Quick Quantum Quips: New firms add their names to the quantum landscape

Welcome to TBR’s monthly newsletter on the quantum computing market: Quick Quantum Quips (Q3). This market changes rapidly, and the hype can often distract from the realities of the actual technological developments. This newsletter keeps the community up to date on recent announcements while stripping away the hype around developments.

For more details, reach out to Stephanie Long or Geoff Woollacott to set up a time to chat.

October 2020 Developments

Niche entities within the quantum ecosystem are starting to gain notoriety as big-name scientists place bets on smaller firms with big ideas. At the same time, big brands not typically associated with quantum computing are beginning to throw their own hats in the ring as the monetization opportunities become nearer term and the upside of quantum grows massive. Meanwhile, firms are reallocating funding as the accessibility and functionality of quantum systems increase.

  1. Silicon Quantum Computing (SQC) gains new talent with John Martinis leaving Google as its top quantum scientist and joining the Australia-based startup. Silicon Quantum Computing, one of the few quantum computing organizations with a female lead, was founded in 2017 by Professor Michelle Simmons. Martinis said he joined the organization because he believes its unique approach to silicon-based fabrication at the atomic level could be a differentiator in the space. His contract with SQC will last at least for the next six months.
  2. Cambridge Quantum Computing (CQC) unveiled the latest updates to its quantum software development kit named t|ket>. The recent updates increase the number of supported quantum devices and improve circuit optimization and noise mitigation. CQC’s t|ket> is supported on Amazon Bracket and IonQ systems and also supported specifically for application development on Windows operating systems.
  3. Toshiba unveiled plans to develop commercial-grade quantum key distribution (QKD). The vendor has a deal inked with the National Institute of Information and Communications Technology (NICT) in Japan to install its QKD at multiple points on NICT’s network. The system is expected to be rolled out in 4Q20 and deployed in 2Q21. Toshiba intends to capitalize on this niche within the larger quantum ecosystem and currently is not planning to expand beyond the QKD space. TBR believes this demonstrates that classical computing vendors are preparing to update security protocols ahead of key advancements in quantum technology.
  4. IBM, in partnership with The Coding School, has committed to providing free quantum education to 5,000 students globally. This investment is aimed specifically at high school students with the goal of increasing overall accessibility and diversity among those studying quantum computing. There is currently a well-known skills shortage in the quantum computing space, and as the technology becomes more mainstream, the gap will widen. IBM is one of the leading vendors proactively investing in education at both the university and high school levels to help bridge this gap.
  5. D-Wave made headlines this month for an undesirable reason as its valuation was slashed nearly in half. This development came following a refinancing effort on the part of the annealing quantum company. Specifically, D-Wave’s initial $450 million valuation was cut to about $170 million during a restructuring that raised $40 million in funds, of which NEC Corp. contributed $10 million. D-Wave has undergone executive leadership changes recently, including the promotion of Alan Baratz to CEO to replace Vern Brownwell, who retired. TBR believes D-Wave’s valuation slump may have to do with advancements in quantum computing. We believe that annealing is a valuable tool in the quantum ecosystem but that as true quantum computers become more capable, a true quantum system could replace quantum annealing in some places.

If you would like 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. Our December 2020 iteration will focus on the software layer of quantum systems. Additionally, register for our Dec. 16 webinar on the topic.

With Project Apex, Dell aims to surround the public cloud and tame it

At the virtual Dell Technologies World on Oct. 21 and 22, the company painted a picture of the future, a picture it calls Project Apex. “Apex” can refer to a summit, but it is also the term used to describe the top predator in an ecosystem. Dell Technologies spokespeople did not clarify which definition they intended in naming the project, but it is likely that the predator definition is used widely within the organization. The company aims to use Project Apex to conquer not only public cloud providers, its biggest threat, but also competitors that have similar offerings, such as Hewlett Packard Enterprise (HPE) and Lenovo.

Project Apex is a combination of Dell Technologies Cloud and the company’s goal of offering everything “as a Service.” Dell Technologies Cloud is a multicloud system that includes public and private clouds as well as all of an organization’s assets. Dell Technologies is prepared to manage these assets, both on premises and in the company’s data centers. This system combines the benefits of public cloud — demand-based pricing, simplified operation and outsourced management — with those of on-premises resources — greater control and flexibility, and more efficient use of edge devices. Dell Technologies intends to surround and engulf public clouds.

Project Apex is similar to HPE’s GreenLake initiative, which has the tagline, “The Cloud That Comes to You.” It is not surprising that the two largest data center hardware companies have similar strategies. In fact, while Lenovo’s multicloud and consumption-based pricing strategies are promoted less than those of Dell Technologies and HPE, Lenovo is moving in the same direction. These common strategies are a response to a common threat: the public cloud. Public cloud providers are meeting an increasing share of organizations’ computing and storage requirements, reducing hardware providers’ revenue and profits. All data center vendors have cloud service providers (CSPs) as customers, but CSPs’ scale and ability to provide their own services drive down hardware companies’ margins. The public cloud is a threat, and these combinations of multicloud offerings and consumption-based pricing are the hardware companies’ countermeasure.

