Last week, I attended the Mavenir Analyst Day in Dallas, Texas. It has been nine months since Mavenir was spun-out of Mitel, and the timing was right for Mavenir to inform the analyst community what the “new” Mavenir was all about. The new Mavenir is more than the old Mavenir.  It is now the collection of four companies’ product portfolios.

  • Old Mavenir – IMS Core and Voice and Messaging Clients and Application Servers (VoLTE, VoWiFi, RCS, and MaaP), gateway functions, an diameter signaling
  • XURA – Messaging and Voicemail, Network Monetization and Advanced VAS solutions, and Network Security and Fraud Management
  • BROCADE – Virtualized Evolved Packet Core
  • RANZURE – 4G / 5G Cloud RAN

There are now over 250 Service Providers (including 25 tier-ones) across six continents in 130 countries using Mavenir solutions. On the Enterprise front, Mavenir has hundreds of Fortune 500 customers and many others utilizing its messaging solutions.

Mavenir is now focused on being a 100 percent software end-to-end cloud native solution provider providing the benefits of cost reduction, revenue generation, and revenue protection. The leaders in end-to-end solutions in this market space are currently Ericsson, Huawei, Nokia, and ZTE (in alphabetical order).

Here at Dell’Oro Group, we track the RAN, Voice Core, Packet Core, and NFV/SDN market segments that Mavenir has targeted and estimate the annual revenue in 2018 for these segments will approach $11 B (RAN only includes LTE small cells).

Anytime there is a transition in technology, for example, 4G to 5G or from a physical network to a virtual network, the “digital transformation,” opens up an opportunity for new solution providers.  Mavenir has positioned itself to leverage off its past successes and has developed the end-to-end solutions to capitalize on the next generation wireless networks.

The Microwave Transmission market dropped to a new quarterly revenue low in 2Q17, declining 18 percent year-over-year (Y/Y). The main factors driving this disappointing quarter was a sharp reduction of purchases in the Indian region and broad slowdown in the Vertical markets.

  • We estimate that radio TRx shipments into India declined sharply quarter-over-quarter (Q/Q), following an outsized purchase by Reliance Jio in the prior quarters. We expect deployments in the India region to improve during the second half of the year, but not at a high enough level to offset the recent decline.
  • In 2Q17, the Verticals market declined at a double-digit percentage rate compared to a year-ago. We do not have specific details on the customer categories that make up the Verticals market, but we believe most of the decline was due to fewer telecom long haul deployments and a softer public safety sector. However, deployments by wireless internet service providers likely continued to expand.

Average selling price (ASP) of microwave radio transceivers continued to be stable with a relatively small amount of price erosion. We estimate that radio transceiver ASP declined below five percent Y/Y in 2Q17. We attribute this smaller price erosion to the following factors: 1) declining share of revenue from mobile backhaul; 2) reduction in new large contract bids; and 3) shift to higher capacity radio transceiver systems.

The bright spots for the microwave market continued to include E/V-Band, which grew five percent Y/Y, and Full Outdoor Unit systems, which grew four percent Y/Y, even with the total Microwave market’s decline in the back drop.

One vendor stood out in the quarter. While all other vendors experienced flat to down Q/Q sales into India during the quarter, Ceragon benefited from a large one-time order. Hence, Ceragon’s India revenue grew 87 percent Q/Q, which helped to raise its worldwide market share by 240 basis points to 11 percent in 2Q17. As a result, Ceragon was able to claim the third highest market share position in the quarter (Figure 1).

 

The Storage Systems market – including both External Storage (arrays) and Internal Storage (inside servers) – is projected to go through a number of transitions for the next few years that will change how storage is used, the types of products developed, and the underlying technologies. The major transitions, most of which have already been underway, include growing Cloud-based storage, popularity of all-Flash storage systems, and adoption of NVMe.  Driven by these market changes, we are predicting the following:

  • We forecast the overall Storage System market to be relatively flat for the next five years (2016 through 2021). However, during the forecast period, we anticipate that the use of Internal Storage will rise incrementally, partially offsetting the market erosion we anticipate for External Storage. We believe Cloud service providers will continue to mainly use Internal Storage.
  • The market demand for all-flash systems – or All Flash Arrays (AFA) – is expected to continue growing for many years, driving both revenue and shipment volumes for this class of products higher through 2021. We forecast AFA revenue to grow at a five-year compounded annual growth rate (CAGR) of 19 percent, reaching close to $12 B by 2021.
  • We believe the quantity of Fiber Channel (FC) port shipments on External Storage Systems will erode through the forecast time period. However, due to the mix shift toward higher-speed FC ports (16 Gbps and then 32 Gbps), we expect the throughput capacity of FC shipments to increase at a five-year CAGR of 12 percent. 32 Gbps FC ports are projected to compose about half of the FC port shipments by 2021.
  • We predict that demand for Ethernet ports on External Storage Systems will surge during the forecast period due to the availability of NVMe over Fabrics (NVMe-oF). Hence, we forecast Ethernet port shipments to increase through 2021 with throughput capacity growing at a five-year CAGR of 28 percent. 25/50/100 Gbps Ethernet ports are projected to compose approximately 40 percent of Ethernet port shipments by 2021.

Yesterday, Sonus Networks and GENBAND announced they were merging the two companies into one company. Both companies are key players in the Carrier IP Telephony market enabling Service Providers and enterprises to move into the IP world with digital transformation solutions. Highlights of the merger are:

  • After the merger, Sonus and GENBAND shareholders will each own about 50 percent of the shares of the combined company
  • The merger will produce an anticipated $40 to $50 M in annual cost savings by the end of 2018
  • Deal is expected to close in the second half of 2017
  • The combined revenue (based on 2016 revenues) would be $680 M, nearly 50/50 in product/service with 67 percent of the revenue derived from US and Canada

This positons the merged company with a solid portfolio of application servers, signaling solutions, session border controllers, softswitches, and media gateways. Growth areas identified by the companies are:

  • GENBAND’s “Kandy” Cloud communications platform-as-a-service (CPaaS)
  • Sonus’ new security analytics and control platform for real time flows and digital services

Like all mergers, we see challenges for the combined entity to include:

  • Consolidating overlapping product coverage in Session Border Controllers and Softswitches
  • Managing overlapping sales forces and sales channels

In Dell’Oro Group’s recently published 1Q17 Carrier IP Telephony Quarterly Report, we estimate that the combined market share of the two companies’ product revenues on a worldwide basis to be about 9 percent, positioning them as the fourth largest vendor in this space.  In rank order, Huawei, Nokia, and Ericsson round out the top three spots in market share.

I had the opportunity to meet and interact with key stakeholders in the mobile infrastructure industry last week during the MWC show in Barcelona and came away with some thoughts:

  • 2017 will be challenging but better than 2016
  • Operators don’t want 5G to be another G, but for now it will be another G
  • 5G is not only about small cells
  • In-building puzzle is still not solved

2017 will be challenging but better than 2016

Preliminary estimates suggest the mobile infrastructure equipment market, including radio infrastructure and voice and packet core-related investments, declined at a high-single digit rate in 2016. This was driven largely by reduced demand for macro related cell site infrastructure and steep price erosions in U.S. Dollar (USD) terms due to the competitive environment, the strengthening USD, and soft demand for capacity upgrades.

While there is little doubt that 2017 will be another challenging year, there are signs that the pace of the decline in 2017 will moderate somewhat as densification and upgrade projects in China could be greater than originally envisioned – helping to offset some of the projected decline in macro deployments. Granted, there are short-term concerns about CAPEX pauses as a result of possible consolidation in both the U.S. and India. In general, I sensed some optimism supporting the thesis that the decline in 2017 will be softer than the decline in 2016.

Operators don’t want 5G just to be another G, but for now it will be another G

As Dr. Liu Guangyi with China Mobile said during Huawei’s 5G Summit, he knows what drives operator revenue today, but when asked ten years ago what the killer app would be with 4G, he didn’t know.

And we are in the same situation today.

While there was an enormous amount of innovation on display during the show, it is extremely challenging to identify the next game changer, not just for early adopters, but for the masses. For example Virtual Reality (VR) and Augmented Reality (AR) have been hot topics for some time now during the MWC show. However, based on data provided by Noitom, the VR industry shipped around 6 M units in 2016, marking another year of disappointing sales. Marketers are now hoping that the value proposition will be more compelling with the mobile use case.

The Internet of Things (IoT) is often viewed as another possible savior for the carriers. Per Verizon’s 4Q16 report, IoT accounted for less than one percent of its 2016 revenues, and the potential connectivity upside for both vendors and operators remain questionable in our view. This is not to say that more compelling VR/AR or IoT value propositions for the masses will not be realized in the future. It is merely an acknowledgement that operators and vendors don’t know the timing and magnitude of the potential impact of new services/applications/technologies ten years from now and as a result ROI for new technologies need to be analyzed carefully, particularly as it remains unclear how operators can add value beyond providing the connectivity.

