Showing posts with label OND Commentary. Show all posts
Showing posts with label OND Commentary. Show all posts

Tuesday, September 19, 2017

NTT Group seeks growth through diversification – part 1

The NTT Group ranks among the top carriers worldwide by nearly any metric, whether by revenue, subscribers, traffic, corporate debt, overseas investments or industry influence.  We know the acronym stands for Nippon Telegraph and Telephone Corporation, the incumbent telecom provider of Japan that still owns most of the last mile infrastructure of the company and is a leading innovator in optical and mobile networking technologies.  Recently, however, company executives, spelled out the acronym as follows:

Next value partner for
Transformation of business models and lifestyle by
Trusted Solutions of global, secure, end-to-end and full-line ICT services.

There are many key words in this new rendition of the company name but chief among them is “partner”. In its corporate strategy presentation, NTT executives now routinely emphasize the company’s willingness and ambition to seek partners both in Japan and abroad for the many opportunities it sees with artificial intelligence (AI), Big Data, telematics, IoT, entertainment, and even the management of modern sport stadiums.


NTT is certainly a big group. As of March 2017, it had 944 subsidiary companies and 274,850 employees.



Some current metrics on NTT and its User Base
In financial terms, the last quarterly report confirms that NTT continues to grow modestly. For Q2, operating revenues amounted to 2.809 billion yen, an increase of 93 billion yen over the same period in 2016, representing growth of 3.4% year over year. Net income amounted to 271.5 billion yen, up 11.4% year over year.

NTT Group’s highest growth rate occurred in its overseas operations. Overseas sales amounted to US$4.6 billion in Q2, up 21.2% year over year. Overseas operating income amounted to $0.19 billion, up 43% year over year.

Home market

Mobile Subscriptions: 75.11 million mobile subscriptions (net increase of 0.23 million) (Included in the above) Kake-hodai & Pake-aeru: 38.34 million subscriptions (net increase of 1.28 million)

FTTH Subscriptions: 20.29 million subscribers (net increase of 0.24 million) (Included in the above) Hikari Collaboration: 9.57 million (net increase of 0.83 million) Ø Growing number of Wi-Fi area owners*1: 612 (net increase of 55)





Monday, August 7, 2017

Microsoft advances its cloud initiative

Following publication of its better-than-expected quarterly results on July 20th, the headlines could not have been more positive for Satya Nadella and his efforts to restructure Microsoft around the cloud, as shown by the following:

Bloomberg - Microsoft Regains Turnaround Momentum on Strong Cloud Growth

MarketWatchMicrosoft is challenging Amazon for cloud throne

New York Times - Microsoft Is Rewarded for Turning to the Cloud

Wall Street Journal - Microsoft Profit Jumps, Fueled by Cloud Computing

The numbers were good, with revenue for fourth fiscal quarter of 2017, ended June 30th, of $23.317 billion, up from $20.614 billion a year earlier. Net income (GAAP) amounted to $6.515 billion, up from $3.122 billion a year earlier.

Highlights include:

•   Office commercial products and cloud services revenue increased 5% (up 6% in constant currency) driven by Office 365 commercial revenue growth of 43% (up 44% in constant currency).

•   Office consumer products and cloud services revenue increased 13% (up 13% in constant currency) and Office 365 consumer subscribers increased to 27.0 million.

•   Dynamics products and cloud services revenue increased 7% (up 9% in constant currency) driven by Dynamics 365 revenue growth of 74% (up 75% in constant currency).

•   LinkedIn contributed revenue of $1.1 billion during the quarter.

•   Server products and cloud services revenue increased 15% (up 16% in constant currency) driven by Azure revenue growth of 97% (up 98% in constant currency).

•   Enterprise Services revenue decreased 3% (down 1% in constant currency) with declines in custom support agreements offset by growth in Premier Support Services.

Azure growth is hot

Azure's 97% year-over-year growth comes in contrast to IBM, often ranked as the No.4 public cloud service provider, which last week reported that its cloud revenue grew 17% YoY in Q2 2017, led by as-a-service offerings, which were up 32% year-to-year. IBM's total cloud revenue was $15.1 billion for the last 12 months and XaaS revenue was $8.8 billion at an annual exit run rate in the quarter, up 30% year to year (up 32% adjusting for currency).

Amazon is expected to release its Q2 financial report on July 27th, perhaps giving insight into how fast the leading public cloud vendor continues to grow now that we have passed the mid-year market. As of the end of Q1 2017, Alibaba’s Aliyun cloud division reported a 103% annualised growth rate.

However, it is difficult to make any direct comparisons between Microsoft's cloud growth rate, or Azure growth, to competitors due the various products that are rolled in. However, one can observe some of the announced metrics that illustrate the development of the overall public cloud market.

Microsoft states:

•   It is on-track to meet a $20 million annual run rate for cloud service in FY 18.

•   It is gaining early 120,000 new Microsoft Azure subscriptions a month.

•   40% of Azure revenue comes from start-ups and independent software vendors.

•   80% of Fortune 500 now on Microsoft Cloud (although the utilisation rate is not specified so in some cases this could mean a Office 365 subscription rather a full-scale enterprise installation).

•   1.2 billion people are using Microsoft Office.

•   Facebook recently deployed Office 365 for its more than 13,000 employees globally.

•   Nearly 1 in 3 Azure virtual machines are Linux.

•   400 million active users for Outlook.com.

•   More than 400 million devices running Windows 10, citing security as the primary upgrade reason to Windows 10, with the recent WannaCry ransomeware incidents impacting earlier versions of Windows.

Building up its reseller channel for the cloud

Microsoft has long relied on partners and independent value added reseller to drive a substantial amount of its business. Over the years, this has included local resellers installing Office, Windows and Exchange solutions on behalf of small and medium-sized businesses worldwide.