Dell Technologies paints a rosy picture of the future, with free movement of data and workloads from the edge to the cloud and everywhere in between. This kind of fluidity would make it much easier for companies to implement and refine large numbers of diverse applications, enabling responsive and flexible digital transformation. The future, of course, is never as bright as pictured in the brochures. But the technology world is making progress in that direction, and Dell Technologies, as the self-defined provider of “essential infrastructure,” is well positioned to deliver it, albeit incrementally.

Project Apex includes the major technologies and techniques that fuel digital transformation. Dell Technologies Chairman and CEO Michael Dell listed six: hybrid cloud, 5G, AI, data management, security and edge. Every large IT system will include these components as well as others. 5G is especially interesting because, apart from critical hardware components for data transmission, it is a software-defined system, giving networking the flexibility that underpins Project Apex.

Project Apex is more a direction than a goal, and Dell Technologies and other tech companies have been moving in that direction since virtualization and its inevitable offspring, the cloud, became important. With the increasing importance of edge devices and edge-generated data, the Project Apex vision, where the public cloud is part of the picture but is no longer dominant, becomes more plausible.

Right now, however, the public cloud is growing rapidly at the expense of traditional on-premises data centers, and hybrid multiclouds are mostly just a vision. There is progress in “as a Service.” Dell Technologies on Demand, the company’s “as a Service” portfolio, now has a $1.3 billion annual run rate, reflecting 30% year-to-year growth. Annual recurrent revenue, which includes traditional financing and services, is $23 billion. Dell Technologies and the other hardware vendors cannot really see the light at the end of the tunnel, but they can describe it.

India-centric IT services vendors focused on protecting margins to survive rough market conditions

Select vendors pursue alliances and deals in the growing cloud market to offset choppy financial performance

During the first couple quarters of the pandemic, Cognizant (Nasdaq: CTSH), HCL Technologies (HCLT), Infosys (NYSE: INFY), Tata Consultancy Services (TCS) and Wipro (NYSE: WIT), the India-centric vendors covered in TBR’s IT Services Vendor Benchmark, looked to form partnerships and sign new deals, especially those around cloud capabilities, with strong patterns of continued growth in cloud implementation, migration and advisory to offset deteriorating areas in traditional outsourcing engagements. For example, Wipro’s partnerships with cloud infrastructure experts, such as Google (Nasdaq: GOOG) and Microsoft (Nasdaq: MSFT), will allow Wipro to build solutions off these technologies and pair them with its advanced AI and automation capabilities to strengthen its position in the market.

To mitigate the damage caused by COVID-19, the India-centric vendors will also make resource management improvements, such as enhancing their training and hiring efforts, and solidify existing client relationships by supporting clients through optimization and digital transformation offerings as they transition to digital business practices. Cognizant must secure alliances to bolster the company’s cloud and analytics capabilities while focusing on internal stability.

HCLT performed rather well financially, all things considered, and should utilize its cloud and software power to further develop its portfolio mix, leading to improved client satisfaction. TCS, on the other hand, should capitalize on its global presence as well as its diverse portfolio to gain traction and improve its financial performance. Wipro also struggled during 1H20, but its financial performance is expected to improve if the vendor focuses on acquisitions, similar to its recent purchase of Europe-based 4C, to add new sources of cloud services revenue in the region while driving portfolio investments around cybersecurity. Similar to HCLT, Infosys came through 1H20 mostly unscathed, due to its healthy pipeline and a strong first quarter. The company should continue to tap into new areas of opportunity, such as digital transformation and blockchain, using its recent partnerships with Essential Utilities and the National Bank of Bahrain.

True to their business models even in a pandemic, India-centric IT services vendors prioritized margin protection as a primary damage control strategy during COVID-19. To adjust management operations and combat growing company expenses, IT service vendors will likely increase employee training and look to hire internally to fill positions. Additionally, TBR believes it is imperative for vendors to continue their focus on upselling to existing clients and leaning on strategic partnerships to offset revenue losses due to geographic macroeconomic disruptions.

Break/fix maintenance disaggregation accelerates with profound business model implications for many

Consumerization of IT continues its inexorable march up the IT complexity stack

“Faster, better, cheaper” has been the IT hardware mantra for decades, and this continues pending the step-function increase in compute capacity that enterprise-grade quantum computing will bring to market before the next decade. Edge compute is little more than traditional distributed computing in smaller, more reliable form factors. Ultimately, edge computing hardware selection will become a derived decision in much the same way that cable television set-top boxes are a derived decision when consumers select a content provider for home entertainment.  

As TBR’s Tailored Services Group has heard during customer interviews, this device simplicity has large enterprise IT organizations beginning to view simple server and storage elements as practically disposable items. Here is where the service arms of hardware manufacturers face market challenges. They have created reliable, simple, low(er)-cost devices, and enterprise buyers are less inclined to pay a premium for their break/fix repair services given the lower number of outages that occur and the lower cost to the devices in general. This market condition provides a greater opening for third-party maintainers (TPMs) to gain share against OEMs, particularly when the OEMs have considerably higher operating cost models than the TPMs.

