SMBs Leading the Way to Cloud Adoption

I had the pleasure to speak at the Ethernet Alliance (EA) members meeting held on February 17th, 2012, in Santa Clara, CA. My keynote topic was how the cloud computing market is affecting enterprise customers. Side note: What I really enjoy about the Ethernet Alliance is its approach to the user community. EA members continue to seek direct input from the users of the technology the EA is developing. It is a refreshing change from the typical vendor-driven standard body that infrequently takes direct contributions from the user community. John D’Ambrosia, the outgoing chair of EA, has done a great job reinvigorating the Ethernet Alliance community.

Back to my topic, I find the cloud services pattern of adoption interesting. Since the downturn of 2008, the small and medium business market (SMB) has bravely gone on and adopted cloud-based services. Several companies ($100+M in revenue) in Silicon Valley are now 100 percent in the cloud. They have completely out-tasked their traditional IT departments. This movement was born out of necessity. With minimal funds available for capital purchases, the SMB market moved to cloud to address and change their operational and capital expense models. This movement has become so common in the last year that some large IT equipment distributors have created cloud-based solutions for their value added resellers (VARs) and systems integrators (SIs) to sell. Instead of fighting the movement to the cloud, the distributors have embraced the cloud in some fashion so they can gain revenue either by direct capital purchases or through operational expense-based cloud computing models.

How are VARs and SIs moving to cloud? At MSPWorld in Austin, TX, VARs and SIs that participated on my panel “Practical Steps to Jump Starting Cloud Based Services” agreed that integrators need to stick to what they know and incrementally move to a services-based cloud channel model. This will require a changing from a reseller of hardware to a consulting relationship with their clients as well as establishing a different approach to the SMB market. With the combination of ease of use and the movement to expense-based pricing models of the cloud, the integrators are in a good position to help this market rapidly adopt cloud services.

Large enterprises are reluctant to move to the cloud due to several factors. The first factor is a fundamental concern about the privacy of their data. Large enterprises have the most to lose because of restrictions and regulations with compliance and governance. Enterprises have dabbled with certain cloud applications such as Salesforce.com or have implemented virtualization in their data centers. Though server virtualization is a good first step on the path to cloud computing, it is not the ultimate step. It does buy CIOs some time within their organizations because they can claim they are using cloud services when talking to their peers.

What will be interesting to watch is the development of true cloud services from the major global service providers. This group has the experiences dealing with complex, SLA based engagements with the Fortune 1000 organizations. In addition, they have invested in driving long-term, trusted relationships with CIOs in this market. As the service providers gain more practical experience with delivering reliable and secure cloud services, I believe you will see the other shoe drop into this market with large enterprises investing more heavily into cloud services.

Marshall Bartoszek
mbartoszek@acgresearch.net
www.acgresearch.net

Infinera Number One in 2011 North American Long Haul WDM Market

“Our reports indicate the Long Haul market is experiencing another growing cycle and we expect this market to continue to expand over a couple of years,” said Eve Griliches, Principal Analyst at ACG Research. “Infinera is well positioned to sustain its number one rank in this market, especially with the Infinera DTN-X platform coming to the market.”

Read more ...

Eve Griliches
egriliches@acgresearch.net

www.acgresearch

Chris on the Spot: Mobile World Congress, Devices

Check out this video and get your Mobile World Congress update with Chris Nicoll of ACG Research. See which hot "device" is getting the most attention at the show.

Chris Nicoll
cnicoll@acgresearch.net
www.acgresearch.net

Mobile World Congress: Day 1

Get your Mobile World Congress update with Ray Mota of ACG Research. In this video Ray discusses LTE and why he thinks we are still at ground zero with LTE.

Ray Mota

rmota@acgresearch.net

www.acgresearch.net

Chris on the Spot: Mobile World Congress Day 1

Mobile World Congress is reporting more than 50,000 attendees, and fortunately the metro and bus drivers reached an agreement and are not striking – helping both the traffic and the mood of the attendees immeasurably.

Speaking of traffic, this is the second show in a row, after CES, where automobiles again take the stage. Walking around the Fira (conference center) one can alternatively browse through a new connected Ford or if something sportier is what you are after, a connected BMW. Love to take a test drive in one of THOSE.