Though it is worth pointing out that Nokia’s CEO predicts 2017 will be the year that IoT starts producing real value. Notwithstanding all the innovation at the show and the excitement around VR and IoT, we maintain our view that robotic systems and autonomous vehicles combined with 5G (or 6G) present the most disruptive and compelling value propositions in the long term. But in the near term, 5G will likely be another G. On the bright side however, operators can take comfort in the fact that 5G will not just be about Gbps performance – ITU’s draft report require 5G networks to deliver actual user throughputs of 100 Mbps and 50 Mbps in the downlink and uplink, respectively.

5G is not only about small cells

SK Telecom and Ericsson’s presentation at the show highlighting Ericson’s Pre5G millimeter wave (mmW) technology achieving peak speeds of 3.6 Gbps while travelling at 170 km/hour with an EIRP of 50 dBm per cell using 4 cells was a fresh reminder that 5G is not only about small cells. While it is probable that the RF output power will be lower for fixed wireless deployments operating in the mmW bands, operators reiterated their vision to leverage existing cell sites for their sub 6 GHz 5G deployments. This implies sub 6 GHz will rely on a combination of macros and small cells. The revenue mix will by default be more small-cell driven for mobile mmW deployments, but few operators are planning to deploy any larger mobile mmW networks over the next five years.

In-building puzzle is still not solved

With 80 percent of the data consumed indoors and 95 percent of the radio CAPEX allocated to the outdoors, new solutions that produce negligible interference with legacy macro and WiFi systems (and are inherently designed to support multiple operators) will likely play an essential role to normalize the location asymmetry between data consumption and mobile infrastructure investments. Neutral host and spectrum sharing were hot topics at the show and the interest in the CBRS band was particularly strong, which portends well for 2018 small cell deployments.

And more importantly, in-building cellular deployments should provide some emotional stress relief. According to a report published by Ericsson, a three second streaming delay is apparently as emotional as watching a horror movie. Given that it took in some cases ten seconds just to download an email message using the indoor WiFi network at the show, I am happy I did not try to stream any YouTube clips as it would likely have caused more emotional stress than watching multiple Stephen King movies…

Arris has been a top player in the Broadband Access market which till recently has been largely serving households and small-to-medium businesses in North America.  With its acquisition of Ruckus’ Wireless LAN business, in one bold move, Arris extends its reach into the corporate world, opens sales channels into Europe and Asia markets, and raises its Intellectual Property in high-speed wireless improving the user experience.  With Ruckus’ enterprise-class of products, Arris will be able to offer a full suite of products to its Service Provider customers.

Arris is the fourth largest supplier of Broadband Access equipment market with worldwide sales eclipsing $13 Billion in 2016, following Chinese manufacturers Huawei, ZTE, and Finland-based Nokia.

Arris dominates the Cable Modem infrastructure market, which is heavily weighted towards North America (holding approximately 55%-to-60% revenue share), but is less competitive in the DSL and Passive Optical Network (PON) market (approximately 10% and 1%, respectively).   The PON market is commonly referred to as “fiber-to-the-home” or “fiber-to-the-curb”.  The DSL market has been heavily weighted towards Europe, while the PON market has been heavily weighted towards Asia, and China in particular.

With the acquisition of Ruckus, Arris extends its reach into the Enterprise-class Wireless LAN market with worldwide market sales eclipsing $5 Billion in 2016.  Not only does Ruckus enable Arris to offer enterprise-class products to its existing Service Provider customers, Ruckus also brings corporate accounts to Arris, and a conduit to the European and Asian markets with its channel partners.  Over the past two years approximately half of Ruckus’ sales flowed from outside North America.  Ruckus is the third top supplier in the Enterprise-class Wireless LAN market (at approximately 7% revenue share), following Cisco and HPE.

Looming on the horizon are high-speed wireless technologies which dramatically improve wireless connectivity.  In 4Q16 NETGEAR and TP Link began shipping wireless equipment 802.11 ad which supports speeds up to 7 Gbps vs. current speeds up to 1 Gbps.  802.11ad products will augment existing wireless networks, further reducing the need for cabling.   Qualcomm and Quantenna began shipping 802.11 ax chips which support speeds up to 10 Gbps.  By fall 2017 we expect 802.11ax products to be available, just in time for the new school year.

In sum, we applaud Arris for its acquisition of Ruckus as it complements its business on many levels.