Microsoft's Inspire partnership conference in Washington, DC, which ran from July 9th to 13th, attracted about 17,000 people. At the event, Satya Nadella, Microsoft's CEO, vowed that this partnership strategy will continue in the cloud era. With its Azure public cloud, Microsoft sales reps are paid up to 10% of the partner's annual contract value when they co-sell qualified Azure-based partner solutions. Microsoft says it is unique among public cloud vendors in providing this level of opportunity, providing powerful go-to-market differentiator. Microsoft said it now has more than 64,000 cloud partners, more than AWS, Google and Salesforce combined. CSPs can sell the full stack of services and subscriptions, including Windows 10, Office 365, Microsoft Azure and CRM subscriptions through a single partner with one user account, one point of contact for support and one simplified bill.

Now Microsoft is testing a new Azure co-sell program for partners. In its first six months, Microsoft claims that this program helped close more than $1 billion in annual contract value for Azure partners, created $6 billion in Azure partner pipeline opportunity and generated more than 4,500 partner deals.

Gearing up for the new offers

The company is now gearing up to launch Microsoft 365, a new set of commercial offerings that brings together Office 365, Windows 10 and Enterprise Mobility + Security. It promises to be a 'complete, intelligent and secure solution' to empower companies and workers, recognising that people are at the heart of digital transformation.

Microsoft 365 Enterprise is the evolution of the company's Secure Productive Enterprise offering, and includes Office 365 Enterprise, Windows 10 Enterprise, and Enterprise Mobility + Security. This is targeted at large organisations.

In enterprise private cloud infrastructure, Microsoft Azure Stack is now available to order from launch partners Dell EMC, Lenovo, and HPE. Cisco has also announced integrated Azure Stack for its UCS platform. Azure Stack is an extension of Microsoft's public cloud that enables enterprises to run the same software environment in their private data centres. Azure Resource Manager ensures that the same application model, self-service portal, and APIs are operative across either the private, public or hybrid cloud.

Microsoft is also encouraging partners to capitalise on opportunities leveraging Azure data centres and the 'edge of the cloud'. Azure Stack partners cited include Rackspace, Tieto and Resello.

Microsoft 365 Business, which will also be available in public preview from August 2nd, is targeted at small- to medium-sized businesses with up to 300 users and integrates Office 365 Business Premium with tailored security and management features from Windows 10 and Enterprise Mobility + Security. It also includes a centralised console for deploying and securing devices and users in one location.

Microsoft has also launched a new Skype Operations Framework, an end-to-end deployment methodology for partners to deliver Skype for Business Online to their customers. The company describes this as a blueprint for a new practice area. Recently added capabilities include Skype for Business meetings and voice services in Office 365, adding PSTN Calling in the UK, and expanded PSTN Conferencing to additional countries. Microsoft is also refining automatic transcription and translation for Skype Meeting Broadcast to Office 365 customers.

Bringing the Cloudyn acquisition on board

This week, Microsoft also completed its previously-announced acquisition of Cloudyn, a start-up based in Israel that developed hybrid, multi-cloud monitoring and optimisation solutions. Cloudyn's automated monitoring, analytics and cost allocation tools help customers maximize the efficiency of public cloud operations. Microsoft plans to make Cloudyn available to all Azure customers. The company also said that its new Cloudyn business unit will continue to invest in supporting multi-cloud environments including Azure, AWS and GCP.

Friday, July 28, 2017

Cisco observations – Moving towards software on a subscription model

Will large enterprises and Service Providers customers embrace Cisco's high-performance networking platforms built with its own ASICs and OSx, or continue to push for white box platforms based on merchant silicon and fully open software? Will the global ransomware outbreaks of the past two months play to Cisco's advantage as enterprises re-evaluate their security posture and perhaps adopt a more core network-centric approach?

Cisco provided an update on its strategic vision at its recent Cisco Live! customer event in Las Vegas. Materials from this event can be found on the company's Investor Relations web page.

Cisco currently is in an enviable market position. It holds the leading market share in at least 10 market categories; it has 20,000 people working in sales and perhaps 60,000 erstwhile partners around the world. For its most recent fiscal quarter, ended April 29th, Cisco reported revenue of $11.9 billion, GAAP net income of $2.5 billion, or 50c per share, and non-GAAP net income of $3.0 billion, or 60c per share. Sales fell by 1% compared to a year earlier but the company deliver a 5% growth in net income, thanks to cost-cutting measures. Cisco's balance sheet most recently showed $125.950 billion in cash, cash equivalents, and other assets, clearly a mountain of gold that could be used for strategic acquisitions or simply returned to shareholders. Cisco's market cap stands at $160.4 billion. Compare all of this to its nearest rivals, especially the big European concerns, and Cisco’s position is quite strong.

Mergers and acquisitions strategy

Cisco's management perpetually faces the question of execution in a market that overall has been pretty flat and declining in many sectors and geographies. With a gross margin consistently in the mid-60 percentage range, the company is vulnerable to lower cost competitors. Huawei and ZTE, in particular, deliver highly competitive products at lower cost. Cisco is also known for making a lot of acquisitions. Over the years some have been hugely successful for the company, such as the Ethernet switching acquisitions (Crescendo, Grand Junction and Kalpana), while others were huge failures (e.g. Scientific Atlanta).

During briefings at Cisco Live!, Chuck Robbins said the company remains open to strategic mergers and acquisitions that are capable of augmenting and accelerating its core innovation. The company has 160 staff members dedicated to M&A integration. Over the past four years, 80% of the acquisitions have been software related- this is a trend likely to continue. The Meraki and Sourcefire acquisitions were called out for delivering double digit returns.

The differentiated vision of intent-based networking

Cisco new intent-based networking vision, which includes a new DNA Center for orchestrating control over networking traffic, the new ASIC-powered Catalyst 9000 series switches, and a unique ability to analyse encrypted traffic, is already being tested by 75 global organisations. Naturally, Cisco finds measurable improvements for customers testing the new solution, claiming: a 67% time savings for network provisioning, 48% reduced security breach impact, 61% reduced opex. It is too early to see how premium the customers are willing to pay for better management capabilities.

Better security is perhaps the stronger argument for Cisco to make for its silicon-differentiated platforms. In his talk to the investment community, David Goeckeler SVP/GM, Networking and Security Business, argued forcefully that effective security requires a network that can find threats, containing threats, and delivering automated remediation. This depends on leveraging network data, a resource that new ASIC-driven switching platforms can deliver in abundance. When you put together deep analytics and machine learning in an automated policy enforcement system, you have the fundamentals for intent-based infrastructure. Software-defined access can be used to limit the lateral movement for threats. Automated responses mean that human management of network is replaced.

