Posts

U.S. 5G investment supports non-China-based vendors as Huawei and ZTE face increasing headwinds

Nokia and Huawei are well-positioned to win as operators overhaul architectures in the 5G era, but most of the spend to date is on 5G radios, with Ericsson at an advantage due to market perception of its software-upgradeable Ericsson Radio System RAN. The network must ultimately be overhauled to fully realize 5G’s potential, but it will take CSPs many years to evolve their networks end-to-end, and the current focus — and 5G-related capex spend — will be on 5G radios. In the 5G RAN space, TBR believes Ericsson leads in market share. Nokia and Huawei, however, have broad portfolios that enable them to enter 5G accounts from multiple domains.

Graph showing 3Q18 revenue, year-to-year growth and operating margin for vendors in TBR's Telecom Vendor Benchmark

 

 

The Telecom Vendor Benchmark details and compares the initiatives and tracks the revenue and performance of the largest telecom vendors in segments including infrastructure, services and applications as well as in geographies including the Americas, EMEA and APAC. The report includes information on market leaders, vendor positioning, vendor market share, key deals, acquisitions, alliances, go-to-market strategies and personnel developments.

Customer preferences are forming around hybrid and shifting around open source as vendors focus on acquisitions

Prebuilt devices are a ray of clarity amid the fogginess of hybrid

Hybrid can be a difficult thing to define in cloud computing. The term “hybrid” is overused by vendors but underused by customers, causing general confusion over its definition as well as solid examples of hybrid solutions. An area of the market that cuts through those areas of confusion is hybrid cloud integrated systems. These are physical devices (appliances) that are designed to integrate with public cloud services and can be used in customers’ own data centers. The idea that customers can physically touch the box and also integrate with external cloud services makes integrated systems one of the easiest and most obvious hybrid scenarios.

Examples of integrated systems solutions include Azure Stack from Microsoft and its hardware partners and Cloud at Customer from Oracle. While adoption and usage of these hybrid cloud solutions remain limited, the trend is picking up momentum and is prompting vendors such as Amazon and Google to move closer to competing in the space, particularly as customer demand from heavily regulated industries favors local versions of vendor-hosted cloud infrastructure. For example, Amazon Web Services (AWS) and Microsoft are the two front-runners in the race to win the U.S. Department of Defense’s Joint Enterprise Defense Infrastructure (JEDI) contract. While AWS has largely been seen as the overall favorite, its Snowball Edge offering does not meet the same bidirectional synchronization requirement of the tactical edge device that Azure Stack does.

Kubernetes season is in full swing as OpenStack falters

For large enterprise customers, open-source technologies have garnered much interest as part of their cloud strategies. The ability to utilize solutions that provide the same backbone as large cloud providers while maintaining the control associated with open source has been an attractive value proposition for those with the resources to implement and manage them. However, predicting which technologies will be the most commonly adopted has been more challenging, creating uncertainty around frameworks such as OpenStack, which has yet to garner significant momentum in the market.

Compounding the hurdles for OpenStack to overcome continues to be the ongoing explosion in growth among public cloud IaaS front-runners AWS, Google, Microsoft and Alibaba. OpenStack founders and former OpenStack pure plays are making notable shifts toward Kubernetes. The difference, though, is that Canonical and Red Hat are still holding onto OpenStack, while others, such as Rackspace, Hewlett Packard Enterprise, IBM and Mirantis, de-emphasize it.

Customers increasingly understand the benefits of containers and container orchestration platforms and embrace the portability and interoperability they provide. According to a recent interview done as part of TBR’s Cloud Customer Research Program, a retail SVP, CIO and CTO said, “You need to make sure there are escape clauses in your contracts in case you need to get out. Once you’re in it, you’re pretty much married, and that divorce is really bad. That’s the reason we have a container. … Because if it starts to get too expensive, we want to pull it off quickly.”

This is just one example of the immediate enterprise benefits of container and container orchestration platforms, which can change the game for enterprises in terms of their cloud adoption road maps and long-term cloud plans.

Hybridization is becoming even more widespread than customers realize

While pre-integrated devices are the most obvious examples of hybrid usage, the vast majority of activity is occurring in more subtle situations. This activity is driven by the desire among vendors to sell broader solutions and the desire among customers to implement services that integrate with existing and other new technologies. The good news for both sides of the market is that there are more capabilities than ever to put those more cohesive, integrated solutions in place.

Salesforce, whose solutions are commonly integrated into hybrid environments, has taken a notable step into the hybrid enablement space by acquiring MuleSoft. The acquisition, which closed on May 1 at the start of Salesforce’s FY2Q19, brings MuleSoft’s well-known integration Platform as a Service (iPaaS) solution and services into Salesforce’s arsenal. The implications for Salesforce, its customers and the market are vast, as the company can create connections between its applications and the variety of other cloud and legacy systems residing in customers’ environments. Salesforce quickly leveraged the iPaaS technology, bringing Salesforce Integration Cloud to market within the first few months of having MuleSoft on board, enabling customers to augment their Salesforce applications and derive greater insights from their non-Salesforce data.

