.
  2. Fermilab launched a new Institute for Quantum Science, reaffirming the U.S. government’s interest in leveraging the technology for various uses. Fermilab is more formally known as the U.S. Department of Energy’s Fermi National Accelerator Laboratory and has been investing in particle physics and accelerator technology for more than 50 years.
  3. IBMcontinues to pursue its cross-technology strategy to partner for accelerated innovation. We have seen this strategy play out for IBM in various markets, including blockchain and AI with Watson. Most recently in the quantum space, IBM unveiled a partnership with the Unitary Fund to jointly develop open-source projects for quantum computing. Additionally, IBM’s recent partnership with IonQ regarding QisKit reinforces IBM’s overall vendor agnosticism despite targeted hardware investments in superconducting quantum computing. The vendor seeks to capitalize on the most lucrative aspects of the larger quantum market.
  4. PsiQuantum is a stealth quantum startup focused on developing quantum hardware. Of  significance is PsiQuantum’s ability to recently raise $230 million while remaining relatively quiet, suggesting the startup’s road map is highly desired by investors. It is likely that the investment PsiQuantum received is one of the largest in the quantum industry to date, making this even more significant. PsiQuantum has offices in the U.K. and the U.S. and is developing a general-purpose silicon photon quantum computer. Its U.S. location in Palo Alto, Calif.,  positions the startup nicely within Silicon Valley, where it can readily access chip manufacturing expertise.  PsiQuantum’s founder, Jeremy O’Brien, is a professor at the University of Bristol and the director for the Centre for Quantum Photonics.
  5. Atos partnered with Zapata with the goal of delivering an end-to-end quantum computing solution by combining Zapata’s Orquestra quantum software with Atos’ Quantum Learning Machine. The solution is expected to be able to address specific vertical market demands. TBR believes the software functionality will be tweaked to enable this vertical differentiation.

That is all for this month’s Quick Quantum Quips from TBR. If you wish to receive more detailed information around the quantum computing market, please inquire about TBR’s Quantum Computing Market Landscape, a semiannual deep-dive into the quantum computing market.

Tableau will add customers and seats with best practices, new capabilities and utilization of Salesforce’s sales teams

Tableau aims to help enterprises create a data-accepting culture

From the opening keynote to the breakout sessions, Tableau was consistent in its message that many enterprises are falling short of their analytics goals. Part of the reason why these enterprises are falling short of their goals is because of their corporate cultures, in which people do not understand the value of their data and business users are apprehensive about manipulating data. To help chief data officers and data analytics advocates shift company culture, Tableau created the Tableau Blueprint. In the analyst breakout session “Leading to Data Culture,” Tableau VP of Product Marketing Mark Jewett defined a data culture as “the collective behaviors and beliefs of people who value, practice and encourage the use of data to improve decision making.” Tableau Blueprint is a free, 190-plus page document of best practices curated from Tableau customers that have successfully shifted toward a data-accepting culture. Shifting a company’s culture to be accepting of data necessitates an executive team that makes it a strategic priority, as well as implicit changes such as cultural habits and explicit policies and resources. Implicit changes may seem ambiguous, but TBR believes that creating an environment in which employees feel comfortable and encouraged to learn about data analytics will breed a data-literate workforce that can better utilize Tableau’s products, enabling customers to achieve a greater return on their technology investment. Tableau Blueprint incorporates this ethos into each step of the customer’s journey, from bringing Tableau onto their infrastructure to training their employees on Tableau to creating an ecosystem that can answer questions for their Tableau users. While Tableau Blueprint will largely be used by data advocates within an organization, TBR expects that Tableau’s consulting partners will also use the set of best practices when implementing Tableau for their enterprise customers.

To further ensure customers are getting the most out of their Tableau products and realizing their strategic objectives and business goals, Tableau’s customer success teams help customers throughout their journey, from acquiring licenses to post-implementation. This is a strategy that Salesforce, which acquired Tableau, has used since its inception, leveraging its customer success team to help customers — and partners — through customer management, customer support, and advisory and consulting services. Tableau collaborates with partners as well, but TBR expects that Tableau’s customer success group will become more akin to that of Salesforce in offering support to both customers and partners as the two vendors collaborate to help customer and partner ecosystems utilize their Salesforce- and Tableau-integrated systems.

Tableau Conference 2019 (TC19) took place in Las Vegas, where Tableau CEO Adam Selipsky, Chief Product Officer (CPO) Francois Ajenstat, Senior Product Manager Graeme Britz and others presented to 18,000 Tableau customers and partners as well as the analyst community. Some of the keynote topics included new augmented analytics and self-service data management features, as well as changes to the company’s strategy. These topics were complemented by success stories from enterprise customers, such as Nissan, highlighting how Tableau helped transform their organization.