Nokia got the show off to a good start with CEO Stephan Elop highlighting the speed of Nokia’s innovation this past year: four new Lumia devices as well as a range of other devices for the emerging markets. Elop cited the increased clock speed at which Nokia is operating today – a nod to what many perceive is Nokia falling behind in the smartphone wars to Samsung, Motorola and Apple, among others.

However, Nokia has said it will be a leader in bringing location to the market as a value-added service, a point that was underscored by the announcement of a partnership with Groupon.

Groupon benefits from knowing where its members are exactly rather than in a general geographic area, allowing for the more specific targeting of its offers and allowing for immediate offers to pop up to nearby users.

NSN’s Rajeev Suri announced his prediction that by 2020 users will be consuming 1Gb of data per day. That is for each user the equivalent of an hour of HD video every day. I understand how much traffic video generates, but until video content becomes more searchable or better targeted to information delivery I’m not sure I buy it. I still find it much easier to browse Flipboard or CNN for headlines and then click through to get more detail. And not every phone call I make will be a video call either. I could be wrong however.

NSN also expects that applications will become more intelligent, self learning and connecting when and how the app needs to connect. This I can see, along with an intelligent voice interface that figures out what apps IT needs to access to find me the best deal on a pair of shoes or the closest theater/restaurant pairing for a movie I want to see. I already do a lot of voice interface with my phones, relieving me of typing and navigation, but I would like to see it more intuitive to my preferences.

However, ALU points out the downside of intelligent apps or at least the current crop of intelligent applications such as Suri: IOS5 has 50 percent more signaling load than IOS4 has, and Ericsson highlights that signaling capacity not throughput is one of the top concerns of the operators. In fact, an unexpectedly high signaling load is said to be the cause of most of Verizon’s LTE network issues.

This leads us to service provider WiFi, probably the one topic at which nearly all of the mobile operators are looking and certainly a hot topic for the infrastructure vendors too. But that is a topic for tomorrow. Until then!

Stay tuned for other topics/themes emerging from the show, which center on connected things, 4G (LTE and HSPA+), "easy and simple" and monetizing the Internet.

Chris Nicoll
cnicoll@acgresearch.net
www.acgresearch

Cisco Acquires Lightwire

Cisco announced the intended acquisition of Lightwire (Allentown, PA) for $271M. The full price includes key retention incentives, and Cisco feels they paid a very fair price for the just under 60 employees as well as the significant intellectual property patents that come with the portfolio.

Lightwire offers a CMOS platform that integrates optical modulators, waveguides and mux/demux functionality into a single CMOS chip. Lightwire competes against companies such as Luxtera and Kotura; we will be speaking to reps from both of these companies next week.

Lightwire has yet to ship product; expectations are for 1H 2013 for the first release, but it will be a key platform to additional releases over the next few years.

The products target the data center and service provider spaces and will enhance routers and switches with very high density, longer reach capability while decreasing the form factor and power requirements. As the number of ports increases, the cost of the optics becomes a larger percentage of the total cost of a solution; therefore, a lower cost, higher density version will be welcome to any data center application of routing and switching. The initial focus for deployment will be 40G/100G and higher bit rates at distances up to about 40km. Solutions today that meet this requirement are very large and power hungry. The Lightwire version is expected to be one-third to one-quarter the size and use much lower power.

ACG believes this is another good purchase for Cisco. While targets are initially for routers and switches, all next-generation platforms will use this device and can begin integration designs today. The CMOS platform is one of the most manufactureable in the world and is a key target for optical and electrical integration for many future platforms. Because of its friendly base, the CMOS is perfect for higher level integration at lower cost points. We expect that by 2015 we'll see all sorts of electrical and optical components integrated into this base platform design in one form or another. Clearly, Cisco sees this as well and is making yet another commitment to build its key next-generation platforms. Two thumbs up from ACG!

