LightCounting publishes its December 2020 Quarterly Market Update.
Top ICPs have little in common regarding spending growth and outlook
2020 has been different in many ways, and ICP spending is no exception. The chart below shows estimated full-year 2020 revenue and spending growth rates for the top 5 ICPs, based on Q1-Q3 actuals and Q4 consensus estimates. All of the top 5 are expected to grow revenues at double-digit growth rates, consistent with past years. Spending is a different story however. Although the aggregate spending growth rate for the top 5 (24%) nearly matches the revenue growth rate (22%), this is not reflective of any individual company. Alibaba, Amazon, and Microsoft will grow spending much faster than revenues in 2020, while the other two will keep spending flat (Facebook), or shrink it (Alphabet).
Such a divergence in capital intensity is very uncharacteristic for this group, but each company has its own reasons for the position it has taken. Alibaba stated in April that it was going to massively grow its spending on its cloud operating system, servers, chips and network, to the tune of $28 billion over a three-year period. The company appears keen to at least keep up with, if not surpass, its Western counterparts in the development of leading edge technologies for supporting cloud-based businesses.
Alphabet’s spending reduction is not really related to its datacenter business, but rather is related to a slower pace of real-estate acquisitions. Conversely Amazon’s spending increase was in support of its retail operation’s fulfillment and logistics – warehouses, trucks, and the like. The company has not indicated any change in direction regarding its investment in datacenters and accompanying technology.
Facebook made clear its flat spending growth in 2020 was not by design, saying ”For 2021, capex [will be] in the range of $21-23 billion [37% higher than 2020], driven by investments in data centers, servers, network infrastructure, and office facilities. Our outlook includes spend delayed from 2020 due to COVID-19.”
Finally Microsoft said its Q4 spend would be in line with Q3, in order to support growth in cloud services, but then also said it was extending the depreciable life of server and network equipment assets from three years to four years, which could indicate they have found a way to squeeze more capacity out of existing equipment which suggests lighter spending on equipment in 2021.
Cloud companies are accelerating deployments of AI systems
AMD and Nvidia reported very strong results for Q3 2020, driven by sales of GPUs used in AI applications, and announced major acquisitions. AMD announced $35 billion acquisition of Xilinx and Nvidia is paying $40 billion to Softbank for ARM.
AMD’s Q3 revenues were up 45% sequentially and 56% y-o-y, driven by strong demand for Ryzen, EPYC and semi-custom processors. Cloud companies are deploying EPYC processors across their internal infrastructure and publicly available resources. For example, Microsoft Azure expanded their EPYC-based data analytics services to 18 regions and 9 availability zones. Amazon and Google also started offering new AI services supported by these chips.
Nvidia also reported strong growth in Q3 revenues: up 22% sequentially and 57% y-o-y. The company’s datacenter revenue grew 168% y-o-y, driven by sales of A100-based platforms. Also in Q3, AWS, Oracle Cloud and AliCloud announced the general availability of the A100, following Google Cloud and Azure. Hundreds of companies now operate AI-enabled services on NVIDIA's inference platform, including the A100 or T4 GPU and Triton Inference serving software. For example, Tencent uses NVIDIA AI inference to recommend videos, music, news and apps, supporting billions of queries per day.
HPE commented on the strong growth in sales of High Performance Computers (HPCs): 50% sequentially and 25% y-o-y. The company is relying on AMD and Nvidia chips for the majority of its HPCs now.
Service providers are starting to deliver AI capabilities to industrial clients via 5G
Orange and Schneider Electric are running industrial 5G trials at Schneider's Electric Le Vaudreuil factory - the first deployment of industrial 5G in France.
Verizon noted that companies including Honeywell and General Motors were among the first to install 5G at their facilities. And in October Verizon said it would team with Microsoft to integrate private 5G MEC with Azure services for enterprises.
KDDI launched a pilot study of Amazon Web Services (AWS) Wavelength to provide ultra-low latency 5G services at the edge of its 5G network, and with this unprecedentedly low latency, continue accelerating initiatives aimed at realizing remote operations of high-res XR, smart factories, and construction equipment.
LightCounting's Quarter Market Update reportsare designed to provide an easy-to-digest snapshot of optical transceiver growth trends, backed up with detailed quarter-by-quarter sales data collected via LightCounting's proprietary vendor survey. Performance metrics and commentary for top-tier telecom and internet service providers, network and datacom equipment makers, and optical component, and semiconductor vendors are also included, to provide an understanding of what drives sales trends at the transceiver level.
Each quarterly report consists of approximately 100 PowerPoint slides with many charts and tables suitable for reuse in client presentations. An Excel spreadsheet is also included with the report, providing the latest 6-8 quarters of shipments, prices, and revenues for ~100 products spanning the Ethernet, FibreChannel, WDM, SONET/SDH, Wireless, and FTTH segments. Quarterly revenue and spending data for 32 top CSPs and ICPs, and quarterly revenues for 22 equipment makers, 14 optical components vendors, and 16 semiconductor manufacturers is also included.
More information on the report is available at: http://lightcounting.com/products/QMUQ420/