NTT Communications Cloud Revenue up 17.9%; Total Group Revenue DOWN 1.5%; SDN Enterprise Cloud Expands
Japan’s NTT Communications posted a 12% jump in profit for the year ending in March, as subsidiary NTT DoCoMo announced a management shake-up.
NTT Com recorded a full-year net profit of 65.3 billion yen ($643.1 million). But group operating revenues fell 1.5% to 1.19 trillion yen. Total data networks revenue fell 0.7% to 427 billion yen, and group voice revenues slumped 9.1% to 320 billion yen.
NTT Com posted strong gains in cloud platform revenue (up 17.9% to 99 billion yen), as well as applications and content revenue (up 4.9% to 108 billion yen.). The company made progress with its plan of leveraging its expertise as a telecom operator to become a one-stop ICT outsourcing shop. As of the end of the year, NTT Com had global data centers in 144 locations, and was offering its Enterprise Cloud services in nine countries.
NTT Data’s revenues and operating income went up due to an increase in the number of consolidated subsidiaries. Mobile unit NTT Docomo saw revenues increase on higher handset sales and and new areas of revenues, but operating income decreased. At NTT Communications, operating revenues continued to fall but operating income reose on cost reductions.
NTT group ended the period with 17.30 million customers for its fibre optic service called Flet’s Hikari after adding 740,000 new subscribers in the year. The company aims to attract 1 million new subscribers this year. The company also had 15.17 million Hikari Denwa customers after adding 1.27 million new customers for the optical IP telephone service and the ADSL customer base continued to contract to 1.85 million. The company’s mobile unit, NTT Docomo, ended the quarter with 61.54 million subscribers, which includes 11.57 million Xi (LTE) customers. NTT also had 4.19 million TV subscribers, comprising 3 million.
Looking ahead to the current financial year, NTT Com warned that with Japan’s economy still struggling and the global economic slowdown continuing, “the future direction of the domestic economy remains uncertain.” But the company is still predicting a 2.5% increase in group operating revenues for the year to 1.225 trillion yen.
Separately, domestic subsidiary NTT DoCoMo announced significant proposed changes to its management team.
As the first service provider in the world to embrace SDN and the OpenFlow communications interface, NTT Com launched its SDN-based Enterprise Cloud in June 2012 via data centers in Japan and Hong Kong. With the addition of data centers in Singapore, England, and Virginia and California in the United States, the Enterprise Cloud became available on a global basis in February 2013. Within this spring, NTT Com’s Enterprise Cloud will include SDN in eight countries and ten locations. Clients have used the self-manageable Enterprise Cloud platform to flexibly extend their own data centers, gaining cost-optimized and secure compute capacity as a result.
“NTT Communications’ Enterprise Cloud is gaining traction in several sectors, especially among global manufacturers looking to consolidate systems and assets,” said Mr. Yukio Ito, Senior Vice President of Service Infrastructure at NTT Com. “Global enterprises continue to look to NTT Com as a partner of choice for real-world cloud transformation, relying on our foundation of advisory, migration, operational and management services.”
“Successful enterprise clouds will need to provide flexible connectivity at a speed and price point that mirrors the rapid and low-cost delivery of virtual machines,” said Caroline Chappell, Senior Analyst, Heavy Reading, a division of UBM Tech. “Current approaches to data center networking don’t scale and are expensive because of the level of manual configuration involved. NTT Com’s early adoption of SDN gives it the opportunity to transform customer experience of cloud services, as well as the operational costs associated with running them. NTT Com is therefore in a strong position to lead the global market for cloud services going forward.”
http://www.telecomasia.net/content/ntt-com-fy-profit-grows-12 and
http://www.telecompaper.com/news/ntt-sees-fy-2012-profit-grow-12–942826
TW Telecom Inc 1stQ 2013 Results with Bold Statements by CEO on Earnings Call; Commentary by FBR & Telecom Ramblings
TW Telecom Inc announced first quarter 2013 financial results, including $381.2 million of revenue, $13.1 million of net income, $136.0 million of Modified EBITDA, $81.6 million of net cash provided by operating activities and $23.9 million of levered free cash flow
“We’ve had a productive start to the year, as we commenced our growth initiatives, delivered ongoing revenue growth and cash flow generation and executed several strategic balance sheet activities,” said Larissa Herda, tw telecom’s Chairman, CEO and President. “The growth initiatives we announced in February are under way as we focus on delivering additional product innovation, increasing our sales coverage, as well as further automating the business and expanding our market reach. Everything we’re doing is to increase our sales momentum and the trajectory of our revenue growth as we continue with our comprehensive balanced approach to win market share.”
http://newsroom.twtelecom.com/2013-05-06-tw-telecom-Reports-First-Quarter-2013-Results
David Dixon of FBR Capital Markets wrote in an email: “tw telecom inc. (TWTC) reported 1Q13 results, with EBITDA and Free Cash Flow below consensus. Capex spending was in line with estimates. Management is aggressively investing in fiber deployments in growth markets and is planning to increase the sales force by 10% in FY2013, anticipating revenue improvement in 2014.”
