Vendors are embedding IoT throughout their organizations

Vendors are rebuilding their IoT GTM strategies

Although vendors are deemphasizing IoT publicly, their overall businesses continue to grow at an accelerating rate slightly over 20%. While TBR is seeing more IoT-based projects than before, the average project scale is shrinking. And though a growing number of specialized solutions and components are entering the market, most still require substantial configuration and integration.

Many vendors enthusiastically embraced IoT as a way to open new markets and bring in new customers. Apart from the major IoT platform vendors — Amazon Web Services (AWS), Microsoft, Google and PTC — smaller vendors are now using IoT to enhance and promote their existing products and services, largely to existing customers. This reflects how IoT has become an often-implicit part of companies’ digital transformation offerings and go-to-market strategies. In many cases, IoT development, marketing and sales organizations have be folded into product, service and vertically oriented organizations.

The number of IoT use cases continues to grow, particularly those with smaller-scale and specific applications

IoT projects are proliferating across verticals and geographies, despite the reduced level of promotion and discussion among vendors. Customers, and therefore vendors, are focused on solutions, and IoT is a class of solutions. While customers concentrate on using IoT concepts to solve specific problems, vendors are turning to vertically oriented  products and sales structures as well as relationships with vertically oriented IT and OT partners.

As a result of multiple vendors having similar needs, there is a large variety of use cases from which common use cases in specific verticals are emerging. For instance, in manufacturing, there are production-related use cases that increase productivity and quality, as well as product-oriented use cases that help monitor and service products in the field. In the public and utilities verticals, there are many instances of smart metering of power and water. In the public vertical, use cases focusing on air quality, parking and lighting are common.

TBR’s semiannual Commercial IoT Market Landscape delivers overall market and top vertical insights, including identifying key use cases as well as trends in technology and buyer behavior. The landscape also captures the top public deals within those verticals and the lead vendors associated with them.

TBR predicts total enterprise spend on edge infrastructure will grow at a 41% CAGR through 2024 to almost $120B

Webscale drives projected forecast for enterprise edge

On Feb. 26, TBR senior analysts Nicki Catchpole and Stephanie Long were joined by hundreds of professionals across multiple vendors and verticals for TBR’s first webinar on the enterprise edge. The session, The emerging and evolving landscape of enterprise edge computing, focused on the components of the enterprise edge market — as defined by TBR — and projected market growth, in addition to touching on use cases in retail and agriculture that demonstrate the real-life applicability of edge computing across verticals.

In TBR’s definition, the enterprise edge market encompasses enterprises in all verticals, including communication service providers (CSPs). We explores CSP spend on edge infrastructure in depth in our Telecom Edge Compute Market Forecast (2019-2024).

Although edge technology is not new, it is still considered to be emerging, and growth rates are projected to increase significantly through 2024. The spending increase will occur to support connected devices, emerging workloads such as IoT, and faster time to insight on existing use cases and predictive analytics, with the ultimate goal of facilitating the adoption of digital transformation. The most notable driver of edge spend through 2024 will be the complex dynamics within the webscale space in support of digital transformation projects that were historically captured by OEMs.

Use cases in the agriculture and retail verticals demonstrate the value of edge computing across disparate industries

There are hundreds of individually documented and proven use cases for edge computing across many different verticals. A common theme is that edge computing across verticals makes it easier to process data at the source to refine and send it to an edge or cloud network for further analysis, AI applications and storage. During the webinar, TBR analysts covered use cases that touch consumers and vendors alike, focusing on examples in smart farming as well as retail.

Agribots enhance farm management while edge computing introduces benefits for brick-and-mortar retailers

Smart farming technologies mark a notable shift in how farms can be managed by introducing automation and predictive intelligence at scale. Even within this one industry, the examples are vast and varied. Agribots in the form of machinery, like autonomous tractors, interact with the surrounding environment, collecting data and communicating back to the cloud for longer-term analysis. Crop management and production life cycles are optimized through the automation and analytics enabled by edge at scale.

The examples in retail are as equally as diverse, ranging from in-store robots that can create a customized shopping experience to the implementation of AR/VR in fitting rooms. Benefits include improved customer experience as well as workforce and operational optimization.

Questions from attendees prompted a deeper dive

One attendee asked for more detail about what components TBR included in its market sizing estimates. There are many components of edge computing, with varying opinions around what should and should not be included. TBR’s enterprise edge market sizing includes hardware — server and storage networking — as well as close-to-the-box software and services.