Telecom vendor revenues trend upward as operators pull forward 5G investment

According to Technology Business Research, Inc.’s (TBR) 2Q18 Telecom Vendor Benchmark, revenue growth improved for the largest vendors as they capitalized on early 5G investment but saw reduced spend in China. Operators, particularly those in the United States, are pulling forward investment in 5G and deploying small cells to densify networks. However, the RAN market will decline in 2018 as operators in China reduce spend significantly following the conclusion of LTE coverage deployments.

TBR believes Ericsson has staked an early lead in 5G, but Nokia (NYSE: NOK) and Huawei can leverage their end-to-end portfolios to regain share. In 4Q17 and 1Q18 Ericsson (Nasdaq: ERIC) aggressively priced its Ericsson Radio System (ERS), which is software-upgradeable to 5G, undercutting competitors to gain market share ahead of commercial 5G build-outs. Nokia and Huawei remain well positioned in 5G due to their ability to leverage end-to-end portfolios as a one-stop shop for network transformation in the 5G era.

ZTE was banned from sourcing components from the U.S. for part of 2Q18, which drove the company to essentially cease operating, leading to drastically lower revenue and a deep operating loss. The company is once again operating, but its reputation was tarnished, particularly in Western markets.

Graph showing 2Q18 revenue, operating margin and year-to-year revenue growth

 

TBR’s Telecom Vendor Benchmark details and compares the initiatives and tracks the revenue and performance of the largest telecom vendors in segments including infrastructure, services and applications and in geographies including the Americas, EMEA and APAC. The report includes information on market leaders, vendor positioning, vendor market share, key deals, acquisitions, alliances, go-to-market strategies and personnel developments.

HCI vendors capitalize on digital transformation with private cloud adoption

HAMPTON, N.H. — In many ways, digital transformation equates to rising cloud adoption. Enterprises need the increased agility and flexibility that a cloud environment provides but also want the cost structure associated with cloud. However, new regulations on data sovereignty continue to emerge and security concerns are mounting as data becomes an increasingly valuable asset, creating challenges for enterprises seeking cloud environments. Hardware vendors that initially lost business to cloud providers revel in this shift, as clear markets for both public and private cloud enable infrastructure and services vendors to co-exist.

Despite the need for greater control and security of data, enterprises still demand the agility and flexibility afforded by cloud environments and are increasingly demanding opex-based consumption models. Insights from TBR’s recently published 1H18 Hyperconverged Platforms Customer Research report further detail these trends and the impact they will likely have on the data center infrastructure and cloud markets.

Many customers purchasing HCI are doing so for cloud environments

More than 90% of hyperconverged infrastructure (HCI) customers surveyed in TBR’s 1H18 Hyperconverged Platforms Customer Research are leveraging or will leverage HCI for cloud installments: 54% are leveraging HCI for hybrid cloud, 30% are leveraging HCI for private cloud, and 8% are not currently leveraging HCI for cloud but intend to do so in the future. HCI is well-suited for the cloud as it is highly software-enabled, making spinning it into a private cloud relatively seamless compared to traditional infrastructure environments. Further, HCI sales tend to be more supported with services than legacy infrastructure sales, enabling customers to experience a more collaborative sale. Findings from 1H18 Hyperconverged Platforms Customer Research indicate 59% of respondents purchased their HCI solution direct from the vendor, while 62% of respondents received or requested additional hardware services, such as firmware and break-fix, with their HCI purchase.

HCI is a lucrative opportunity for vendors as it combines hardware, software and services into a single sale, increasing margins for hardware vendors and enabling vendors to leverage strategic marketing to sell across their entire portfolio stack rather than one-off piecemeal hardware sales. Further, many HCI vendors successfully bundle additional non-HCI sales on top of HCI purchases, as a customer already strongly considering a given vendor’s HCI architecture is likely to consider other solutions in the portfolio. Respondents in the 1H18 Hyperconverged Platforms Customer Research indicated they frequently make additional hardware purchases with HCI sales. However, these additional hardware sales were not necessarily associated with the HCI appliance, with customers purchasing additional hardware for their data centers in many cases. This suggests a broad portfolio is paramount to enterprise success as IT shops look to reduce the number of suppliers they manage while seeking hardware components to maintain existing infrastructure requirements of legacy workloads and building out new environments for native cloud workloads. This will prove advantageous for multiline vendors in the space such as Lenovo, Dell EMC and Hewlett Packard Enterprise (HPE) but will challenge niche vendors such as NetApp and Pivot3.

