Posts

Amdocs Partners With Samsung, Fortifies Footing in NFV Market

“Per a Technology Business Research report, investments in telecom service provider NFV and software defined networking (SDN) are expected to exceed $168 billion by 2022.” — Zacks Equity Research, Yahoo Finance

Continue reading

5G-related investment fuels vendor growth; greenfield 5G and Industry 4.0 opportunities emerge

U.S. cable operators and Dish Network are exploring building out their own 5G networks

Rakuten’s mobile broadband network deployment demonstrates that vendors must be aware of new opportunities to deploy 5G networks for customers that do not currently own mobile broadband networks. In November Dish Network selected Ericsson to supply a radio access and core network for Dish’s Narrowband IoT (NB-IoT) network, which is expected to be completed in March 2020. Dish, which has been closely watching Rakuten’s build-out, is also contemplating a nationwide 5G network, on which it could spend up to $10 billion. Cable operators Comcast, Charter and Altice, which are currently mobile virtual network operators (MVNOs) of Tier 1 mobile operators, are contemplating greenfield 5G network builds as well.

Industry 4.0 will drive demand for cellular connectivity within the enterprise, but not for a few years

TBR’s research suggests that Industry 4.0, which includes mass 5G adoption globally, will not ramp up until between 2022 and 2025, at which point business cases will be proven, justifying an increase in market spend on ICT infrastructure. Cellular technologies, namely LTE and 5G, have better uplink and security capabilities, and lower latency than Wi-Fi, all of which are necessary as enterprises begin to use network technology for mission-critical workloads rather than “best effort” communications. Certain vendors, namely Nokia, Huawei and Cisco, are better positioned than others to capitalize on this trend as they sell both directly and indirectly into enterprises, as well as through communication service providers (CSPs). Ericsson, in contrast, plans to go to market almost exclusively through CSPs, which will place it at a disadvantage as many large enterprises will want private networks.

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 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.

AI chips: Explosive growth of deep learning is leading to rapid evolution of diverse, dedicated processors

Artificial intelligence (AI) utilization has been accelerating rapidly for more than 10 years, as decreases in memory, storage and computation cost have made an increasing number of applications cost-effective. The technique of deep learning has emerged as the most useful. Large public websites such as Facebook (Nasdaq: FB) and Amazon (Nasdaq: AMZN), with enormous stores of data on user behavior and a clear benefit from influencing user behavior, were among the earliest adopters and continue to expand such techniques. Publicly visible applications include speech recognition, natural language processing and image recognition. Other high-value applications include network threat detection, credit fraud detection and pharmaceutical research.

Deep learning techniques are based on neural networks, inspired by animal brain structure. Neural networks perform successive computations on large amounts of data. Each iteration operates on the results of the prior computation, which is why the process is called “deep.” Deep learning relies on large amounts computation. In fact, deep learning techniques are well known; the recent growth is driven by decreasing costs of data acquisition, data transmission, data storage and computation. The new processors all aim to lower the cost of computation.

The new chips are less costly than CPUs for running deep learning workloads

Each computation is limited and tends to require relatively low precision, necessitating fewer bits than found in typical CPU operations. Deep learning computations are mostly tensor operations — predominantly matrix multiplication — and parallel tensor processing is the heart of many specialized AI chips. Traditional CPUs are relatively inefficient in carrying out this kind of processing. They cannot process many operations at the same time, and they deliver precision and capacity for complex computations that are not needed.

Nvidia (Nasdaq: NVDA) GPUs led the wave of new processors. In 2012, Google announced that its Google Brain deep learning project to recognize images of cats was powered by Nvidia GPUs, resulting in a hundredfold improvement in performance over conventional CPUs. With this kind of endorsement and with the widespread acceptance of the importance of deep learning, many companies, large and small, are following the money and investing in new types of processors. It is not certain that the GPU will be a long-term winner; successful applications of FPGAs and TPUs are plentiful.

5G-readiness spend and migration to new network architectures spur the TIS market to growth in 3Q18

According to Technology Business Research, Inc.’s (TBR) 3Q18 Telecom Infrastructure Services (TIS) Benchmark, the TIS market grew as communication service provider (CSP) investment in areas tied to 5G-readiness increased. CSPs are rearchitecting their networks leveraging NFV, SDN and the cloud as well as implementing new business models, which requires growing spend across a broad range of professional services. Deployment services spend grew slightly, but the market will strengthen as the 5G spend cycle ramps up over the next couple of years, although the spend intensity will be lower than during the LTE cycle. RAN suppliers Nokia (NYSE: NOK), Ericsson, Huawei, ZTE and Samsung will capture incremental TIS market share as they drive high volumes of services attached to their 5G RAN. This is already occurring to some extent as CSPs densify networks as part of their 5G-readiness strategies. Though 5G will require significant hardware spend, the aggregate amount will be lower compared to LTE, which will drive vendors to explore new market areas, such as Industry 4.0.

