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Friday, August 28, 2015

2Q Vendor Financial Index: Highest Number in Low-Risk Category

Strong revenue outlook, high operating margins and other factors put Adtran, Brocade, Cisco, Infinera, and Juniper into low-risk category
ACG Research has released its 2Q 2015 Vendor Financial Index report, which delivers independent information about the sustainability of a vendor or company to help providers assess the risk of selecting the right vendor to meet their business requirements and to ascertain a risk level on the stability of the vendor regardless of technology innovations.
Low-risk vendors for the quarter are Adtran, Brocade, Cisco, Infinera and Juniper. Characteristics of low-risk vendors include strong revenue outlook, high operating margins because of sales, solid gross margin and expense discipline, low debt dependency, and high receivable efficiency ratio. Medium risk were Alcatel-Lucent, Ericsson and Fujitsu.
Adtran has the highest equity to debt ratio (2.32) in the industry and financing its assets with more shareholders’ equity than debt. The company’s financial performance is predicted to improve in the second half of 2015 as a result of higher carrier expenditure in U.S. However, weakness in Europe will continue to impact Adtran’s revenue. Brocade’s operating margin is 20.9 percent, one of the highest in the industry. However, the company’s operating income decreased by 18 percent QoQ. Brocade’s growing data center presence, positioning as storage networking experts and innovation in software-enabled networking, will be the focus in 3Q15 as well. Cisco’s a very high operating margins because of sales, solid gross margin, improved productivity and expense discipline led to its operating income increased 4.3 percent YoY. Application Centric Infrastructure and APIC are predicted to be the cornerstone of the Cisco’s next generation of networking architectures. Infinera's operating margin (8.0 percent) is high compared to industry average, driven by cost decline because of vertically integrated model and improved services profitability. Revenue for 3Q15 is estimated at $215 M, a 30 percent YoY growth and will be mainly driven by continued acceptance of DTN-X. Juniper’s revenue was up 14.5 percent QoQ, mainly driven by better demand from its cloud and cable service providers. The company’s services revenue increased 7.4 percent on YoY. Juniper’s partnership with VMware will enable highly automated cloud data center solutions for both service provider and mission-critical enterprise network.
The same as last quarter, Ciena, Cyan and ZTE remain in the high-risk category. ZTE, healthy but fluctuating net cash ratio, has had Difficulty establishing presence in North America markets. The company will focus on three key markets in the second half of 2015: carriers, government and corporate sectors and consumers. Cyan has the lowest operating margin in the industry. The company suffers from lack of customer diversification and revenue is concentration in one company, Windstream, which represented 52 percent of its revenue; two other companies accounted for more than 10 percent revenue each. Ciena has very low net cash ratio at $(6 M) and has substantial segment of revenue continues to come from sales to a small number of service providers. However, higher spending on optical upgrades and increased international orders will positively impact revenue.
“This is the highest number of vendors in the low-risk category we have seen since we started tracking vendor financial ratios and launched this report,” says Ray Mota, CEO, ACG Research. “Network vendors are taking operational efficiency and sustainability more seriously and the numbers show that they are running more efficient companies.”
For more information about ACG Research’s Vendor Financial Index service or other syndicated and consulting services, contact

Total Cost of Ownership Study:Network Packet Brokers

This study compares the total cost of ownership of hardware-based first generation network visibility solutions with Brocade’s next generation network visibility architecture. 

For information about ACG's business case analysis services, contact

Wednesday, August 26, 2015

Tremendous Packet Core Momentum Fuels 2Q Worldwide Mobile Infrastructure Market, Surpasses $1 Billion

LTE-Advanced deployment, Packet Core deployments, VoWiFi trials and the high interest in end-to-end VoLTE solutions are driving the mobility market

The Worldwide Mobile Infrastructure market grew revenue in Q2 quarter over quarter. The Q2 Total Worldwide Mobile Infrastructure market surpassed $1 billion in revenues. The APAC region, mainly China, led this growth during this quarter, followed by EMEA. Mobile broadband net sales were primarily driven by overall radio technologies, specifically LTE. In the North American region the market managed to stabilize, helping most vendors to maintain flat revenues. Although most operators have completed their LTE deployments, it is anticipated that the fast-rising data traffic will definitely require further upgrades of U.S. wireless networks to add more capacity and avoid congestion experiences such as those recently witnessed in New York and Chicago, and generate opportunities for vendors.

Global mobile infrastructure spending posted single digit growth with most carriers adopting a “wait and see” status for new deployments and services. However, Packet Core, specifically EPC, grew in double digits and it is expected this growth will continue in the next quarters as operators modernize the network with new services. We anticipate more spending into EPC but also into virtual solutions, vEPC, in the coming quarters as the trials will start scaling up into commercial accounts. Services virtualization continues to gain traction because of the savings and the short time to market service delivery. More VoLTE and VoWiFi deployments are expected in the next quarters as most operators understand that these services are complementary and offer different benefits for indoor and outdoor support.