The rise in consumption-based pricing makes HCI more desirable for cloud installments

Of 1H18 Hyperconverged Platforms Customer Research respondents, 81% are considering consumption-based pricing models for future HCI purchases. The reasons for considering consumption-based pricing vary, with less than one-third of respondents doing so for the shift to an opex model alone, indicating that purchasing decisions are more complex than simply to shift expense structures. However, customers are still intrigued by these new pricing options.

The more interest increases for consumption-based HCI purchases, the greater challenges public cloud vendors will face from infrastructure vendors. Dell EMC and HPE both have a strong presence in the consumption-based pricing space, and there are other infrastructure vendors playing in this space less vocally. Competing will be a challenge for public cloud providers as infrastructure vendors message increased security and control without cost increases to battle public cloud options.

There will always be a place for both public and private cloud in the data center market

Although competition will continue to heat up between public cloud and private cloud vendors as evolving market dynamics alter messaging, the need for both installments in the digitizing world will remain. However, as economics become more favorable on the private cloud side, partly due to HCI and consumption-based pricing, customers may consider private cloud options for workloads they previously would have considered a public cloud environment.

For additional information about this research or to arrange a one-on-one analyst briefing, please contact Dan Demers at +1 603.929.1166 or [email protected].

ABOUT TBR

Technology Business Research, Inc. is a leading independent technology market research and consulting firm specializing in the business and financial analyses of hardware, software, professional services, and telecom vendors and operators. Serving a global clientele, TBR provides timely and actionable market research and business intelligence in a format that is uniquely tailored to clients’ needs. Our analysts are available to address client-specific issues further or information needs on an inquiry or proprietary consulting basis.

TBR has been empowering corporate decision makers since 1996. For more information please visit www.tbri.com.

1Q18 device revenue results were boosted by market shifts and increasing ASPs in PCs and smartphones compared to a weaker 1Q17

HAMPTON, N.H. (July 13, 2018) — Technology Business Research, Inc.’s (TBR) 1Q18 Devices and Platforms Benchmark finds that there is ongoing revenue opportunity in both the PC and smartphone markets. Total benchmarked revenue increased 15.9% year-to-year to $112 billion despite indications of saturation in the high end of the PC market.

Total PC benchmarked revenue increased 12% year-to-year to $32 billion. Total PC benchmarked gross profit increased 10.4% year-to-year to $5 billion despite increasing component costs. “Despite speculation that the PC market is dead, major device OEMs have been able to successfully navigate the shifting market and generate healthy profits,” said TBR Analyst Dan Callahan. “Renewed appetite for premium PCs in enterprise — and PC OEMs shifting their go-to-market strategies to respond — has been the primary driver.”

Total benchmarked smartphone revenue increased 11% year-to-year to $72 billion. Total smartphone benchmarked gross profit increased 14.8% year-to-year to $23 billion. Smartphone OEMs are combating worldwide saturation by increasing average selling prices (ASPs). Apple’s gamble with a $1,000 smartphone paid off, as customers responded with demand, and Android peers are following suit.

Device as Service (DaaS), an expansion of the former PC as a Service market, is transforming into an offering aimed at supplanting traditional PC financing. The benchmark explores how HP Inc. was the first of the big three PC OEMs to capitalize on the emerging opportunity and has been the first with concrete outbound messaging to partners and customers. This has afforded the company a lead, but it is not cemented. Dell Technologies and Lenovo will use the path HP Inc. paved to introduce DaaS to the market and quickly solidify their own unique solutions. Lenovo and HP Inc. see opportunity beyond the PC in PC as a Service, thus the introduction of DaaS.

The DaaS opportunity remains mostly untapped. Customers and partners are still trying to understand how this service differs from traditional financing and are still kicking the tires on the analytics often attached by OEMs as the main selling point of DaaS.

TBR’s Devices and Platforms Benchmark provides insight on interrelated ecosystems, including device vendors, platform providers, supplier relations, and technology partners across the consumer and commercial spaces. TBR’s vendor-centric analysis speaks to industry trends, while market sizing illustrates opportunity. Our Devices and Platforms research includes PC, tablet and smartphone vendors; platform providers; and technology partners.

For additional information about this research or to arrange a one-on-one analyst briefing, please contact Dan Demers at +1 603.929.1166 or [email protected].

 

 

ABOUT TBR

Technology Business Research, Inc. is a leading independent technology market research and consulting firm specializing in the business and financial analyses of hardware, software, professional services, and telecom vendors and operators. Serving a global clientele, TBR provides timely and actionable market research and business intelligence in a format that is uniquely tailored to clients’ needs. Our analysts are available to address client-specific issues further or information needs on an inquiry or proprietary consulting basis.

TBR has been empowering corporate decision makers since 1996. For more information please visit www.tbri.com.