Author’s Note: Our sources reveal that tw telecom did NOT follow through on their planned fiber network build-out in the San Jose, CA/ Silicon Valley metro area. Instead, the company was forced to resell AT&T facilities (referred to as Type 2 circuits or facilities). I guess Silicon Valley is NOT considered a growth market. Key features like “Dynamic Capacity” are not possible using Type 2 telco facilities which are actually provided by a facilities based carrier. In addition, there is no automated customer problem reporting or fault diagnosis for Type 2 facilities. Instead there’s a hierarchy of phone call escalation procedures the customer must adhere to when an outage or other problem is experienced.
Mr. Dixon of FBR added, “The trend away from dynamic network provisioning (on its own) to combined dynamic provisioning of the application AND network by major carriers (e.g. network virtualization and/or software defined networking) suggests that medium-term revenue growth will be more challenging over time.”
Bold statements by Larissa Herda, CEO and President, during tw telecom’s earnings call:
“We’re advancing the development of our Constellation platform. With this unique platform, we’re creating a powerful operating paradigm for enterprises to increase the velocity of how they buy our network services, driven by the ability to more quickly access and consume network and IT services. We’re in the process of hiring the right talent, establishing and evolving key data center and vendor relationships and developing and deploying the required technology as
we move forward with these new capabilities.”
“We’ve also continued to gain market awareness with our Intelligent Network services that are within the Constellation platform, with ongoing momentum showing up in our Ethernet revenue. And we’ve launched several new product
capabilities that enhance and freshen our current portfolio, which reflects the bread and butter of our business, with more production for later this year — “
“As we head into the second quarter, we’re executing on our growth initiatives, optimizing our capital allocation strategy and continuing to differentiate ourselves in the marketplace with capabilities that we believe will change the industry.”
[Ms. Herda turned the call over to Mark Peters- see below for his quotes]
“Let me start first with our product initiatives, including how we’re addressing our customers’ current and future network requirements, as well as some specific progress on this year’s product roadmap. We believe that the reason we keep growing is that we continue to invest, innovate and enhance our value to customers because in this business, you have to do so to remain relevant. We also believe that there is a direct correlation between our innovation and development and the fact that we posted 34 consecutive quarters of sequential revenue growth.”
“Customers are buying from us, both through our track record to serve their current needs and our integrated vision to solve their future business challenges. For instance, who else in the industry has delivered a Dynamic Capacity solution today? No one. And who else is talking about click and connect, reliable and secured network capabilities for dynamic connections between buildings, data centers and other cloud services, which we’re developing through our Constellation platform? No one.”
“Our success is driven by constantly leveraging our core strength. For example, our Dynamic Capacity, Enhanced Management and E-Access, our one-to-many Ethernet service, are all very innovative solutions. But the real power is how they enhance our Ethernet portfolio, which is foundational to our growth engine. Collectively, these products make us more differentiated and competitive, helping us to open more doors and close more deals. For example, let me give you some color on how Dynamic Capacity is driving our Ethernet sales. As a reminder, our Dynamic Capacity solution, which is part of our Intelligent Network services, is delivered via E-Line, our most advanced Ethernet offering. Looking
back over the 9 months from the initial Intelligent Network launch through the first quarter of 2013, E-Line revenue has grown by about 2.5x in that time frame. We believe our Intelligent Network capabilities, including our Dynamic
Capacity solution, greatly complement our E-Line sales and has been a factor in this revenue acceleration. And we have seen the adoption rate between E-Line and Intelligent Network steadily increase in concert with our growth.”
“In addition, this summer, we plan to expand our Dynamic Capacity from our current offering that can flex up to 1 gig to be able to provide customers the ability to flex all the way up to 10 gigs. This has been driven by interest from our large enterprise customers. Again, because of our powerful operating platform, this service will be embedded into our infrastructure scalable and available across our footprint.”
Mark Peters, Chief Financial Officer and Executive Vice President:
“Data and Internet revenue continues to be strong, and now represents 53% of our total revenue and grew 14.3% year-over-year. Data and Internet revenue grew 2.2% sequentially, reflecting the impact of the customer settlement last quarter that did not recur.”