The managed services market was flat year-to-year in 3Q18 as a decline in outsourcing was offset by growth in the out-tasking market. Generally, vendors are exercising pricing discipline when determining which outsourcing contracts to take on in an effort to improve margins. Ericsson is currently leading the way in this regard as it evaluates 42 contracts for exit or rescoping. Huawei, ZTE and CCS have been less concerned with price and are focused on consolidating the outsourcing market. Other vendors, including those that are historically hardware-centric with little to no footprint in the managed services market, are increasingly playing in out-tasking as they will manage applications deployed in CSP networks. Ciena (NYSE: CIEN) is an example of this trend.

 

 

TBR’s Telecom Infrastructure Services Benchmark provides quarterly analysis of the deployment, maintenance, professional services and managed services markets for network and IT suppliers. Suppliers covered include Accenture (NYSE: ACN), Amdocs, Atos, Capgemini, CGI, China Communications Services, Ciena, Cisco (Nasdaq: CSCO), CommScope, CSG International, Ericsson, Fujitsu, Hewlett Packard Enterprise (NYSE: HPE), Huawei, IBM (NYSE: IBM), Infosys (NYSE: INFY), Juniper Networks (NYSE: JNPR), NEC, Nokia (NYSE: NOK), Oracle (NYSE: ORCL), Samsung, SAP (NYSE: SAP), Tata Consultancy Services, Tech Mahindra, Wipro (NYSE: WIT) and ZTE.

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.

Ericsson’s turnaround is in process, but sustainability of business is in question

TBR perspective

Though Ericsson’s focused strategy has proved to be a viable approach to stabilize the company, return it to profitability and provide incremental organic growth, the key concern will be how sustainable that stability and growth will be over the long term.

Ericsson’s focus on the wireless access domain tethers the company to the whims of that market, which is undergoing significant disruption as 5G and virtualization take hold and as operators increasingly shift capex budgets from connectivity infrastructure to building digital businesses, limiting Ericsson’s growth potential. Though there is room for Ericsson to take market share, particularly from Nokia (NYSE: NOK), Huawei and ZTE by leveraging its software-upgradable Ericsson Radio System (ERS) RAN gear, Ericsson is not immune to adverse business trends impacting the broader RAN market, namely legacy decommissioning, virtualization, openness, cloud and white box.

Ericsson is betting its ERS will offset the impact of these adverse trends and hasten its shift to a more software-centric entity with a more recurring, license-based software model that carries relatively high, sustainable margins, but this shift will take years to unfold and there is significant legacy business at risk of disappearing in the interim.

With the architecture of the network fundamentally changing to be virtualized and cloudified and communication service providers (CSPs) focused on relentless cost efficiency and TCO reduction, Ericsson will have to carefully balance its shift from the old world to the new reality, whereby forklift RAN upgrades become lower scale and targeted, and innovation and value migrate to the software layer. This has significant implications for Ericsson’s hardware and close-to-the-box services businesses, both of which are optimized to operate at high scale for efficiency and profitability.

TBR notes Ericsson and its close rival Nokia are pursing different paths during the 5G era. While Ericsson focuses on its core business of selling RAN and mobile core directly to service providers, Nokia is taking an end-to-end infrastructure approach and is building out a dedicated business unit with a full suite of resources to directly sell to enterprises. Though Industry 4.0, 5G and digital transformation are underlying themes that find commonality between the two vendors, their divergent tracks are noteworthy.

 

 

Ericsson (Nasdaq: ERIC) hosted its annual Industry Analyst Forum in Boston, bringing along a range of executives to provide an update on the company’s corporate and business unit strategies, with a focus on Networks, Managed Services and North America. Key topic areas included 5G, Internet of Things (IoT), automation and artificial intelligence (AI). Following the main session, analysts could attend three tracks — Network Evolution to 5G, AI and Automated Operations, or 5G and IoT Industry Innovation — and then participate in one-on-one speed meetings. The tone of Ericsson’s 2018 analyst day was upbeat as the company sees early signs that its turnaround plan is yielding results, evidenced by its 3Q18 earnings results in which organic revenue growth returned and margins improved markedly. Ericsson remains committed to its transformational restructuring and focused strategy, which are key pillars of its turnaround plan.