Moving to a recurring revenue model

Perhaps the biggest change in direction for Cisco is that it is actively moving existing offers to subscriptions. In other words, software that used to be consumed on a perpetual basis will now become recurring revenue. Already, more than $2 billion of revenue that could have been recognised under the old model is not being collected on a recurring licensing basis. Over the FY17-20 timeframe, Cisco expects this to grow to 2-3% of total revenue. When factoring in other services already on a recurring model, such as Spark/WebEx, Meraki software, Jasper and Cisco ONE, the total percentage of recurring revenue is expected to grow from 26% in FY 14 to 37% in FY20. The security offers are expected to drive the subscription business. The net effect is improved predictability of future revenue.

Financial guidance for the next 3-5 years

Given its size, Cisco can hardly expect to grow much faster than the market. Overall, the updated financial guidance calls for revenue growth of 1-3%, stable margins, and EPS growth in the mid-single digits. Cisco said it aims to return over 50% of free cash flow to shareholders. Over the past ten years this has been the case. Approximately 50% of cash has been used for share repurchase and about 15% for dividend payments.

The 3-5-year growth forecast is also broken down by segments:

Technology;                Revenue growth

1.  Infrastructure platforms                 flat

2.  Security                              low to mid-teens

3.  Applications                       high single digits to low teens

4.  Services                              mid-single digits


To summarise, Cisco is betting that differentiated innovation will pay off because customers value the deeply embedded security and automation. Though revenues will only grow in the 1-3% range, earning per share should continue to expand as the company moves to a recurring subscription model for up to 37% of its revenue. Cisco promises to return 50% or more of free cash flow to shareholders, and the probability of further mergers and acquisitions remains strong, especially for networking software and service start-ups.

Monday, July 24, 2017

Nutanix takes a pass at the public cloud, expanding its market potential

Nutanix, the Silicon Valley-based networking startup famous for its Hyperconverged, enterprise cloud platforms, has just entered into a strategic partnership with the Google Cloud Platform (GCP). Nutanix has grown rapidly from its founding in 2009 to expected FY 2017 revenues of over $540 million by offering a single OS for integrating compute, storage and network stacks for scale-out applications. The Nutanix solution makes it easy for enterprises to quickly rollout the server/storage/networking needed for a private cloud. The new GCP alliance marks a broadening of the company's focus to include hybrid cloud.

Hybrid cloud and multi-cloud are buzz words being used by analysts, vendors, service providers and journalists alike. Everyone seems to be aboard even if it raises security concerns about network perimeters. Gary Gauba, chief enterprise relationship officer and president, advanced solutions group, CenturyLink's IT and Managed Services business unit, has commented, 'I see the next decade as the ‘decade of coexistence’ where there will be a shift of enterprise workloads spread across both traditional environments and public/private multi-clouds'.

In practical terms, Nutanix will now support a single control plane for managing applications between GCP and Nutanix cloud environments. Nutanix says that traditional and cloud-native applications can be provisioned into GCP or Nutanix cloud environments with a single click, and migrated between the two cloud environments seamlessly. Nutanix customers will also be able to natively extend their data centre environments into GCP, enabling 'lift-and-shift' operations between private and public clouds. For example, enterprises could leverage a Xi Cloud services disaster recovery running in GCP, and then run BigQuery analytics against the full application data set without expensive, repetitive data migration operations. The Nutanix hybrid cloud vision will also bring support for Kubernetes for container-based deployments.

In addition, Google and Nutanix have agreed to collaborate on Internet of Things (IoT) use-cases. The idea is to position Nutanix as an 'intelligent edge' for GCP-based IoT applications running Google's TensorFlow silicon for edge processing, while training machine learning models and running analytics on the processed metadata in GCP. The companies showed a prototype at the Nutanix NEXT conference held this week in Washington DC.

Nutanix hybrid cloud could be extended to Azure or AWS

Nutanix said its broadened strategy could also enable its Enterprise Cloud Software to be run throughout multi-cloud deployments, including on-premises with platforms from IBM, Dell EMC, Lenovo, Cisco and HPE in the cloud via AWS, Google Cloud Platform and Azure, or natively with Nutanix Xi Cloud Services.

The Nutanix enterprise cloud platform is being augmented with something called Nutanix Calm, which abstracts application environments from the underlying infrastructure and recommends the right cloud for the right workload. The idea is to provide a marketplace of application deployment blueprints and corresponding cloud services.

The company is also introducing Nutanix Xi Cloud Services, which will let customers provision and consume Nutanix infrastructure on demand. Nutanix said this can be set-up within minutes, and that it is working with strategic cloud providers internationally (names not disclosed). The service would need to meet the data provenance requirements of various countries and could be especially useful as a disaster recovery option for Nutanix on-premises customers.

Signs of progress at Nutanix

For its most recently completed third quarter of fiscal 2017, ended April 30, Nutanix reported total revenue of $191.8 million, up 67% year-over-year, with billings amounting to $234.1 million, growing 47% year on year. This puts Nutanix on an annual run rate that will soon reach the $1 billion mark. For Q3, Nutanix posted a GAAP net loss of $112.0 million, compared to a net loss of $46.8 million in Q3 fiscal 2016. This amounted to a GAAP net loss per share of 78c, compared to a net loss per share of 39c in Q3 fiscal 2016. It had $350.3 million of cash and cash equivalents on hand.

Nutanix ended the third quarter of fiscal 2017 with 6,172 end-customers, adding approximately 790 new end-customers during the quarter. Third quarter customer wins included Caterpillar, KYOCERA Communication Systems, MobileIron, SAIC Volkswagen, Société Générale and Sprint. In addition, Nutanix states it has penetrated 521 of the Global 2000 enterprises, has 269 customers with lifetime bookings of $1-3 million, 38% of bookings come from international customers and 71% of revenues come from repeat customers, and gross margin of 58.4%. Nutanix calculates that it has $463 million in deferred revenue potential.