Traditional ports and quantum computing: The now and the future

Principal Analysts Geoff Woollacott and Patrick Heffernan are each publishing a piece this week that touches on the business of digital transformation. Geoff focuses on the massive change expected from quantum computing as the business applications begin to catch up to the science. In his opinion, “Quantum is on the cusp of delivering economic advantage. The achievable impact is real today in what can be described as Horizon 1 application use cases. Horizons 2 and 3 will be as much a function of taking existing quantum algorithms that operate with a certain precision under the current fidelity of Noisy Intermediate-Scale Quantum (NISQ) Systems and applying them to different use cases requiring greater precision delivered from higher fidelity, and ultimately fault tolerant, quantum systems to deliver economic advantage to the activity in question.” Patrick’s blog looks at a specific use case for digital transformation, Port Oulu in Finland, where he notes, “a port like Oulu’s, which is both small enough to be manageable through a disruptive digital transformation and large enough to be replicative of a larger port’s ecosystem and challenges, could be an ideal place for connectivity and emerging technology vendors to experiment and prove out the use case for bringing one of the most fundamental infrastructure environments fully into the digital age.”

Additional assessments publishing this week from our analyst teams

DXC Technology’s leadership, headed by new CEO Mike Salvino, is actively pursuing strategic alternatives for three of DXC’s businesses — U.S., state and local health and human services; business process services; and workplace and mobility — that do not fit the company’s focused strategy for the future. DXC will leverage these three businesses, which account for roughly 25% of the company’s total revenue, to unlock value through potential divestitures to strategic or financial buyers or a spin-off.” —  Kevin Collupy, Analyst

Cisco Customer Experience expands its partner network, particularly with technology-led vendors, to incorporate hardware solutions and support contract generation around these solutions. Integrating automation capabilities will enable Cisco Customer Experience to maintain profitability while increasing the delivery range of solutions to new clients. We expect the company to continue strengthening its partner relationships to accelerate its portfolio transition; however, Cisco Customer Experience could face challenges differentiating its offerings from those of its peers, as they also leverage partner technologies to grow market share.” — Analyst Kelly Lesiczka

“With markets, portfolio offerings and people at the center of its Strategy 2025 initiative, BearingPoint is expected to continue to grow its management consulting revenue beyond 2019 and gain opportunities in its five segments of focus: data-driven banking operations, unified commerce, automotive operations, next-generation public services and digital twin business. BearingPoint is developing its organization in Europe and establishing the foundation for its business development in the U.S. to address growing client demand and enable European organizations to become global companies.” — Elitsa Bakalova, Senior Analyst

Test bed for smart cities: One port’s potential

At a recent event in Oulu, Finland, I heard about the local port’s efforts to undergo a full-scale digital transformation, to include everything from 5G connectivity to analytics to drones to enhanced customer experience, sparking a kind of epiphany, for me, on the potential for a relatively small port to serve as a test bed for smart cities. Unlike municipalities, ports have defined boundaries and clear, relatively straightforward missions (move stuff in and out). Similar to cities, ports have a widely diverse ecosystem: dock workers, trucking companies, shipping companies, construction workers, safety and security professionals, waste management and maintenance companies, the port’s own fleet (such as pilots and their tugboats), customs officials, emergency responders, government agencies, environmental impact authorities, and even neighboring businesses. If a port were to go through a digital transformation, the impacts would be felt across that entire ecosystem — so that entire ecosystem must be accounted for, engaged, bought in, and sustained.

The Port of Oulu has taken an approach shared by most municipalities looking to become a smart city — start small, but with a large, long, deep vision, and build incrementally. In my view, a port like Oulu’s, which is both small enough to be manageable through a disruptive digital transformation and large enough to be replicative of a larger port’s ecosystem and challenges, could be an ideal place for connectivity and emerging technology vendors to experiment and prove out the use case for bringing one of the most fundamental infrastructure environments fully into the digital age. Oh, and Oulu happens to be the Silicon Valley of the Nordics, so the local technology ecosystem could support creative and breakthrough approaches to solving the port’s technology and business problems.

How does a port measure the return on investing in digital transformation? After accepting that a hard number would probably be impossible to determine, the port can look to increased efficiency of its current clients, the ability to attract new clients (to a better-run, more efficient port), and the potential to monetize the data generated. How would a connectivity vendor like Nokia, which has already begun working with Port Oulu on 5G, see a benefit? Or how about a consultancy or global systems integrator that develops the blueprint and a proven use case for the digital transformation of ports? Beyond the simple fact that the world has thousands of ports, the world has even more cities, many looking for digital transformations. Prove it within the confines of a port’s ecosystem, and you can scale it across a city.