Eve Griliches

egriliches@acgresearch.net
www.acgresearch

The Top Five Security Considerations for Software Defined Networks

While there is a lot of interest in the potential of Software Defined Networks, there are only a handful of actual production networks out there right now. Why? One reason is because of the security risks associated with deploying the existing technology. The following are the top five areas that need to be addressed to improve the security of this new architecture:

Secure the Controller: By separating the control and management plane from the data plane, the “brains” of the network are centralized, which theoretically enables you to make changes to improve the speed, efficiency and potentially security of your network, with just a few clicks. Because the controllers that manage the network can be used to do anything, it also means securing them is of paramount concern.

Depending to whom you talk to, “putting all your eggs in one basket” so to speak, with all the brains of the network in the Controller can be seen as bad, representing a big target and vulnerability, or good, enabling the concentration of protection efforts on one thing. (Note, it may not be that dissimilar to DNS servers today, which are hugely disruptive if taken down or compromised; however, most network administrators feel fairly comfortable in their ability to protect the DNS servers in their network.)

Protect the Controller: Protecting the availability of the controller is also critical. Commercial solutions must easily enable redundancy to reduce the impact a compromise on one controller can have on the entire network.

Establish Trust Between the Controller and the Applications and Devices: Ensuring the integrity of anything that communicates with the controller is a critical first step in making sure the network is running as it should. There must be strong, mutual authentication for the applications that run on it, as well as the switches, routers and servers it controls. Also the communications channel needs to be secure to prevent attacks, such as man-in-the-middle.

Create Robust Policy Framework: Checks and balances are needed to ensure the network is operating as it should. When changes to the controller are made, there needs to be a framework in place to ensure they are in line with corporate policies and don’t open up security risks or knock the organization out of compliance.

Forensics and Remediation: Just as in any network, understanding what is going on or what happened is vital to being able to make changes that strengthen your overall security posture and better protect you from future threats.

Most likely these risks will be addressed as the technology matures and more commercial offerings are made available to the market, but it’s important to keep in mind what needs to happen before wide-scale, production deployments can be considered.

Sarah will be speaking at “What Every Business Executive and Investor Needs to Know about SDN and OpenFlow”

Sarah Sorensen

ssorensen@acgresearch.net

www.acgresearch

Should Cisco Sell Its STB Business?

Rumors are spreading about Cisco wanting to unload its STB business because of shrinking margins and slow growth. If you asked me a year ago, I would have told Cisco to exit the business because of the entry of low-cost offshore competitors, the threat of OTT and likelihood that STBs would become irrelevant as consumer electronic devices (connected TVs, iPads, and game consoles) are able to stream video.

Now, I see the business a little differently. It is possible that the decline of the STB business will be slower than we think. Even as connected TVs, game consoles and tablets grow, the older sets will still need an STB device to get the content. Even with shrinking revenues and margins, the cash flow should be pretty healthy given that much of the investment has been written off. It also allows Cisco to continue to be a strategic partner and maintain a high share of spend with the MSOs and Telcos. Keeping the business would allow Cisco to retain the video engineering expertise, which is no doubt sizable and will be needed for developing new hybrid/VideoScape products.

Practically, can Cisco get anything above a fire-sale price given the slow growth forecasts for STBs? Finding a buyer will be tricky, since there are only a small number of companies that have the resources and strategic fit to want to bid on it.

Cisco has publicly stated that it does not have plans to sell its STB business, but going forward the company will have to see how fast and at what point they transition to a more profitable VideoScape strategy.

David Dines
ddines@acgresearch.net
www.acgresearch.net

Mixed Bag for Mobile IP Infrastructure in Q4

IP Edge and Packet Core. Mobile IP Backbone was down 6.6% sequentially and 8.7% year over year, while Packet Core (up 4.9% q/q, 1.6% y/y) and IP Backhaul Routing (up 13.3% q/q, .07% y/y) were the driving areas in the Mobile IP Infrastructure market. As reflected in the ACG Optical Market results for Q4, Metro WDM and Long Haul DWDM are absorbing the core network bandwidth demands while the operators focus on improving the access and backhaul networks as the advanced 3G and 4G networks continue their march to an All-IP infrastructure.

One cause for concern is that overall growth in Mobile IP Infrastructure was relatively flat compared to past years, going back to 2008. Strong gains in IP Backhaul Routing and Packet Core were nearly offset by dramatic drops in IP Backbone and IP Backhaul switching.