“Modified EBITDA margin was 35.7%, compared to 36.7% in the same period last year and 36.6% in the prior quarter. The strong margin naturally will be impacted by our growth initiatives, and we expect these initiatives will continue to pressure margins in the near term until they are absorbed by higher top line growth. Additionally, we had a $4.1 million sequential cost increase, due primarily to the annual resetting of payroll taxes.”
Robert Powell wrote in a blog post: “The biggest surprise here is m-EBITDA margins of 35.7%, which is the lowest they’ve turned in since the first quarter of 2009. In the fourth quarter they took on an additional 60 headcount (40 in sales), and this quarter they added another 41 (but just 4 in sales). So it’s no secret where the extra expenses are going. They’re planning to roll out further managed services as the year goes on, as well as 40/100G (Carrier Ethernet) offerings and their constellation network platform, in the interests of a potentially higher growth rate down the line.”
“Last fall, the rumors were that tw telecom was about to be gobbled up by CenturyLink. The long term investments for growth and the resulting m-EBITDA margin compression don’t really fit with that thesis, and suggest to me that tw does not really see itself as a consolidation target at this time. But likewise, they don’t seem any more interested in pursuing inorganic growth than they have over the past few years.”
http://www.telecomramblings.com/2013/05/more-long-term-investments-for-tw-telecom-in-q1/
Infonetics: Carrier Ethernet market declined in 2012, but expected to be $39B by 2017
- The global carrier Ethernet equipment market declined 3% to $34 billion in 2012, following a 13% spike in 2011.
- Spending on IP edge routers totaled $9.4 billion in 2012, the most of any carrier Ethernet equipment segment.
- Asia Pacific currently accounts for the greatest portion of carrier Ethernet equipment revenue, followed by EMEA (Europe, the Middle East, and Africa); by 2017, Infonetics expects North America will have passed EMEA to become the 2nd largest carrier Ethernet market
- Infonetics projects Carrier Ethernet equipment ports will top 95 million worldwide by 2017, with 10 Gigabit Ethernet growing fast to pass 1 Gigabit Ethernet
Ethernet Access Devices (EAD) MARKET Report- released April 18, 2013
“People keep saying that copper’s dead, but it’s not—it has a limited but important role for Ethernet services, as evidenced by the continued growth of EFM (Ethernet in the first mile) bonded copper,” notes Michael Howard, principal analyst for carrier networks and co-founder of Infonetics Research. “EFM’s high capacities and reach make it a useful and effective alternative where fiber isn’t justified.”
- For the full year 2012, the global Ethernet access device (EAD) market grew 3.5%, to $860 million, with growth hesitating as a result of economic conditions and a lull in carrier spending in the 2nd half of 2012
- 10/100M copper and 1G fiber dominate EAD ports today, but 10G fiber is growing fast, forecast by Infonetics to grow at a 117% CAGR through 2017
- Though in slow decline, Ethernet over TDM (EoTDM) bonded circuits will remain a niche market, providing an inexpensive way to combine several E1s or T1s
- For the second consecutive year, the top 5 revenue share leaders in the EAD market are (in alphabetical order) Actelis, ADVA, Ciena, Overture, and RAD
EAD REPORT SYNOPSIS
Infonetics’ biannual Ethernet access devices report provides worldwide and regional market size, vendor market share, forecasts through 2017, analysis, and trends for copper and fiber EADs and ports by speed. Companies tracked: Accedian, Actelis, ADTRAN, ADVA, Canoga Perkins, Ciena, FibroLAN, IPITEK, MRV, Omnitron OMS, Overture, RAD, Tellabs, Telco Systems, Zhone, and others.
To buy the report, contact Infonetics: http://www.infonetics.com/contact.asp.
Ethernet Innovation Summit Preview: May 22-23rd @Computer History Museum, Mt View, CA
Introduction:
This Ethernet Summit will be one of the most important gatherings this year of press and analysts from around the world! Inspired by “40 years of Ethernet Innovation” and looking forward to the next 40 years of networking. Meet key press and analysts in a series of scheduled sessions to discuss the latest hot topics concerning Ethernet innovation, enterprise networking, cloud computing, virtualisation and telecoms, paving the way for increasing your visibility across the globe.
A full day conference and dinner on May 22nd will be followed by a day of round table discussions, hot debates and industry briefings on May 23rd. Leaders of the Ethernet industry – now a $100 billion a year market – will talk directly to the world’s IT press and industry analysts, including this author.