Another attendee asked about the “vendor soup” among hyperscalers and whether there are online marketplaces such as Azure that facilitate the decision-making process or if it is largely left to systems integrators. TBR has seen offers from hyperscalers trying to sell more solutioning and recommending combinations of solutions to their customers. This type of approach, but with a more vertical focus in the marketplace, may promote market expansion to include solution advisory services. Implementation of edge computing is a multifaceted and dynamic process, and hyperscalers are well positioned to help customers through the process of selecting and integrating multiple different services.

 

Click here to listen to this webinar, The emerging and evolving landscape of enterprise edge computing, in its entirety

 

Insights from TBR’s inaugural Enterprise Edge Compute Market Landscape

The edge computing market spans a spectrum of use cases that meet various customer needs, including sensitivity for latency and analytics. According to TBR’s 1Q20 Enterprise Edge Compute Market Landscape, while the edge is not new, its use for low-latency-dependent applications and close-to-the-data computing has increased and will continue to do so to support connected devices, emerging workloads such as IoT, and faster time-to-insight. For example, in-store robots can interact with customers to create a customized shopping experience on the floor and use data around purchases to help restock inventory.

TBR predicts a rapid increase in enterprise edge spend through 2024. The dynamics within the webscale space  include a desire by managed service providers to run their offerings on bare metal hardware and ODMs with the ability to provide this bare metal hardware at lower price points than OEM peers. These dynamics will be a key driver behind the upswing in enterprise edge revenue through 2024 as webscales capture opportunities typically fulfilled by OEMs.

For additional information, read our special report Edge computing is a cross-industry revolution that will reshape every industry and contact an account executive about TBR’s Enterprise Edge Compute Market Landscape.

 

Perspecta prepares to move beyond NGEN loss

2020 will be critical as Perspecta attempts to make up for its NGEN-R bid loss, with federal spending priorities providing an avenue for growth

“Perspecta delivered steady top-line results in 4Q19 as it posted a very strong book-to-bill ratio (1.4) and continues to win new deals in areas of strategic importance for both Perspecta and the federal government, such as cybersecurity, enterprise IT and radio frequency technology,” said Research Analyst Brian Baker. “The federal budget continues to be extremely growth-friendly for IT vendors, especially in areas like IT modernization, cybersecurity and commercial off-the-shelf solutions.”

He continued, “Perspecta’s growth outlook is clouded significantly by the NGEN-R bid loss, but the effects of this loss are not likely to impact Perspecta’s top line much more in 2020 as the company is already executing on an extension of its existing NGEN contract, which will last until at least September 2020. The NGEN-R bid loss comes at a relatively ideal time for Perspecta, as only 8% of its book of business is up for recompete in the coming year, allowing significant opportunity to pursue new business. If business development efforts are successful, Perspecta may be able to mitigate a good portion of the NGEN loss, but TBR believes growth in 2021 will remain a significant hurdle for the company.”

Additional reports recently published by TBR’s analyst teams

4Q19 Google Cloud: Acquiring, partnering and innovating in triple-play strategy

“In 4Q19 Google Cloud saw rapid revenue growth that paralleled and validated its continued and planned investments in infrastructure, R&D, talent, partnerships and global expansion. TBR predicts this accelerated pace of growth, fueled by offerings like Google Cloud Platform, will help the company close the gap with market share leaders Amazon Web Services and Microsoft.” — Nicole Catchpole, Senior Analyst

4Q19 Hewlett Packard Enterprise Initial Response

“According to the original timeline, HPE Next was supposed to be nearing completion, but in 4Q19 HPE announced the HPE Next initiative will continue through the end of HPE’s fiscal 2021. The vendor promises ‘incremental savings’ from this move, but TBR believes the extension is likely to involve further restructuring and potential employee rationalization as HPE eliminates redundancies from acquisitions such as Cray.” — Stephanie Long, Senior Analyst

4Q19 Cisco Systems: Facing lower demand as macro headwinds mount

“Enterprises and SMBs embraced Cisco’s intent-based networking offerings for most of 2019, while communication service providers (CSPs) redistributed capex toward RAN for 5G and virtualized infrastructure rather than core network initiatives. In 2020 we expect Cisco CSP revenue to continue to shrink, though at a slower rate due to rising spend on 5G core networks. Enterprise spending will decline as well due to macroeconomic factors such as COVID-19-related capex delays.” — Michael Soper, Senior Analyst

4Q19 Cisco Customer Experience: Enhance core capabilities to drive client value

“Software- and subscription-based engagements provide consistent support and maintenance revenue, and emerging solutions that embrace AI, IoT, security and cognitive capabilities provide opportunities for Cisco Customer Experience to bolster performance through upselling. Additionally, Cisco’s expanded footprint helps foster client relationships and showcase its expertise, leading to higher-value transformation engagements. We expect Cisco will continue to lead with its deep domain expertise, particularly in cybersecurity, to create new opportunities within its existing client base as well as strengthen its share in underpenetrated markets including APJC.” — Kelly Lesiczka, Analyst