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.

Digital transformation, which encompasses new business models and network architectures, drives demand for TIS

According to Technology Business Research, Inc.’s (TBR) 2Q18 Telecom Infrastructure Services (TIS) Benchmark, the TIS market grew as digital transformation continued to fuel demand for services that accompany business model evolutions and the implementation of new network technologies, including 5G and NFV/SDN.

The complexity of new network architectures and the interoperability challenges they create have been a boon for professional services revenues, particularly those of IT services firms. A broad range of professional services are required to help operators transform into digital service providers, including consulting, network planning, design, optimization, systems integration, training services, security services and interoperability testing, among other services, all of which are in high demand. TBR estimates the TIS professional services market grew 6% in 2Q18.

TBR’s Telecom Infrastructure Services Benchmark provides quarterly analysis of the deployment, maintenance, professional services and managed services markets for network and IT suppliers. Suppliers covered include Accenture, Amdocs, Atos, Capgemini, CGI, China Communications Services, Ciena, Cisco, CommScope, CSG International, Ericsson, Fujitsu, Hewlett Packard Enterprise, Huawei, IBM, Infosys, Juniper Networks, NEC, Nokia, Oracle, Samsung, SAP, Tata Consultancy Services, Tech Mahindra, Wipro and ZTE.

Samsung heads in the right direction

Samsung introduced its new Galaxy Note 9 smartphone and two other products at a big event, Samsung Unpacked 2018, at the Barclays Center in Brooklyn on Aug. 9. The Galaxy Note 9 is a beautiful thing. It is better than last year’s model in many ways, and it has new features, including a remote control built into its integral S-Pen. As with most new models of highly evolved technology products, the enhancements are only exciting if you care about well-conceived and well-executed, though incremental, product improvements. This isn’t Samsung’s fault; it is very hard to pack new and exciting functionality into a highly evolved but constrained form factor.

The newly introduced Galaxy Home Speaker is also impressive; just 160 units of the smart speaker filled a basketball arena with impressive sound, complete with thumping bass. It also has a promising integration of the Spotify music service. Additionally, the new Galaxy Watch looks like a high-end watch, not like Apple Watch’s cough lozenge look, and the rotating bezel is a much more satisfying user interface (UI) than the Apple stem-winder. Bixby, Samsung’s smart assistant, included in the smartphone, watch, and speaker, is much improved over past versions, and it will put you through to Google Assistant on the phone.

Taken individually, these products are superb examples of the best of modern consumer electronics products. Plus, there are synergies among them. The best example shown was continuous music playing from smartphone to speaker and from one speaker to another in different rooms. This cohesiveness, Samsung believes, is the future of consumer electronics — open integration to provide seamless intelligent experiences. We agree. Samsung has identified the direction in which these devices must evolve and makes that direction clear both to the outside world and to the company’s thousands of designers and engineers.

Samsung’s proclamation of this direction was unusually loud, but the company is not alone in pursuing this quest. The company’s vision is not very different from one that Apple first expressed when it introduced the iPod to accompany its line of Macintosh PCs, and that which Apple continues to pursue. Google is moving in this direction with both its hardware products and software platforms. Microsoft retreated from its efforts in this direction with its withdrawal from the smartphone market, but TBR believes the company will, at some point, re-enter that space. Finally, Amazon is a major contender, with its smart speakers, tablets and streaming devices.

There remains much to be done to deliver this effortless, seamless experience. Currently, bringing together different products to provide a seamless experience requires effort on the part of the customer. This is essentially systems integration at home, and in many cases the benefit does not outweigh the cost. To be successful, these systems must interoperate, but at the same time vendors want to demonstrate that they work “better together.” Services and devices from vendors other than Samsung, Apple, Microsoft, Google and Amazon must be easily integrated and provide a seamless experience.

The spoken UI is critical to the success of these integrated consumer platforms. Controlling the home environment with a smartphone provides great power and flexibility, but is not worth the hassle; wall switches are a better UI than an app. A smart speaker, however, one that knows your history and preferences, is both powerful and easy to access and use. The problem with spoken UIs is that there are too many of them, and each keeps a separate store of information about the user. Until this problem is solved, Samsung’s goal of a seamless intelligent experience will not be achieved, and while the market for intelligent home devices will continue to grow, it will not grow explosively until all of the integration problems are solved.

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.