Currently, Nutanix has about 2,672 employees, up from 1,798 a year ago, with around 810 in R&D.

New partnerships with IBM, HPE and Cisco widens reach on x86 servers

Nutanix has had an OEM relationship with Dell since 2014, and this week, Nutanix and Dell EMC confirmed an expansion of their collaboration. In 2015, Nutanix formed an OEM partnership with Lenovo. In May 2017, Nutanix and IBM announced a multi-year initiative to combine Nutanix's Enterprise Cloud Platform software with IBM Power Systems as a turnkey hyper-converged solution for critical workloads in large enterprises. The partnership aims to deliver a full-stack combination with built-in AHV virtualisation that is targeted at cognitive workloads, including big data, machine learning and AI. The promise is a public cloud-like experience for customers of IBM Power-based systems.

Also in May 2017, Nutanix announced that its Enterprise Cloud Platform software will be available as a term-based license on Hewlett Packard Enterprises (HPE) ProLiant rack mount servers and Cisco UCS B-series blade servers, adding to previously announced support for the Cisco UCS C-series platform.

With these deals, the Nutanix stack is now available directly from the company on an x86 appliance, or on platforms from four of the leading server vendors, which collectively account for over 50% of the x86 server business. And with the new Google Cloud Platform (GCP) partnership and the launch of its own cloud services, Nutanix now has a very broad avenue to market.

Sunday, July 23, 2017

Intelsat seeks opportunity through OneWeb, only to be disappointed

From its inception in August 1964, Intelsat has been at the forefront of satellite communications. It has also always been an organisation governed by considerable complexity. Intelsat's original structure was as an intergovernmental organisation (IGO) with 11 participating countries. Over the decades, hundreds of earth stations were built across the planet to receive and transmit signals from dozens of Intelsat satellites in orbit. Though its charter was that of a commercial endeavour, eventually Intelsat came to be governed by 100 member countries and its decision-making process became every bit as complex as if it were an agency of the United Nations. By the turn of the millennium, the public corporatisation movement was in full swing across the telecoms sector as state-owned carriers lost their monopoly status and were forced to attract private-sector investors and compete in the market. For the space sector, privitisation and competition also became mandates, and so in 2001 Intelsat transitioned into a publicly-traded company. Since then, it has experienced a very tumultuous period of reorganisations, buyouts, mergers and public relisting. Some of these bumps-in-the-road were covered in the first part of this article.

Building and launching satellites is extremely capital intensive. Owning and operating hundreds of earth stations in over 150 countries likewise requires a high operating expense budget. After decades in operation, Intelsat is laden with $14.523 billion of debt with many long-term bond holders. On a positive note, the company's revenue breakdown is well balanced: 39% for network service; 42% for media revenue; 17% for government revenue. Customer contracts in each of these segments are predictable and stable. However, though its contracted backlog amounts to $8.5 billion (future revenue under existing contracts), the company has struggled to convince investors that its best days are still ahead. Discounting for the heavy debt load, Intelsat’s market capitalisation is only $391.2 million. There are many cloud-focused software newcomers in Silicon Valley with higher market valuations, but nowhere near the potential of impacting so many people across the globe as Intelsat.

Looking for growth

Some might see Intelsat as a stodgy veteran with a history dating back to the Apollo moon shot era, but its current crop of EPIC Next Generation satellites has accelerated the pace of satellite design innovation. The new designs offer far more capacity, flexibility and potential lifespan than has been achieved to date. As the legacy satellite fleet reaches retirement, the new birds should easily absorb all the traffic from existing contracts while offering plenty of capacity for new applications such as in-flight connectivity for aircraft, mobile backhaul and broadband connectivity in remote locations. 

Meanwhile, testing last autumn revealed that the Intelsat EPICNG  platform is exceeding its performance expectations. Specifically, Intelsat cited a 165% to 330% increase in spectral efficiency with ground platforms and modem technologies, and up to a 300% improvement in throughput using next generation antenna technology with its new EPICNG high-throughput satellite (HTS) platform.

The company said testing also confirmed that the EPICNG platform exceeds performance expectations transmitting to and from a flat-panel antenna designed for a new class of small remotely piloted aircraft. Now that it has four EPICNG  satellites in orbit and proven performance results from live testing, Intelsat's business trajectory should be reassuring to investors interested in space. But there is a new wave of hot start-ups in the space race that are gaining attention and investments.

OneWeb enters the scene

In January 2015, Richard Branson made headlines worldwide by announcing audacious plans to build, launch and operate the world's largest satellite network using Virgin Galactic’s LauncherOne space plane to put 648 small satellites into low earth orbit. OneWeb (previously WorldVu Satellite) initially announced $500 million in financial backing by the Virgin Group and Arianespace. Intelsat also announced an equity investment in the firm. The venture recruited Greg Wyler, who founded O3b Networks in 2007, as its leader. O3b Networks (the 'other 3 billion' people without Internet access). and which was recently acquired by SES, operates a constellation of 12 high throughput satellites (HTS) in a medium earth orbit (MEO) around 8,000 km from the Earth. O3b offers customers a 'fibre in the sky' solution, with each of the constellation's beams capable of delivering up to 1.6 Gbit/s of throughput at a low latency of less than 150 milliseconds, a significant improvement over geostationary connectivity. OneWeb now aims to replicate and expand on O3b's success by using hundreds of low-earth orbit (LEO) satellites instead of MEO satellites.

In June 2015, following a bidding competition, OneWeb selected Airbus Defence and Space for the construction of its broadband Internet satellites. The companies set an aggressive timeline to get its first satellites in orbit by the end of 2017 – an unprecedented pace. In December 2016, OneWeb raised $1 billion from SoftBank Group and $200 million from existing investors. Earlier this year, OneWeb announced it expected to sell all its capacity by launch time. The only announced capacity sold was for a joint Gogo and Intelsat venture. OneWeb has gone on to suggest that it might quadruple the size of its already massive satellite constellation to over 2,500 transmitting units in orbit.