Thanks to Carrier Ethernet and the pioneering work of the MEF and ITU-T, the sessions will be live streamed on the Internet (details to be provided). Much more info on this event at: http://www.netevents.org.uk/portfolio/global-summit
Early History of Ethernet:
According to Bob Metcalfe: “The first Ethernet was a one-node Ethernet, which isn’t very interesting. It was a node that could transmit to itself for testing and de-bugging purposes. Then we had two nodes – which incidentally we called Michelson and Morley who happened to be the two physicists who disproved the existence of the ether, so we thought that was ironic – then eventually the cable got strung all over the building.”
What was the real innovation, as they saw it then? “In those days our big innovation was putting a computer on every desk – I know that’s hard to believe! We put one on every desk then ran this co-ax down the middle of the corridor and everybody tapped into it from their PCs. So it grew to fill this building.”
The benefits were immediate, and so other departments wanted in on the network. “The labs wanted to be connected so, with an Internet protocol, we built an Internet that spanned the research laboratories of Xerox. It wasn’t until the late seventies that we began leaving Xerox and installing Ethernets elsewhere.”
Bob Metcalfe (shown below) went on to found 3Com, makers of the first Ethernet commercial Ethernet cards. Within 20 years Ethernet saw off competition from token-based networking and came to dominate the LAN space, covering every continent with islands of Ethernet connectivity.
Role of XEROX PARC:
Heir to this great tradition is Steve Hoover, the current CEO of PARC. He points out the importance of an open spirit of enquiry to balance the intense commercial pressure to deliver results: “One of the key things is recognising that innovation is going to require failure. So you can’t start something and not believe that it’s possible to fail…. Of course it’s not about failing, failing’s not good, but it’s about learning.”
Steve compares this innovative culture to a class of five-year olds: “It’s all the questioning … It’s why, why, why! That leads to really good innovation because people are getting to the fundamental ideas, they’re questioning the status quo, they’re willing to change it and break it. Fail on the way and then pick yourself up, dust yourself off and move on to the next.”
Vital Contributions of Government and Academia:
A key element of the 40th birthday celebrations will be discussion around the need to foster and maintain this dynamic spirit of innovation in today’s globally competitive environment. This goes beyond a purely business concern, innovation is vital to national pride and prosperity – even to survival. It is, therefore a concern for governments too.
Steve Hoover points out that the business world sometimes forgets the contribution made by past governments: “If you look back at the history of the Internet, Arpanet was government-initiated. The tremendous commercial
“If you look back at the history of the Internet, Arpanet was government-initiated. The tremendous commercial impact I don’t believe would have occurred without their foresight in investing in those fundamental capabilities.”
“Today at PARC we are working to repeat that model over and over and over again.” Steve is very keen to enroll government support for this work, pointing out the need to recognize that: “The government does identify fundamental research areas to work in and is willing to invest. That partnership – of government investing in core capabilities, in new areas, taking some of the higher risk, plus industry’s ability to capitalise and leverage it – that partnership is really important.”
Metro Ethernet Forum (MEF) and Carrier Ethernet:
Over the last 10 or 11 years, IEEE 802.3 Ethernet First Mile, the MEF and the ITU-T developed solid standards for Carrier Ethernet. These specs were developed to enable “islands of data” to be connected via Ethernet, rather than more complex and costly WAN technologies such as Frame Relay and ATM. Last year marked a turning point: for the first time Carrier Ethernet sales exceeded that of all other WAN technologies combined.
As MEF President Nan Chen once predicted: “In future there will be a single language linking business worldwide. It won’t be English. It won’t be Mandarin. It will be Ethernet”.
The Future of Ethernet:
Bob Metcalfe says that networking and the Internet has given this generation “collective intelligence” and so much more to play with in terms of access to all that has already been achieved, both the successes and the failures of the past and present. So who knows what form Ethernet’s 50th anniversary will take in ten years time?
For full details of the events on May 22/23rd visit: http://www.netevents.org.uk/portfolio/global-summit
Watch the video about the events including interviews with Bob Metcalfe and Steve Hoover: http://www.youtube.com/embed/wplYUcWwRww
Here’s the link for the live streaming starting May 22nd:
References:
http://viodi.com/2013/04/16/2013-ethernet-tech-summit-market-research-panel-carrier-ethernet/
Post Event Addendum:
Day 1 videos can be viewed at: http://www.netevents.org.uk/global-netevents-summit-live
Innovation Award winners are at:http://www.netevents.org.uk/portfolio/innovation-awards-2013
Service Providers Reveal their Data Center plans in Infonetics Survey on Deployment Strategies
Market research firm Infonetics Research released excerpts from its latest Data Center Deployment Strategies: Global Service Provider Survey, which delves into operator plans for data center expansion, interconnection, capacity, physical servers, virtualization, and SAN and storage technologies.