OEMs hope software abstraction and analytics monitoring and management systems will trigger operational challenges and potential barriers to TPMs

Single pane-of-glass management is another longtime aspiration in the industry and is rising to the fore as technology entrants large and small seek to develop the requisite software orchestration and management layers to run hybrid cloud environments. Within enterprise IT, this move to software management shells has reduced the need for siloed storage and server admins who can revert back to green-screen technology and provision instances. Instead, automatic provisioning occurs based on drag-and-drop templates. On top of this technology, companies build out performance management tools to be able to monitor workload performance and the underlying reliability of the physical infrastructure. IBM purchased Red Hat, for example, for its Swiss Army knife flexibility in this space. Hewlett Packard Enterprise (HPE) has taken the basic analytics assets gained in the Nimble Storage acquisition and slowly extended them out across more of the company’s hardware assets.

At issue now is TPMs gaining the access to these monitoring systems as well as the requisite training to know what the appropriate actions are to take when receiving these automated alerts. This could lead to litigation about access and data ownership down the road, similar to how the issue of spare parts access led to court cases in the 1980s, which were ultimately decided in favor of broader market access and legitimized third-party maintenance operations in the eyes of enterprise customers. For now, however, TPMs take different measures to work around the issues associated with interacting with OEM software shells when supporting enterprise customers. Some deploy third-party diagnostic tools from firms such as BMC and ingest raw log files. Others merely hire ex-OEM employees who are well versed in older core systems and build their own consolidated remote diagnostic centers.

TBR’s Tailored Services Group has seen rising interest in understanding the ways in which hardware maintenance providers go-to-market and operationally deliver break/fix repair services to enterprise customers. The fundamental simplifications and reliability improvements that triggered shifts in laptop and desktop service delivery models are coming to the data center. Further, some enterprises seek to hold onto server and storage assets longer as an interim step while migrating workloads to the cloud.

Beyond these consumption demand shifts, technology vendors, it can be argued, have become victims of their own success by manufacturing more modular systems with easier-to-navigate abstraction layers that reduce the frequency of critical outages. In short, response times become less critical given software-driven failover provisioning and as the diagnostic skills required on the ground become less challenging due to this increased software abstraction. All of these issues point to a radical transformation of the operating model best practices to deliver break/fix repair services to end customers, and that trend accelerates rapidly each day the world operates without a known vaccine to mitigate the spread of COVID-19. 

Innovation and transformation centers: Smart strategies pre-2020 will lead to success in a hybrid future

What the elite vendors have known: It is all about talent, location and network

In meeting with leaders at innovation and transformation centers around the world and discussing their approaches to talent, TBR learned that the most aggressive and successful vendors understood key human resources elements: Talent developed at a center could be dispersed across the globe to help establish new centers; the centers could be a magnet for new talent; and diverse talent on-site as a dedicated part of the center appealed to clients more than flying talent in for each engagement. 

In addition, the earliest successful centers featured a physical location separate from the rest of the company’s facilities to reinforce the idea as new and different while also encouraging clients to think more broadly about the vendor’s capabilities and offerings, getting clients out of their own offices into a more creative space, and providing the vendor with an attractive location for its own professionals to expand their own thinking about what was possible.

While all of these IT services vendors and consultancies have maintained global operations, the elite vendors have combined the talent elements and the benefits of a physical location and understood the importance of creating vibrant virtual networks to facilitate spreading ideas, sharing industry- or technology-specific best practices, and tying together multiple teams and solutions. In contrast, TBR visited vendors whose centers acted as stand-alone silos, with a minimal amount of or leadership emphasis on cross-border cooperation or sharing, limiting the impacts of the centers on clients’ transformations or the innovations within the vendor itself. Overall, the elite vendors understood that these centers catalyzed change throughout their own organizations, accelerating their own transformations even as they worked with clients.

“One additional current operational element stood out during the informal tour: PwC now engages in daily briefs to share success stories and exchange knowledge about solutions and creative approaches to clients’ issues. TBR has pressed every consultancy and IT service vendor on the issue of ensuring new ideas do not stay siloed in one location (diminishing the value of a global firm); to date, TBR believes no firm has developed a comprehensive, robust, and truly global means for sharing innovations and accelerating knowledge dispersion among digital transformation centers, although PwC, EY and Accenture likely have progressed the most.” 

TBR Special Report, Peak PwC or just getting started? PwC’s NYC EC, April 2019

Everyone has a digital transformation center: Over the last 10 years, every vendor in the consulting, IT services and broad technology space has opened a physical center dedicated to working with clients on their digital transformations and collaborating on innovation of products, processes or business models. TBR has visited at least one of nearly every vendor’s centers, from nine-story buildings in India to one-room product showcases in Texas. Among the common themes, three of the most persistent have been around people and clients.

Vendors have also wrestled with the best approaches to having technology partners on-site, choosing industry focus areas, selecting suitable spaces and/or locations, and managing intellectual property. The most common unknown is how to measure success. While disparities persist on how best to establish, run and monetize these centers, the common themes and challenges present an opportunity for vendors to examine which elements within a partner’s or peer’s center have contributed to what remains the common goal: retaining clients and expanding opportunities.