4Q19 Hewlett Packard Enterprise Cloud Initial Response

“HPE recently began reporting annualized revenue run rates (ARR), as it looks to transition its entire portfolio toward consumption-based pricing by CY2022. HPE’s ARR grew 19% year-to-year in 4Q19 to $511 million, driven largely by GreenLake revenues, but high-growth, software-defined platforms such as Aruba Central and the newly launched HPE Container Platform will become rising contributors. At its Security Analyst Meeting in October, HPE provided guidance of a 30% to 40% CAGR in ARR between FY2019 and FY2022. TBR expects the transition to favorably benefit margins during this time period, but it will likely take time for HPE’s top line to reflect the change.” — Catie Merrill, Analyst

Edge computing is a cross-industry revolution that will reshape every industry

The edge computing market spans a spectrum of use cases that meet various customer needs, including sensitivity for latency and analytics. According to TBR’s 1Q20 Enterprise Edge Compute Market Landscape, while the edge is not new, its use for low-latency-dependent applications and close-to-the-data computing has increased and will continue to do so to support connected devices, emerging workloads such as IoT, and faster time-to-insight. For example, in-store robots can interact with customers to create a customized shopping experience on the floor and use data around purchases to help restock inventory.

TBR predicts a rapid increase in enterprise edge spend through 2024. The dynamics within the webscale space   include a desire by managed service providers to run their offerings on bare metal hardware and ODMs with the ability to provide this bare metal hardware at lower price points than OEM peers. These dynamics will be a key driver behind the upswing in enterprise edge revenue through 2024 as webscales capture opportunities typically fulfilled by OEMs.

Nearly all webscales and some telcos utilize ODM hardware, and most enterprises are expected to use OEM gear for their edge environments

ODMs have perhaps the largest opportunity at the enterprise edge. White-box hardware is of rising interest to major service providers, and the low-margin, high-volume play that ODMs embrace is an excellent fit for the enterprise edge market.

 

TBR’s Enterprise Edge Compute Market Landscape, which is global in scope, details edge compute trends among vendors and their customers. Vendor coverage includes Amazon Web Services, Atos, Cisco, Dell Technologies, Digital Realty, Equinix, Hewlett Packard Enterprise, Huawei, IBM, Lenovo and Microsoft. This research includes current-year market sizing and a five-year forecast. Interested in hearing more of TBR’s analysis on the emerging and rapidly evolving opportunity in the enterprise edge market? Check out the replay of our recent webinar, The emerging and evolving landscape of enterprise edge computing.

Two Back, Three Forward: All about consecutive quarters

In our new weekly blog series Two Back, Three Forward, we look at two numbers in TBR reports from the prior week as well as three numbers from our upcoming reports, highlighting the analysis TBR provides and the vast amount of data — the numbers — we’re working with every day. It’s all about the data and what that data means to you.

Two Back

$1.47B, Cognizant’s 4Q19 earnings from financial services clients: As noted in our full report, Cognizant’s Financial Services (FS) revenue increased last quarter, but at a slower pace than the company overall, partly due to softness from European banking clients, according to Cognizant. We’ve heard this complaint from other India-centric vendors and will be publishing a special report this month on what those companies have been doing to offset those pressures. To keep some context, FS remains Cognizant’s largest vertical, at 34.3%, but this trend bears watching.

3, consecutive quarters IBM’s healthcare IT services revenue has declined: 2019 was unquestionably an off year for IBM’s healthcare IT services (HITS), but our most recent analysis indicates the company will rebound in 2020 through new leadership, partnerships and technologies. Considering IBM’s long history of excelling in all three of those areas, we’re predicting a modest 2.2% expansion this year. See the full IBM HITS report for all the analysis.

Three Forward

71.2%, contribution of DXC Technology’s Cloud Professional Services segment to overall cloud revenue, per TBR estimates: Nothing surprising about cloud professional services earning the greatest share of revenue, but what stands out is the 9.6% growth rate of that service line within DXC’s overall cloud practice. Ahead of the other service lines and far better than the company as a whole (-3% over the same period). As we note in the upcoming full report, “DXC’s established relationships with major public cloud providers such as Microsoft and AWS [Amazon Web Services] enable the company to build out integrated solutions and maintain healthy growth in 2020 providing cloud management and migration services.” Further, the company continues investing in cloud-savvy professionals even as it bolsters its traditional IT services talent. DXC’s long-term strategy, including around cloud, appears solid.