DATA CENTER SURVEY HIGHLIGHTS:
. More operators than anticipated plan to continue investing in Fibre Channel for their data centers, even in the face of growing usage of the newer Fibre Channel over Ethernet (FCoE)
. The number of data center server LAN connections is growing quickly, with 10 Gigabit Ethernet connections growing the most
. The average capacity of a data center WAN connection is expected to increase more than twofold from 2012 to 2014
. While the use of virtual machines in data centers continues to grow, many servers are not yet virtualized
DATA CENTER SURVEY SYNOPSIS:
For its 23-page data center survey, Infonetics interviewed incumbent and competitive service providers and cloud specialists that have data centers with at least 100 servers. The survey provides insights into data center interconnection strategies; storage network investments; data network technologies deployed; WAN/internet connection capacities; and number of physical servers, virtual machines, Ethernet and SAN interfaces in use at medium, large, and super data centers.
“Server virtualization has been the focus of the data center industry for several years now, and the largest data center owners and internet content providers like Google are ubiquitously exploiting virtual machines,” notes Michael Howard , principal analyst for carrier networks and co-founder of Infonetics Research. “Yet the reality is the bulk of data center owners are more pedestrian in their deployments, finding it more operationally convenient to leave many areas of their data centers alone, using server virtualization for only select applications.”
Howard continues: “But to be sure, data center owners want to increase the value of their existing data center assets – no matter the extent of server virtualization – as a means to increase revenue via cloud services, both to keep their current customers satisfied and to attract new customers.”
To buy the report, contact Infonetics: http://www.infonetics.com/contact.asp
RELATED DATA CENTER & CLOUD RESEARCH http://www.infonetics.com/market-research-report-highlights.asp
Commenting on the new interest in network virualization and Software Defined Networking (SDN), Howard said at the April 3rd Ethernet Technology Summit:
“Network operator driver for NFV is quick revenue (via faster provisioning of new services and telecom facilities).” He later stated, “Carriers will implement SDN in ‘contained domains.”
References:
http://viodi.com/2013/04/23/service-provider-sdn-network-virtualization-and-the-etsi-nfv-wg/
Highlights of GSA Silicon Summit- April 18th @CHM, Mt View, CA
“Moore’s Law has transcended computing expectations; however, its promise will eventually reach scalability limitations due to extraordinary consumer demands. Future technology encompasses breakthroughs capable of interaction with the outside world, which the “More than Moore” movement achieves. Through integrating functionalities that do not scale to deliver cost-optimized and value-added system solutions, this trend holds significant potential for the industry. This event will explore the business and technical factors defining the More than Moore movement, and address how it will yield revolutionary electronic devices.”
■Kaivan Karimi, Executive Director, Global Strategy & Business Development, Microcontroller Group, Freescale
■Mark Miscione, VP, RF Technology Solutions, Peregrine
■Dr. Naveed Sherwani, Co-Founder, President & CEO, Open-Silicon
■Dr. Ely Tsern, VP & Chief Technologist, Memory and Interfaces Division, Rambus
Moderator: Edward Sperling, Editor in Chief, System-Level Design and Editorial Director, Low-Power Engineering
■Dr. John Heinlein, VP, Marketing, Physical IP Division, ARM
■Kamran Izadi, Director, Advanced Semiconductor Sourcing, Cisco
■Oleg Logvinov, Director of Market Development, Industrial and Power Conversion Division, STMicroelectronics
- Many of the functions that have to be integrated into devices are analog/RF where Moore’s Law does NOT apply!
- Mixed signal technologies (combining analog and digital circuits in a single chip/module) need to continue to advance to include those functions along with typical baseband and DSP on the same chip/module.
- Packaging technology will be critically important- both at the component/module and systems level. Innovation and “out of the box thinking” here are very much needed.
- Testing at the package and system level will also be important.
- For the IoTs, the following I/O improvements are needed for devices/networked sensors: short reach, very low power, variable bit rate (low to high), support of multiple wireless standards (e.g. Blue Tooth, Zigbee, Low Power WiFi, etc)
- A new way of designing analog ICs needs to be considered for the IoT to be a mass market.
- A key question here is “how much further can the industry convert (inherently) analog functions to digital and then use DSPs to implement them?”