“There are three interesting points to note this quarter. The focus of Mobile IP Infrastructure spending has shifted to the Asia-Pacific region, coming mainly from China; the Evolved Packet Core market is the fastest growing segment. This trend will maintain momentum in the next quarters, and it will gain traction even more in North America with significant LTE network expansions,” states Elias Aravantinos, principal analyst, ACG Wireless and Mobility.

“The second point relates to another interesting trend related to the previous trend, the large scale of virtual service trials that are becoming commercial because operators have realized the savings and the advantages when virtualizing certain parts of the network. The first commercial Virtual EPC projects are expected to massively scale by the end of 2015. Finally, there is special focus on Voice over WiFi service adaptation and spending on the Evolved Packet Data Gateway or ePDG, which is a native part of this new infrastructure and ensures the call connectivity between the WiFi and the cellular network. Operators have already understood that there is no competition between VoWiFi and VoLTE and that these services complement, helping them to face coverage, traffic offload and churn issues,” says Aravantinos.

Click for more information about ACG’s mobility services or contact

Vendors Report Solid Growth in 2Q15 Worldwide Router and Switching Markets

Increases in fixed broadband traffic and mobile broadband traffic on 3G and LTE networks are driving infrastructure growth

The Q215 total Worldwide Carrier Routing and Switching market increased 9.2 percent quarter over quarter and 3.1 percent year over year. The core routing segment had revenues of $638 million, increasing 11.1 percent q-q and up 12.5 percent y-y. The edge/switching segment posted revenue of $2.4 billion, up 8.7 percent q-q and up 0.9 percent y-y.

New applications, increases in Internet data and video traffic continue to drive global router and switching markets. Cloud and content service providers have been rapidly expanding their data center capacities to handle the demand for new services. These drivers require flexible and scalable networks and vendors are seeing the benefits; the 2Q total Worldwide Carrier Routing and Switching market posted revenue of $3.0 billion. 

One trend that continues to gain traction is providers focusing on their networks that connect the data centers. Inter-data center networks are changing to support new services and network requirements for bandwidth scalability, low latency, security, virtualization and automation. It is anticipated that by 2019 there will be 60 percent more data centers in the world’s metropolitan areas than there are today, and data center interconnect volumes will increase by more than 400 percent.

“Despite so many POCs in SDN and NFV being deployed, the overall market still needs scalable reliable routers for providers’ critical services,” states Ray Mota, CEO of ACG. “Routers aren't going away any time soon. What we will see is a variety of physical and virtual deployments with expanded TAM into Webscalers that need carrier-grade virtual routers and high-performance MPLS switching.” 

  • Increasingly, operators are turning to NFV as an enabler of new services, short service innovation cycles, and as a means to drastically reduce the operational cost of new and existing services.
  • Traditional architectures are not capable of delivering a sustainable business model because of long deployment times and the resulting complex manual and proprietary systems interfaces required to support. These factors have been identified as the major causes of high-cost, poor capacity scaling and long innovation cycles. Traditional appliance-based solutions are unable to react quickly to new and changing service opportunities and requirements, thus limiting revenue opportunity and increasing customer churn. Deploying multiple technology silos to deliver a mixed portfolio of services plus the operational implications of multiple specialist teams, adds further opex expense.
  • Internet of Things is starting to generate some real revenue for many service providers and the need for more security and scalable big data analytics will help offset the market with higher margins than traditional hardware equipment.
For more information about ACG’s services, contact

Wednesday, August 19, 2015

Business Case for a Common NFV Platform

The potential of NFV to improve service agility and reduce total cost of ownership requires an approach that allocates hardware, software, and human resources to meet the requirements for all services in an on-demand approach. ACG Research has written a whitepaper, sponsored by VMWare and Affirmed Networks, that explores two emerging models of NFV deployment: 1) custom software stacks that aim to integrate as much of the model as possible into a single solution by a vendor and 2) a modular approach based on the deployment of a common virtualization platform where multiple VNFs and other NFV components are provided independently. The analysis evaluates each approach by comparing its TCO to the TCO of the traditional (appliance-based) approach where all approaches are serving identical functional requirements demand. The analysis determines that only one of these approaches will result in sustainable benefits to the operator.

Cisco Shifts Focus on Cloud Video: Selling Its Traditional Video Products

Technicolor and Cisco have also signed a long-term patent cross licensing agreement and a strategic partnership to develop and deliver next-generation video and broadband technologies on IoT solutions and services

In November 2005, Scientific Atlanta, Inc., a Georgia-based developer and manufacturer of consumer video and data services products, was acquired by Cisco Systems for $6.9 billion cash deal. Cisco already had products that let service providers deliver data, voice and mobility. With this acquisition it added the video component, the missing element, in this bundle, which gave a unique integrated architecture to the market and helped Cisco sell products to carriers developing “quadruple-play” services, a technology that encompasses voice, video, Internet and wireless.