Cisco reported mixed q/q results, but strong gains y/y to retain its #1 position in IP Backbone, Mobile IP edge and Mobile IP Backhaul. Much of Cisco’s Q4 gains seemly came from Juniper, while Huawei was up q/q, but down y/y in IP Backbone.

Ericsson’s #1 position in Packet Core (31.5% share) is being threatened by Cisco’s 8.5% y/y gain; Ericsson’s decreased 6.9% y/y. Alcatel-Lucent posted consistent q/q gains reflecting the overall positive results announced by the company; ALU also posted a gain of 58.8% in its IP division revenues for Q4.

The global economic outlook remains mixed however we expect to see continued focus on the mobile environment for 2012. The US economy has experienced slow growth over the past two years; however Standard & Poor’s 500 companies are seeing earning increase by more than 15% each quarter, a positive sign for the economic recovery/growth. Spectrum positions around the world continue to impact operators’ 4G plans, with the US facing a spectrum shortage, and the UK, for example, seeing its 4G spectrum auctions held up by regulatory concerns.

ACG Research anticipates that 2012 will be challenging for providers and vendors as global economies continue to fluctuate. According to the Conference Board, global growth is projected at only 3.5% in 2012. In spite of this slow growth, mobile service providers will continue to upgrade their 3G networks and look to migrate to 4G. 2012 will be challenging for the telecom industry as a hole but the mobile operators will continue to invest in their Radio Access Networks, as well as Packet Core and Backhaul to meet continued demand for mobile broadband services. These solutions, which are putting pressure for differentiated solutions, must deliver innovation, support innovative business models, produce cost and operational management benefits and meet enterprises’ strategic requirements and consumers’ developing needs.

For more information about ACG Research's mobility infrastructure service, click here.

Chris Nicoll
cnicoll@acgresearch.net
www.acgresearch.net

Thanks to Microsoft, Nokia will succeed in North America

At CES I saw a Nokia Lumia 800 demonstration of the Windows Phone 7 (WP7) OS and was blown away on several fronts: the user interface is new and different, the operation is simple and the 800 is an uncomplicated yet powerful platform. But before you go crazy on the definition of success let me define what that means in the short term: Nokia pulling 10 percent of the U.S. handset market share and Microsoft pulling in 20 percent of the OS market share by 2015.

Read more at FierceTelecom.

For more information about ACG Research's mobility infrastructure service, click here.

Chris Nicoll
cnicoll@acgresearch.net
www.acgresearch

Despite Softness, Winners Emerge in the Router and Switching Market in Q4

Weak economies and decreased demand from service providers contributed to a soft Q4 for the Worldwide Carrier Routing and Switching markets for some vendors. The Total Worldwide Carrier Routing & Switching market grew revenue $2.9B in Q4/11. The global market increased 1.1% sequentially but declined 10.7% year over year. This decline was due to a perceived negative economic macro climate and reallocation of CapEx shifting from wireline to wireless. Core Routing revenues were down 6.5% q/q and down 17.9% y/y. Edge Routing and Switching revenues were up 3.4% q/q but down 8.5% y/y.

Cisco gained in Core, Access Aggregation, and Carrier Ethernet, which it attributed to a solid book of orders across all regions. The company has been reorganizing and announced that it had reached its goal of reducing $1B in annual expenses. Cisco is gaining share against Juniper, which decreased routing revenue 8.1% sequentially and 22.4% y/y. However, Juniper posted a 36% y/y increase in switching revenue and a 33% y/y quarterly increase, which is in part due to solid sales of infrastructure products such as QFabric and Juniper's wireless LAN products. Alcatel-Lucent, which is benefiting from the market momentum for 100G IP/optical as well as providers replacing and leveraging 100GE and IPv6 transition technologies has 16.5% of the total market share. ALU posted gains in Total Carrier Routing, ESER, MSER, and Carrier Ethernet.

We still see mixed signals on the economic outlook and overall CapEx spending for 2012, but despite the macro climate, mobility and business video services are strong areas for spending and growth in 2012. The US economy has had slow growth over the past two years, yet earnings by companies in Standard & Poor’s 500 companies increased by more then 15% each quarter, which is a good sign for the economic recovery/growth. Traditionally in a presidential election year, perceptions and fundamentals may widen since debates tend to highlight the problems and not the positive fundamentals.