- Many of the mobile computing functions will be implemented by servers in a cloud resident Data Center. For those servers, interconnects on the circuit board could be the limiting factor in reducing cost and power.
“It’s natural for MEMS and mixed-signal devices, or MEMS and logic devices, to live in a side-by-side (2.5D) world.”
“Organic substrates for 2.5D interposers show great promise for reducing 2.5D interposer costs – look particularly to the work being done by Georgia Tech.”
“If you don’t follow scientific change then what you practice reverts to witchcraft.” (The Rabinovitsi Paradigm.)
“Innovation in packaging may be more relevant than Moore’s Law moving forward.”
“3D packaging is becoming a very exciting technology, with as much relevance as a process node shift.”
“The IoT needs packaging innovations – not Moore’s Law technology progression.”
“FinFET or packaging – where’s the smart money playing? The problem is one of die / device performance versus system performance – and packaging drives system performance.”
“That being said, 3D packaging is not a panacea – basic economics still rule.”
“Seven years from now it will be IoT applications driving the industry – and Moore’s Law progress doesn’t apply to the analog world, hence the need to work on heterogeneous integration / 2.5D / 3D IC.”
“New generations of network-side IC products are only 15% innovation – the other 85% is composed of standard I/O and memory IP. Moving some of that 85% from the board to the interposer or to a 3D stack will be a huge performance improvement – 3D memory integration, for example, is positively disruptive.”
“But doesn’t CMOS integration always win? Monolithic integration, or heterogeneous integration using 2.5D / 3D IC; either way it comes together, no one size fits all.”
“The 28nm process node has a lot to like about it: speed, cost, High Volume Manufacturing (HVM) capability, and IP portability all look good compared to 14nm FinFET.”
“Challenges that need addressing in 2.5D / 3D IC are supply chain related. The current cost structure for 2.5D / 3D is leveraged by materials and processing equipment.”
“Do we currently even have a functioning 3D IC ecosystem?”
“Thermal challenges have kept 3D IC from coming to the mainstream. 2.5D is much better than 3D from a thermal perspective.”
Level 3 Communications (2nd largest ISP after Google) earnings miss & FBR Commentary
Level 3 Communications (NYS: LVLT) reported earnings on April 25. For the quarter ended March 31 (Q1), Level 3 Communications missed slightly on revenues and missed expectations on earnings per share. Margins expanded across the board. Level 3 Communications tallied revenue of $1.58 billion. The 14 analysts polled by S&P Capital IQ hoped for revenue of $1.61 billion on the same basis. GAAP reported sales were the same as the prior-year quarter’s.
Source: S&P Capital IQ. Quarterly
http://www.dailyfinance.com/2013/04/26/level-3-communications-misses-on-both-revenue-and/
Level 3 Communications’ (NYSE: LVLT) first-quarter revenues declined sequentially and year-over-year to $1.58 billion due to the expected termination of various North America and UK government contracts.
During the first quarter, the company’s net loss was $0.36 per share, including $0.11 in foreign exchange losses in EMEA and Latin America.
“In the first quarter, we saw the effects of the near-term revenue pressures we cited last quarter, due to the typical reversal in seasonally strong fourth quarter revenue and some known contract disconnects in North America and UK Government,” said Sunit Patel, CFO of Level 3. Patel said that “our gross margin is now back above 60 percent for the first time since acquiring Global Crossing.”
Despite these initial revenue challenges, Level 3′s total Enterprise Core Network Services (CNS) revenue grew 2.2 percent year-over-year to $1.37 billion. Taking out the impact of UK government revenue, Enterprise CNS revenue grew 6.8 percent year-over year. Wholesale revenue, meanwhile, declined to $501 million, while wholesale voice and other revenue declined to $205 million.
On a regional basis, North America was the clear leader with $967 million in revenue, while EMEA and Latin America posted revenues of $223 and $182 million, respectively.
David Dixon of FBR wrote:
“While Level 3 continues to generate benefits from the Global Crossing merger, and we welcome incoming CEO Jeff Storey, our concerns about weak top-line trends and cost structure continue to be borne out. In the retail enterprise segment, a tough macro environment is coupled with a challenging pricing environment for connectivity services, which are largely commoditized. Furthermore, generationally challenged Ethernet equipment is an issue. Level 3 has avoided significant capex over the past two years by using Huawei engineers under contract to tune lasers on older fiber on a hop-by-hop basis to increase capacity and avoid network upgrades; however, excess capacity is unclear. In the wholesale segment, wireless backhaul demand is a potential bright spot, as demand for backhaul is increasing.