Intelsat sees an opportunity, only to be disappointed

On February 28, 2017, Intelsat and OneWeb agreed to merge in a share-for-share transaction. Under the deal, SoftBank was to invest $1.7 billion in newly issued common and preferred shares of the combined company. This provided for debt exchange offers to certain existing Intelsat bondholders. The stated goal was to reduce Intelsat's debt by approximately $3.6 billion via this $1.7 billion investment. From a technology perspective, the deal sought to integrate OneWeb's LEO satellite constellation with Intelsat’s global scale, terrestrial infrastructure and GEO satellite network.

In June, after several rounds of negotiations, the merger talks collapsed. The apparent reason was that Intelsat bondholders were unsatisfied with Softbank's offer to pay only a portion of the face value of their notes. Concerning the collapsed merger, Intelsat CEO Stephen Spengler said:

-    "There were many stakeholders’ interests that needed to be satisfied in this complex transaction. We are disappointed that our bondholders were unwilling to accept the terms of the exchange offers presented over the course of this process. Even without a merger of our companies, the pre-existing commercial agreement among Intelsat, OneWeb and SoftBank will continue. Under this agreement, I plan to jointly develop integrated solutions utilising both fleets and to act as a sub-distributor to SoftBank for the attractive application segments of mobility, energy, government and connected car".

On June-22nd, the FCC approved a OneWeb's request to access the U.S. satellite market. Specifically, the FCC approved OneWeb proposal to access the U.S. market using a global network of 720 low-Earth orbit satellites using the Ka (20/30 GHz) and Ku (11/14 GHz) frequency bands.

In conclusion, this week’s successful launch of Intelsat 35e is a positive development for Intelsat even though its proposed merger with OneWeb has been withdrawn. OneWeb's LEO satellites would benefit from Intelsat’s GEO capacity, and Intelsat would be rejuvenated by opportunities such as connected cars.

Thursday, July 20, 2017

A critical launch for Intelsat's EPIC NG satellites – Part 1

After two scrubbed launch attempts, SpaceX successfully launched the heavy Intelsat 35e EPIC Next Generation satellite to geosynchronous orbit aboard a Falcon 9 rocket from NASA's Kennedy Space Center in Florida. SpaceX, which did not attempt to land the first stage of the Falcon 9 rocket onto a drone ship due to the mission requirements, has now completed ten launches this year and three in the past 13 days.

For Intelsat, the successful launch is especially good news. With over $14 billion in debt and a market capitalisation of under $400 million (its shares are currently trading in the $3 range) Intelsat is racing to migrate customers off an aging fleet of legacy satellites and onto its EPIC NG satellites. After the launch, Stephen Spengler, CEO of Intelsat, stated that the successful launch of Intelsat 35e was a major milestone in its business plan for 2017, furthering the footprint and resilience of Intelsat's EPIC NG infrastructure.

These new satellites are the future of Intelsat, at least that is the plan now that a previously announced plan to merge with OneWeb, a hot new venture backed by Softbank, the Virgin Group, Airbus, Cocacola, Qualcomm and others, was unexpectedly dropped last month. OneWeb aims to transform space communications with hundreds of low-earth orbit (LEO) satellites. Merging with Intelsat would bring the possibility of combining LEO and GEO satellite constellations. The deal was also expected to bring in much needed cash to Intelsat, which for now really needs its EPIC NG satellites to meet or exceed its technical and economic expectations.

Intelsat EPIC Next Generation

The newly-launched Intelsat 35e satellite is the fourth of seven planned EPIC NG high throughput satellites. Intelsat 29e, launched in January 2016 from French Guiana aboard an Ariane 5 launch vehicle, brings high throughput capacity in both C- and Ku-band over the Americas and North Atlantic Ocean region.

Intelsat 32e

Intelsat 32e, launched February 2017 from French Guiana aboard an Ariane 5 launch vehicle, while part of the EPIC fleet, is operated by Intelsat on behalf of SKY Brasil.

Intelsat 33e

Intelsat 33e, launched in August 2016 from French Guiana aboard an Ariane 5 launch vehicle, brings high throughput capacity in both C- and Ku-band to the Africa, Europe, Middle East and Asia regions from 60°E. Customers include maritime broadband providers GEE, Speedcast and Marlink; in-flight providers Gogo and Panasonic Avionics, a Pakistan ISP called SuperNet, Telkom South Africa, Orange Cameroon, IP Planet, Vodacom, Djibouti Telecom and Africell RDC SPRL, Russian network service providers Romantis and RuSat and several TV and radio broadcasting companies, including Television and Radio Broadcasting of Armenia and MultiChoice of South Africa.

Intelsat 35e

Intelsat 35e will cover the Americas, Europe and sub-Sahara Africa from the 34.5° west longitude. It carries a unique payload of C-band wide- and spot-beams for applications including wireless backhaul, enterprise and mobility services. A customised high power wide beam will be used for DTH service delivery by Canal+, with additional confirmed customers including Orange, INWI, Tele Greenland, Sonatel, Marlink, Speedcast, ETECSA and eProcess.

Intelsat 37e

Intelsat 37e is scheduled for launch in August 2017 from French Guuiana aboard an Arianne 5 launch vehicle. Its orbital location has not yet been listed.

Two additional satellites in the EPIC NG line have been mentioned but so far the company has not reported a production contract, a launch partner contract or even a timeline for when these might enter service.

Intelsat first unveiled its EpicNG platform in 2012. It is based on a new approach to satellite and network architecture utilising multiple frequency bands, wide beams, spot beams and frequency reuse technology. Epic NG is the company's next generation of satellites, promising higher throughputs and lower cost per bit. It will be a complementary overlay to the company's existing constellation of satellites and global IntelsatONE terrestrial network.

Intelsat’s Epic NG satellites were designed and manufactured by Boeing on the Boeing 702MP satellite bus, a platform that weighs up to 6,100 kg (13,400 lb) and supports power outputs from 3 to 18 kW. Compatible launch rockets for the Boeing 702MP include the Atlas V, Ariane 5, Delta IV, Falcon 9, Proton and Sea Launch systems, although for the EPIC program Intelsat has contracted with Ariane Space and SpaceX. The EPIC satellites have a design life of 15 years, so the current generation of Intelsat satellites could remain in commercial service until the early 2030s if they have not been superseded by other platforms.