More than 50%, Capgemini’s digital and cloud revenues as a percentage of total revenue: Like most IT services peers, Capgemini has strategically shifted resources and investments toward new opportunities in cloud and digital, in part through expanding capabilities alongside partners, developing solutions with partners like AWS, and acquiring talent and IP. Even if revenue growth slows from 5.3% year-to-year in constant currency in 2019 to something closer to 4% in 2020, as Capgemini expects, we don’t expect digital and cloud revenues will ever again dip below the 50% line, even if Capgemini joins market leaders in moving beyond the term digital.

3, consecutive quarters in which Perspecta elevated its FY20 guidance: Due to accelerated demand and strong bookings of net-new work, Perspecta is now guiding for annual revenue growth of between $4.45 billion and $4.5 billion, or 4.1% and 5.3%, over FY19. Even with healthy revenue growth, TBR projects the company’s full-year gross margin will erode 2020 (declining from 24.9% in 2019 to 23.6% in 2020) due to  accumulating costs from its acquisition of Knight Point Systems, the launch of new delivery facilities, and investment in Perspecta Labs. Perspecta’s 2020 operating margin should increase 10 points over 2019, from 6.2% to 6.3%, as unprofitable contracts are completed and Perspecta converts strong bookings of more lucrative and net-new contracts featuring the company’s expanding store of homegrown IP. In all, TBR sees steady growth as more important than financial guidance adjustments, given our concern for strategy and performance, not stock price.

TBR projects CSP spend on edge compute infrastructure will grow at a 54.5% CAGR to $90B by 2025

TBR estimates over 1.2 million network sites and cell sites will become mini data center (edge) locations globally by 2025, up from nearly 9,000 sites globally at the end of 2019. The primary driver of edge build-outs from 2019 to 2024 is telcos’ and cablecos’ network transformations, which entail migrating to a cloudified and virtualized network, and webscales’ edge initiatives to support their cloud businesses and digital lifestyle endeavors. In this new architecture, network functions will be virtualized and housed in network functions virtualization infrastructure, which is essentially a data center. Network sites, such as central offices, have been the primary edge compute locations to date, with cell site builds expected to ramp up significantly in 2021 and become the primary locations for the CSP edge by 2025.

Most CSP edge sites will be located in the U.S. and China by 2025

TBR estimates over two-thirds of global far edge sites that are owned or leased by CSPs will be located in the U.S. and China by 2025. This heavy concentration of sites will be due, in part, to webscales pushing the ecosystem into the edge to realize their distributed computing initiatives, which encompass migrating mission-critical and latency-sensitive enterprise workloads into their clouds as well as enabling and supporting their digital lifestyle initiatives.

Telecom and cable operators in these two countries will also be active participants in building out their own edge infrastructure, but this will mostly be to transform their networks into automated, virtualized and cloudified systems.

CSPs in other countries will also build out edge compute infrastructure over the next five years, but the scale will be dwarfed by what stakeholders in the U.S. and China intend to pursue.

TBR’s Telecom Edge Compute Market Forecast, which is global in scope, details edge compute spending trends among communication service providers (CSPs), such as telecom operators, cable operators and webscales. This research includes current-year market sizing and a five-year forecast by multiple edge compute market segments and geographies, with the most recent publication covering 2019 to 2024.

New Dell hybrid cloud pricing offers VxRail by subscription

“Last summer, Dell rival HPE laid out a bold plan to transition its business into a software- and services-only operation by 2022 and it would do so, in part, by making its entire portfolio available through a number of different subscription-based, pay-per-use and as-a-service offerings. HPE also, however, said it planned to make its hardware and software available in a capital expenditure and license-based model, thereby giving users a choice in consuming HPE products and services in a more traditional offering. ‘This is a counterpunch being thrown at HPE, which is in the throes of transforming to a software and services company via subscriptions using Greenlake,‘ said Geoff Woollacott, senior strategy consultant and principal analyst at Technology Business Research. ‘[Dell is] trying to do the whole lifecycle management as part of the overall service.'”

5G will require new business models to make money

“According to a study conducted by Nokia and Technology Business Research (TBR), different markets will demand different types of services and operators will need to come up with a variety of cost structures if they want 5G to be profitable. ‘There are many big overarching variables that need to be factored into the ROI [return on investment] assessments,’ says Chris Antlitz, principal analyst with TBR. In particular, Antlitz says that operators need to consider a country’s spectrum requirements as well as its regulatory environment. And they also need to look at the gross domestic product (GDP) of the country and the disposable income of its residents.” — Futurithmic