Cable companies are focused on offering lit fiber versus dark fiber to maintain owner economics. For Level 3, it is unclear to what extent the company would sell metro dark fiber circuits to wireless companies seeking fiber-based backhaul and feeder fiber from IXC hubs. While Level 3 gives up owner economics in this case, it may be the preferred approach, as wireless carriers are reluctant to use Level 3 to source lit fiber because of concerns regarding a lack of a capacity upgrade path —i.e., Level 3 can provide 100 Mbps today, but carriers need substantially higher capacity going forward. And our checks confirm that customer confidence is low regarding the company’s ability to increase investment levels to meet growing capacity requirements (particularly in a virtualized network context), primarily due to balance sheet concerns.
■ CNS* revenues weaker than expected, but EBITDA beat expectations as margins rebound—a flip from results last quarter. CNS revenue of $1,372M in 4Q12, up 1.6% YOY, was below our $1,418M estimate and consensus of $1,390M. One of the primary growth drivers was Latin America (13% of CNS revenues). Adjusted EBITDA were $386M, above our $378M estimate and consensus of $378M. The 24.5% EBITDA margin was ahead of consensus and our estimate of 23.5%, the first margin above 24% since the merger closed in 4Q11.
* Editors Note: We don’t know if Core Network Services (CNS) also includes Content Delivery Networks (CDNs), which Level 3 provides to other service providers. Their CDN is said to “support some of the largest video, software and web properties. The Level 3® Network is connected with direct, private connections to almost every major ISP and Telco, which allows traffic to flow directly to end users without traversing public peering points.”
http://www.level3.com/en/products-and-services/data-and-internet/cdn-content-delivery-network/
■ Reiteration of weak EBITDA guidance. For the second-largest ISP after Google, modest revenue growth, low-double-digit EBITDA guidance, and what we interpret as modestly positive FCF growth (i.e., positive FCF, excluding $56M
in interest rate swap liabilities) are weak. Capex spending remains moderate, tracking below expectations, and a 4% head-count reduction taken late in the fourth quarter may provide a boost to EBITDA by $40M but will likely challenge
top-line growth in FY13.”
by David Dixon and Neil Macker, CFA
FBR Technology, Media & Telecom
ITU-T SG13/Q14: SDN and Service Aware Networking of Future Networks
The Feb 2013 ITU-T SG 13 Plenary meeting report lists Question 13 as having primary responsibility for investigating Software Defined Networking and Network Virtualization.
Here is a cut and paste of the pertinent ITU-T SG13 Plenary report:
TD 26 (PLEN/13)
Software Defined Networking (SDN) and network virtualization are among promising technologies because they enable network operators to divide networks into partitions to make problem size smaller, and to control their networks in unified, programmable manner. This realizes multiple isolated and flexible networks in order to support a broad range of network architectures, services, and users that do not interfere with others. It is considered as one of the key technologies for FNs, and various SDOs have started to study these technologies in intensive manner, but overall framework that covers all telecom industry has not yet been defined. And there are other approaches to mitigate the diversity and complexity by e.g., introducing easily-manageable network architecture such as carefully-designed decentralization and autonomicity.
The Recommendations that specifies framework, service scenarios, requirements, and architecture of service-aware networking, in particular network virtualization and SDN technologies, fall under the responsibility of this question. As for SDN, the focus is on common part of SDN that is applicable to various networks, and its application to future networks.
Question
Study items to be considered, but not limited to:
• Requirements for the architecture to manage and to operate exploding and diversifying services and supporting functions in particular SDN and network virtualization
• Analysis of gaps between SDN, service-aware networking and existing standards and/or technologies
• Approaches, architectures and mechanisms for highly-scalable and distributed SDN and service-aware networking easy to control, operate and manage
• Issues and solutions for migrating from current IP-based network to SDN and service aware networking.
Tasks
Tasks include, but are not limited to:
• Produce new Recommendations on requirements, functional architecture and mechanisms of generic SDN, its application to future networks, and service aware networking.
• Produce Recommendations on general overview of service aware networking
Relationships
Recommendations:
• Y.3011, Y-series Recommendations
Questions:
• All SDN and FN related Questions
Study Groups:
• ITU-T Study Groups involved in SDN and FN studies
Standardization bodies, fora and consortia:
• ISO/IEC JTC1 SC 6
• ETSI ISG Network Functions Virtualization (NFV)
• Open Networking Foundation
• IETF/IRTF
• TMF
• BBF
And that’s “all she wrote” about ITU-T standardization of SDN and Network Virtualization
References:
http://viodi.com/2013/04/24/open-network-foundation-onf-optical-transport-wg-ciena-sdn/
http://viodi.com/2013/04/23/service-provider-sdn-network-virtualization-and-the-etsi-nfv-wg/
Qualcomm Earnings report: competition in Asia for cheap smartphones-Ominous For Apple, BlackBerry, Nokia?