Company profile and its legacy fleet

Intelsat was founded in 1964 as an inter-government organisation for managing the new field of space communications. Its first satellite went into service over the north Atlantic a year later. In July 2001, Intelsat became a private company. In 2005, it was acquired for $3.1 billion by four private equity firms: Madison Dearborn Partners, Apax Partners, Permira and Apollo Global Management. In 2006, Intelsat acquired PanAmSat, then the largest satellite carrier of TV channels, in a deal valued at $4.3 billion. In 2013, Intelsat was relisted as a public company and its shares are traded on the NYSE under the symbol 'I'. Intelsat maintains its headquarters in Luxembourg and an administrative office in Tysons Corner, Virginia.

Intelsat currently has a fleet of approximately 50 in-service satellites, 8 teleports and the IntelsatOne terrestrial network. The in-service satellites cover 99% of the world's populated regions, including market access in approximately 200 countries and territories.

How much traffic is carried over this network?

At an investor event at the end of April 2017, Intelsat disclosed that its fleet is currently carrying over 5,600 video channels, including approximately 900 high definition channels. System utilization is listed at 78% of total available capacity of approximately 2,050 station-kept units (36 MHz). (NB: this station-kept transponder count does not include Intelsat EPIC NG capacity).

Financial profile

For Q1 2017, Intelsat reported total revenue of $538.5 million and net loss of $34.6 million. EBITDA amounted to $398.1 million and adjusted EBITDA was $409.8 million, or 76% of revenue for the three months ended March 31, 2017. The Q1 revenue total represented a 3% decline compared to $553 million in the first quarter of 2016. Net loss attributable to Intelsat was $35 million for the three months ended March 31, 2017, compared to net income of $15 million in the prior year period. Intelsat said the net loss reflects lower revenues, an increase in interest expense and greater depreciation related to the satellites placed into service over the course of 2016.

At the same investor event on April 27, 2017, Intelsat affirmed its full-year 2017 guidance, saying its revenue is projected to be in a range of $2.180 to $2.225 billion. Full-year 2017 adjusted EBITDA is expected in a range of $1.655 to $1.700 billion. Recently, Intelsat disclosed that the U.S. government has contracted capacity on both Intelsat 29e and 33e, representing a total capacity of approximately 180 MHz.

In April 2017, Liquid Telecom signed a new, multi-year agreement for dedicated services on Intelsat 33e including a ground networking solution based upon technology developed under the European Space Agency-funded Project Indigo. The new Intelsat Epic NG services will expand Liquid Telecom's coverage and network capabilities across the Democratic Republic of Congo, Kenya, Malawi, South Africa, Tanzania, Uganda, Zambia and Zimbabwe, where demand has grown for VSAT technology to deliver connectivity to underserved remote or rural areas.


(Part 2 will discuss the abandoned OneWeb transaction and other key trends in satellite networking.)

Tuesday, July 18, 2017

An unlikely merger – Cincinnati Bell and Hawaiian Telcom

It is not a surprise to see another telecom acquisition. The industry perpetually moves toward consolidation whenever greater efficiencies can be found by bringing more users onto a common network. But among all likely buyers and sellers in the telecom world, this combination is surely a bit odd: Cincinnati Bell and Hawaiian Telcom. Geographically, Honolulu lies 4,428 miles (7,126 km) to the southwest of Cincinnati, a six-hour time difference and a big cultural gap. There won't be many opportunities for network consolidation, joint customer integration or operational synergies.

The deal is structured as a cash and stock transaction in which Cincinnati Bell will pay approximately $650 million, including the assumption of Hawaiian Telcom's net debt. The offer is a 26% premium to Hawaiian Telcom's closing price of $24.44 on July 7, 2017. Hawaiian Telcom stockholders will have the option to elect either $30.75 in cash, 1.6305 shares of Cincinnati Bell common stock, or a mix of $18.45 in cash and 0.6522 shares of Cincinnati Bell common stock for each share of Hawaiian Telcom, subject to proration such that the aggregate consideration to be paid to Hawaiian Telcom stockholders will be 60% cash and 40% Cincinnati Bell common stock. Cincinnati Bell shareholders are the prevailing party. After closing Hawaiian Telcom stockholders will own approximately 15% and Cincinnati Bell stockholders will own approximately 85% of the combined company.

Sovereignty has long been a touchy issue for the Hawaiian Islands. In this case, Cincinnati Bell said it plans to preserve the Hawaiian Telcom brand identity. It also promises to preserve the jobs of Hawaiian Telcom's 1,300 employees, to maintain local management, to honour existing union labour agreements, and to name two Hawaii residents to the combined company’s board of directors. There is also a commitment to invest in Hawaiian Telcom's Next-Generation Fiber network statewide, although this is not quantified in the press materials with any dollar figure or budget plan.

Hawaiian Telcom has been to this dance before

Hawaiian Telcom traces its roots all the way back to 1883, when Hawaii’s King David Kalākaua granted a charter to Mutual Telephone Company, which was owned by Archibald Scott Cleghorn, father of Princess Ka'iulani. In the years after Hawaii became the 50th U.S. state, Mutual changed its name to Hawaiian Telephone Company and was never formally a part of the Bell System empire. In 1967, General Telephone & Electric Corporation (GTE) of Connecticut acquired the company and it was renamed to GTE Hawaiian Tel. This marked the first time the company was controlled from the mainland U.S. GTE eventually merged with Bell Atlantic to form Verizon Communications, at which point GTE Hawaiian Tel. was renamed Verizon Hawaii. By 2004, Verizon wanted out of non-strategic landline markets, including Hawaii, and so Verizon Hawaii was sold to The Carlyle Group for $1.65 billion in cash. At the time, Verizon Hawaii operated 707,000 switched wireline access lines and annual sales of about $610 million, operating income of $58 million and depreciation expense of $111 million. By this measure, the Cincinnati Bell acquisition price is less than half the price of 13 years ago.