The plan was to integrate TV set-top boxes with Cisco’s other main consumer product, Linksys WiFi routers, thus evolving a new “connected device” that combined voice, video and data. What nobody could predict at that time was that this acquisition would not yield revenue, margin and share gains, which at then looked possible.

Gaining market share, expanding customer base
During the last 10 years, the Scientific Atlanta acquisition brought in cumulative nondiscounted revenue of $27B to Cisco; however. In the past few years the company has seen revenue declines and more importantly profitability shrink irreversibly. Additionally, one of the key issues that Cisco faced was where this consumer business fit within Cisco’s mostly service provider, enterprise and public sector customer base where the margins have been traditionally robust for Cisco. And with rumors swirling for a while around Cisco’s SP video future, the announcement was not a surprise to industry watchers.

Cisco exited the business by selling to Technicolor SA, a French media and entertainment technology group, which has led the market in delivering advanced video services. Technicolor SA will acquire the business for $600 M to $450 M in cash and $150 million in newly issued Technicolor shares. The agreement is expected to close by the end of calendar 2016. The acquisition will give Technicolor an estimated 15 percent share of the global CPE market, with 60 million devices shipped each year, an installed base of 290 million set-tops and 185 million gateway devices across 100 countries. Starting in the first full year after completion, Technicolor expects the acquisition will add at least 10 percent to its earnings per share as well as double annual revenues at Technicolor’s connected-home division. As part of the strategic agreement and after the transaction has closed, Hilton Romanski, senior vice-president and chief strategy officer of Cisco, will join Technicolor’s board of directors.

Moving forward Cisco will focus on key transitions that align with its overall cloud strategy: to provide customers with video, IP access, wireless, cloud and software services, security, and IoT technologies to innovate the next generation of connected home experiences.

Mending Achilles heel
The set-top box business has struggled because of consumers’ shift toward other devices to access video. Service providers have adopted new cloud technologies to offer programming. Although the business generated $27 billion of cumulative revenues for the company, it has been an Achilles for the company for a long time, losing sales to competitors such as Arris Group Inc. and Casa Systems Inc. In the third quarter of fiscal 2015, revenues from its service provider video segment declined 5 percent because of lower set-top box sales.

The much awaited announcement has provided a clearer path for Cisco and how it plans to address the video market to align with its overall cloud strategy for products and services. Cisco’s exit from this low-margin business is sure to cheer up the investor community, which will look to the company for greater cloud-based revenues and growth.

For more information about ACG's video technology services, click here.

           Megna Zutshi

Tuesday, August 11, 2015

SDN/NFV: Gold Rush or Fool’s Gold?

Another gold rush has brought a high level of excitement to the network infrastructure producers and consumers alike. The mad dash to SDN/NFV feels like déjà vu, for example, mid 1990s for ATM and late 1990s for MPLS. See Paul Parker Johnson’sHow SDN (Today) Is Like MPLS Was (Then).” There are huge expectations from all stakeholders to offer and implement infrastructures that reduce both capital and operational expenditures, in addition to opening new doors for rapid deployment of innovative and lucrative business services.

Intuitively, the SDN/NFV combination should reduce the total cost of ownership (TCO), both capex (COTS versus purpose-built hardware) and opex (cost of provisioning and network maintenance). In evaluating TCO, there are other costs that could favor one approach versus the other.

Most often, capex savings are only discussed in terms of COTS hardware versus physical or purpose-built hardware. Basically, capex includes any upfront nonrecurring cost; that includes the cost of “network roll-out” (NRO), which is the cost of integration, testing and verification of the incremental hardware into the existing infrastructure. Unlike the cost of hardware, this cost component is not usually depreciable unless the NRO is done by the hardware vendor, and the cost is negotiated in advance. Other capex costs can include the cost of the underlying transmission network (in some countries this is leased). For NFV, the transmission network (and eventually the hardware maintenance) can be leased from the owner of the data center, which turns this cost into an opex component as it becomes a recurring cost.

A major advantage of SDN/NFV is in its opex, which gives the operators the ability to rapidly provision new services. Service roll-out is reduced by an order of magnitude of months to days. Moreover, with fast service roll-out, a new service can be tested with a limited set of customers first, and then upon favorable feedback it can be introduced to the entire target market. This can save a lot of headache (and money) later if the service turns out to be not as well received as it was expected.

Today, most infrastructures that are built on purpose-built hardware are going to stay in operation for a while and in many cases even after they are fully depreciated. Therefore, while migration to function virtualization is moving forward, operators will face a period of a “double opex” cost factor. This is not lost on anyone, and it can become a factor in delaying the decision to virtualization.

The move to virtualization requires a close study of the intermediate and long-term goals of the organization: customer needs, market penetration goals, and service offering to name a few. Although cost containment is a big factor, the revenue side of the equation must be given a much higher weight to remain competitive. After all, costs cannot go below zero, but the sky is the proverbial limit for revenue generation! And this is where SDN/NFV based infrastructures shine: rapid deployment of new and potentially lucrative services.

         Robert Haim