Qualcomm Incorporated (Nasdaq: QCOM), a leading developer and innovator of advanced wireless technologies, products and services, today announced results for the second quarter of fiscal 2013 ended March 31, 2013.
“We delivered another strong quarter as the worldwide adoption of smartphones continues,” said Dr. Paul E. Jacobs, chairman and CEO of Qualcomm. “Looking forward, we are seeing strong traction with our new Qualcomm Snapdragon 600 and 800 processors, and we continue to expect healthy growth in 3G and 3G/4G multimode devices around the world. We are pleased to be raising our calendar 2013 3G/4G device shipment estimates and our revenue and earnings guidance for fiscal 2013.”
Second Quarter Results (GAAP)
- Revenues: 1 $6.12 billion, up 24 percent year-over-year (y-o-y) and 2 percent sequentially.
- Operating income: 1 $1.88 billion, up 24 percent y-o-y and down 10 percent sequentially.
- Net income: 2 $1.87 billion, down 16 percent y-o-y* and 2 percent sequentially.
- Diluted earnings per share: 2 $1.06, down 17 percent y-o-y* and 3 percent sequentially.
- Effective tax rate: 1 13 percent for the quarter.
- Operating cash flow: $2.22 billion, up 17 percent y-o-y; 36 percent of revenues.
- Return of capital to stockholders: $431 million, or $0.25 per share, of cash dividends paid.
http://media.prnewswire.com/en/jsp/latest.jsp?resourceid=6723404&access=EH
http://investor.qualcomm.com/results.cfm
http://www.reuters.com/article/2013/04/24/us-qualcomm-results-idUSBRE93N18T20130424
Forbes: Qualcomm Cheap Phone Warning is Ominous
Qualcomm owns intellectual property related to code division multiple access (CDMA). This technology is behind many of today’s wireless networks. Qualcomm also provides chip sets for mobile devices. Since Qualcomm licenses the technology or provides the guts of a wide base of wireless devices and networks, there are serious implications for smartphone manufacturers in Qualcomm’s results.
martphone prices are falling much faster than expectations. Of further concern is the number of new entrants in the smartphone market. Somewhat shocking was a statement by Qualcomm that some of its customers are able to launch their devices in as little as 60 days from start to launch. These customers are using Qualcomm Reference Design (QRD).
As of January 2013, 170 QRD based devices have been commercialized by more than 40 manufacturers. The irony here is that based on the large number of emails I receive, investors tend to extrapolate from their experiences in the United States and Europe and do not realize that there are more than 40 manufacturers of smartphones. The 60-day time to launch is in stark contrast with the traditional time of nine months to a year.
This is real bad news for Apple. Growth is in emerging markets as the developed markets are mostly saturated. In emerging markets, disposable incomes are not high enough for the masses to afford existing Apple products. Apple has already ruled out a $99 iPhone. The indications are that Apple is hard at work on a low end phone. Nobody knows the price of the future low-end iPhone. Most of the informed speculation centers around a price in the range of $300 to $400 in contrast to the $613 average selling price of the present iPhone.
The strong inference from Qualcomm’s earnings report is that smartphone prices are falling so fast that the new low end Apple iPhone is not likely to be competitive.
BlackBerry has been touting its success in emerging markets with Z10, but Z10 is simply too expensive for these markets. BlackBerry’s CEO is on record saying that BlackBerry is working on a low end phone. However considering how fast smartphone prices are falling, even if BlackBerry is able to introduce a new device at 50% of the current price of Z10, it is not likely to become competitive.
Qualcomm’s earnings report validates Nokia’s strategy for the emerging markets. Its line of low-end phones called Asha is doing well in emerging markets, but Nokia is about to face stiff competition primarily from Chinese manufacturers. Most of the phones from the new entrants are based onGoogle GOOG -0.14% Android. Further, these new entrants are shying away from Windows Phone OS.
The bottom line is that a sea change is on the horizon which is good for Google and Qualcomm but bad for almost everyone else.
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AT&T Financial Results: Project Velocity IP Still Going Strong; Wireless Business is Terrific, Best Ever U-verse Growth!
Fixed line Consumer Revenues Increase
device lineup.”