Vendor	Rank	Market Share ($)
Cisco	1	53.7%
Alcatel-Lucent	2	19.0%
Juniper	3	16.5%
Tellabs	4	2.6%
Huawei	5	2.5%

QUARTERLY TREND and DRIVER HIGHLIGHTS

• New technologies are driving innovation, which is being driven by market pressures and demands for enterprises to move critical and nonbusiness critical processes to cloud or virtualized infrastructures. With many countries reaching 100% mobile device penetration and with more people owning multiple mobile devices, fixed and mobile operators have to evolve their broadband access networks to create scalable capacity to deliver multiservice support, operational efficiency and an exceptional user experience. Vendors will need to react and offer innovative solutions that address these requirements.
  

• Mobility and cloud computing are two segments driving all aspects of the telecom industry. Both markets continue to be driven by vendors introducing new technologies for data centers, security, mobile Internet, and storage.

• Data plane traffic growth is being driven by the rapid adoption of video services and cloud services; control plane traffic growth is being driven by migration from fixed and fairly static information sources to personalized, socially-inclusive, and mobile information sources.

With global CapEx for wireline networks estimated to decrease 5.3% in 2012, ACG Research anticipates that 2012 will be challenging for providers and vendors as global economies continue to fluctuate. According to the Conference Board, global growth is projected at only 3.5% in 2012. In spite of this slow growth, service providers will continue to migrate to new technologies and routers will play a key role within the IP network. 2012 will be challenging for the telecom industry, but vendors must focus and invest in developing and introducing new products and services, especially those that support the data center, cloud computing, security and mobility. These solutions, which are putting pressure for differentiated solutions, must deliver innovation, support innovative business models, produce cost and operational management benefits and meet enterprises’ strategic requirements.

For more information about ACG's syndicated service or to purchase this report, contact sales@acgresearch.net.

Ray Mota

rmota@acgresearch.net

www.acgresearch.net

Worldwide Optical Market Jumps in Q4

Calendar year 2011 showed a major 9.7% increase over the paltry 2011 market, closing the year-end optical market at $13.3 billion. We have not seen totals like this since 2007 and 2008 and are encouraged by this increase in spending. Segments that exceeded the market were the Metro WDM segment, long haul DWDM, Packet Optical, and MSPP. The OXC market posted a notable decrease. Another significant increase was spending in the content provider space, as it continues to rise as percentage of optical spend.

Vendor	Rank	2011 Market Share (%)
Huawei	1	22.5%
Alcatel-Lucent	2	16.1%
ZTE	3	12.8%
Ciena	4	9.6%
Fujitsu	5	6.6%

QUARTERLY TREND and DRIVER HIGHLIGHTS

• Core node sites will ultimately require up to 100T of capacity.

• Metro DC to DC and DC to Internet POP deployments will be the fastest growing segment in the next few years.
  

• Capital expenditure is relatively flat in the traditional market but up in the content provider space.

• Spending on infrastructure by Google, Facebook, Amazon and Microsoft was up by significant percentages.

• Q4 was assisted by solid increases spending by MSOs as well as spending by the U.S. government.

The M&A that has been expected for the last 18 months is now overdue, but still likely to occur in the next 12 months. The result will force out vendors from the market or they will merge with larger companies. However, in 2012/13 the demand for 100G deployments will be high and will continue to be deployed in much higher numbers. The market will also see more demand for 40G for those that do not need 100G and have a long-term market expectation for 10G sustaining all product categories.

Demand from content providers and cautious spending by top tier providers are rapidly and dynamically changing the optical market. Vendors that are paying attention to what content providers want, understand how they are deploying product, and what they are discussing for next-generation access networks and metro networks will be in much better position to weather this slow economic recovery. The good news is that the overall market up almost 10% over 2010, which is a good sign for the industry.

For more information about ACG's syndicated service or to purchase this report, contact sales@acgresearch.net.

Eve Griliches
egriliches@acgresearch.net

www.acgresearch