In 2008, the company filed for bankruptcy protection. A two-year period of reorganisation followed. In 2010, Hawaiian Telcom became a publicly listed company. In 2011, Hawaiian Telcom was granted a cable TV license. One geographic advantage on being in the middle of the Pacific Ocean is that there is limited satellite TV coverage. This has led to a duopoly market shared with the Oceanic/Charter cable network. Compared to typical U.S. cities, Honolulu is a far denser metro area. It has approximately 300,000 households. With an initial focus on Honolulu, Hawaiian Telcom currently has about 43,000 residential video subscribers on its IPTV platform, which is based on the Ericsson Mediaroom solution, compared to approximately 310,000 subscribers for Oceanic cable statewide.

With its Fioptics service, Hawaiian Telcom is looking for much better market penetration, higher ARPU and lower churn. The fibre platform also enabled Hawaiian Telcom to launch the first Gigabit residential service in the islands in 2015. Presumably, the acquisition by Cincinnati Bell will bring much needed capital to continue the residential fibre in the rest of Honolulu and then to the other Hawaiian Islands.

A stake in the new SEA-US transpacific cable system

Hawaiian Telcom is a consortium partner in the new $250 million, 15,000-km Southeast Asia – U.S. (SEA-US) cable system, which is designed to bypass congested, earthquake-prone regions (Luzon Straight) on the transpacific route. It will deliver an initial 20 Tbit/s capacity when it enters service later this year. Cincinnati Bell noted that this ownership stake provides it with direct access to the 2.6 Tbit/s of transpacific capacity.

Here are some Hawaiian Telcom highlights:

•   First quarter revenue was $94.5 million, compared to $98.8 million in the first quarter of 2016, down $2.0 million year on year; the revenue declines is associated with legacy voice and low-bandwidth Internet services, partially offset by increases from consumer video, high-bandwidth business data services, and equipment and related services.

•   Net loss for the first quarter of $2.0 million, or 17c per diluted share, primarily due to $3.7 million in non-cash pension expense and other related one-time costs associated with employee retirements in the quarter.

•   First quarter business revenue totalled $43.9 million, compared to $44.8 million in the first quarter of 2016. In business data services, customer demand for high-bandwidth IP-based services continued to rise, as reflected by a 16.1% year on year revenue increase in Ethernet and routed network services, 14.1% increase in normalised dedicated Internet access revenue, and 14.4% increase in VoIP revenue; business VoIP lines grew 15.9% year on year to approximately 20,000 lines, offsetting more than a third of total legacy voice access line decline.

•   Hawaiian Telcom has more than 7,000 total fibre GPON-enabled business addresses connected.

•   First quarter consumer revenue totalled $34.3 million, compared to $36.2 million in the first quarter of 2016. Revenue growth in the quarter from TV and high-bandwidth fibre Internet services was more than offset by the year-over-year revenue decline in consumer legacy voice and low-bandwidth copper Internet services.

•   Video services revenue grew 12.4% year on year to $10.6 million for the quarter.

•   Video subscribers grew 15.3% during the same period and the company ended the first quarter with nearly 42,800 subscribers in service.

•   Penetration rate in the company's NGN footprint is 24%, an increase from 21% in the same period the prior year.

•   During the first quarter, 1,000 additional success-based households were fibre-enabled, increasing the total number of households enabled to 203,000.

Cincinnati Bell is looking for growth opportunities

Cincinnati Bell's history also goes back a long way. The company traces its start to the 1870s, when it gained exclusive rights to the Bell franchise within a 25-mile (40-km) radius of Cincinnati. Under the unified Bell System, the company maintained a degree of autonomy because AT&T held a minority stake. Since the historic 1984 AT&T break-up, Cincinnati Bell has fiercely remained an independent company, resisting the merger fever that spread amongst Bell Atlantic, Bell South, Nynex, Pacific Bell and Southwestern Bell.

Apart from its landline business, Cincinnati Bell operated a GSM network serving southeastern Indiana, southwestern Ohio, and northwestern Kentucky from 1998 to 2015, when the network was sold to Verizon. Cincinnati Bell also owned approximately 9.5% of CyrusOne, the wholesale data centre operator. The remaining 2.8 million shares of CyrusOne were sold in Q1 2017 for $141 million, resulting in a $118 million gain for the company.

Cincinnati Bell has been a very well-managed company but like many incumbent operators has experience the long-term challenge of declining revenues for legacy services, which often offset growth in new services. The company has been on the lookout for attractive opportunities to increase revenues from strategic services (currently >50%) and to alleviated its relative geographic isolation. Cincinnati Bell is focused on its Fioptics residential FTTH service, which is now available to 545,200 addresses in its territory - approximately 68% of Greater Cincinnati. With the Hawaiian Telcom deal, the company is hoping the positive traction it has seen with its Fioptics residential service in Cincinnati can be replicated in Honolulu.

On the same day that it announced the Hawaiian Telcom deal, Cincinnati Bell also announced a definitive agreement to acquire OnX Enterprise Solutions, a technology services and solutions provider in North America and the UK, for a total consideration of approximately $201 million in cash on a cash-free, debt-free basis. OnX is focused on IT services for Fortune 500 companies. The acquisition provides Cincinnati Bell with 20+ IT sales offices and access to 50+ data centres through strategic partners.

Cincinnati Bell highlights:

•   Total Internet subscribers of 307,400 at the end of the first quarter, up 15,000 subs compared to a year ago ▪ Voice lines totalled 516,900, decreasing 2% from the prior year.

•   Fioptics monthly ARPU for Q1 2017 was up approximately 3% from Q1 2016. ARPU is as follows: Video – $86, Internet – $49, Voice – $27; in Q1, the company invested $36 million in Fioptics to pass an additional 11,800 customer locations.

•   Business revenue in Q1 2017 were down slightly to $71 million, however fibre-based business Ethernet services were up 11%.

•   Carrier revenue decreased year-over-year due to on-going FCC switched access rate reductions and the fact that national carrier customers are increasingly focus on reducing costs.


•   IT services and hardware sales amounted to $86 million for Q1 2017, down $16 million from Q1 2016 due to the cyclical nature of these transactions and customers shifting to the cloud.

Monday, July 17, 2017

Healthy growth continues for public cloud data centre infrastructure

The global market for IT infrastructure products continues to be reshaped by rapid buildouts of hyperscale data centres for public clouds. Ahead of a busy mid-summer week for data centre server announcements, several analyst studies have been released that shed light on how the market for server, storage and Ethernet switch products continues to evolve. Overall, this market grew 14.9% year over year in the first quarter of 2017 (1Q17), reaching $8 billion, according to IDC's Worldwide Quarterly Cloud IT Infrastructure Tracker. This two-digit annual growth figure compares quite favourably to the global market for telecom equipment, which has been trapped in the doldrums of low single digits for some time to the detriment of the big vendors focused on this segment.

In the case of Ericsson, the company has attempted to pivot toward the enterprise and data centre segments through a strategic partnership with Cisco. With the new management team at Ericsson, this push appears to be taking a backseat as the company focuses on its core mobile infrastructure market.

Here are the vendor market share highlights from IDC’s study:

Top 3 Vendor Group, Worldwide Cloud IT Infrastructure Vendor Revenue, Q1 2017 
(Revenues are in Millions, Excludes double counting of storage and servers)
Vendor Group
1Q17 Revenue (US$M)
1Q17 Market Share
1Q16 Revenue (US$M)
1Q16 Market Share
1Q17/1Q16 Revenue Growth
1. Dell Inc*
$1,289
16.20%
$1,292
18.60%
-0.20%
1. HPE/New H3C Group* **
$1,118
14.00%
$1,223
17.70%
-8.60%
3. Cisco
$902
11.30%
$830
12.00%
8.70%
ODM Direct
$1,976
24.80%
$1,204
17.40%
64.10%
Others
$2,678
33.60%
$2,379
34.30%
12.60%
Total
$7,963
100%
$6,928
100%
14.90%
IDC's Worldwide Quarterly Cloud IT Infrastructure Tracker, June 2017

* IDC declares a statistical tie in the worldwide cloud IT infrastructure market when there is a difference of one percent or less in the vendor revenue shares among two or more vendors.
** Due to the existing joint venture between HPE and the New H3C Group, IDC will be reporting external market share on a global level for HPE as "HPE/New H3C Group" starting from Q2 2016 and going forward.

In its study, IDC found that cloud IT infrastructure sales as a share of overall worldwide IT spending climbed to 39% in 1Q17, a significant increase from 33.9% a year ago. IDC also found that revenue from infrastructure sales to private cloud grew by 6.0% to $3.1 billion, and to public cloud by 21.7% to $4.8 billion.

What is interesting here is that the hyperscale cloud providers, including Amazon Web Services (AWS), Microsoft Azure and Alibaba Cloud, have each reported much higher growth rates, approaching or exceeding the triple digit threshold. This would be a healthy situation for the cloud operators, indicating that they are getting greater efficiency from their infrastructure.

The IDC study also confirms that enterprise spending continues to move to clouds, both public and private. IDC found that revenue in the traditional (non-cloud) IT infrastructure segment decreased 8.0% year over year in the first quarter of the year, but that spending for private cloud infrastructure is growing, especially Ethernet switching (up 15.5% year-over-year), storage (excluding double counting with servers at 10.0%) and server (up 2.1% year-over-year. Public cloud growth was led by storage, which after heavy declines in 1Q16 grew 49.5% year over year in 1Q17, followed by Ethernet switch at 22.7% and server at 8.7%. IDC further notes that for traditional IT deployments, sales of servers declined the most (9.3% year over year), with Ethernet switch and storage declining 4.4% and 6.1%, respectively.

Gartner finds standalone worldwide server market is declining, except hyperscale
A Gartner study that focused only on the sale of servers found that Q1 2017 revenue worldwide declined 4.5% year over year, while shipments fell 4.2% from the first quarter of 2016. Jeffrey Hewitt, research VP at Gartner, noted, "Although purchases in the hyperscale data centre segment have been increasing, the enterprise and SMB segments remain constrained as end users in these segments accommodate their increased application requirements through virtualisation and consider cloud alternatives".

Below are highlights of the Gartner study that were published in June 2017:

Worldwide Server Vendor Revenue Estimates -  1Q17 (US Dollars)
Company
1Q17
1Q17 Market Share (%)
1Q16
1Q16 Market Share (%)
1Q17-1Q6 Growth (%)
Revenue
Revenue
HPE
3,009,569,241
24.1
3,296,591,967
25.2
-8.7
Dell EMC
2,373,171,860
19
2,265,272,258
17.3
4.8
IBM
831,622,879
6.6
1,270,901,371
9.7
-34.6
Cisco
825,610,000
6.6
850,230,000
6.5
-2.9
Lenovo
731,647,279
5.8
871,335,542
6.7
-16
Others
4,737,196,847
37.9
4,537,261,457
34.7
4.4
Total
12,508,818,106
100
13,091,592,596
100
-4.5
Source: Gartner (June 2017).

Nutanix, which offers a hyperscale solution integrating compute/storage/networking, recently reported that its quarterly revenue jumped 67% to reach $191.8 million for the quarter ended April 30, 2017. Its customers fit into the enterprise category. Cited examples include Caterpillar, KYOCERA Communication Systems, MobileIron, SAIC Volkswagen and Société Générale. From this one can conclude that market is shifting rapidly from stand-alone or departmental clusters of servers to an enterprise cloud architecture, whether public, private or hybrid. The distinctions between servers, switches and storage are also blurring.

Dell’Oro tracks white box server shipments

White box server shipments continued to grow at a rapid pace in 1Q17, increasing 41% year on year, according to a recently published report from Dell’Oro Group.  This research agency attributes the surge in spending to mainly Google and Amazon, with Facebook and Microsoft expected to pick up the pace of their white box server deployments too. Dell'Oro noted that nearly all the major U.S.-based branded vendors, led by Hewlett-Packard Enterprise and Dell Technologies, suffered quarter-over-quarter and year-over-year shipment declines for a number of different reasons, including: server migration from the Enterprise/on premise to the Cloud; typical Q1 softness; and a pause in server purchases in anticipation of the Intel Purley server refresh cycle, which is expected in the second half of the year.

These trends are probably best recorded in the sales data for Intel's Xeon products, which continue to dominate all segments of the market. More details on Intel’s plans for the data centre are expected later this week.



See also