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Huawei has one 5G power that is hard for the US to hurt
Its long use of gallium nitride for 5G power amplifiers has put Huawei ahead of Ericsson and Nokia, says a leading analyst, as China moves to cut the US off from gallium.
Seeking to address analyst concern that telecom may be a secondary concern after a merger, executives seemed to resurrect the idea of an 'end-to-end' portfolio.
Even the most stress-tested merger plans have some awkward components. The wobbliest aspect of HPE's $14 billion takeover of Juniper Networks is probably the overlap between the acquirer's Aruba networking portfolio and the target's Mist technology – pitched heavily as an artificial intelligence-based system for managing enterprise networks. But it was downplayed by Rami Rahim, Juniper's CEO, during a Q&A with reporters. "I'm not concerned about overlap," he insisted.
Rahim's broad rationale is that opportunities to cross-sell and upsell outweigh any concerns others might have. But the ultimate plan is to "combine the portfolios into a single roadmap" rather than choosing between them. Employees, noting HPE's goal of slashing annual costs by $450 million, are unlikely to be as calm as Rahim. To Zeus Kerravala, the founder of and principal analyst at ZK Research, it "seems like a lot of people will be taken out of the businesses," which would collectively have more than 70,000 employees today.
Analysts have aired concerns, too. In a research note issued yesterday, Raymond James said "we see the long-term potential, but also see risk of sales dis-synergy." A combination could make HPE and Juniper look more like one of their chief rivals, and not in a good way. "Both HPE and Juniper have argued that their single platforms are simpler for customers as opposed to the more complex multi-platform campus offerings from Cisco, and the new structure dilutes this argument," said Raymond James.
For those in the telecom sector, the other big concern will be the loss of Juniper as a standalone innovator, said Sterling Perrin, a senior principal analyst with Heavy Reading (a Light Reading sister company). Juniper, of course, generates a substantial chunk of its revenues from service provider customers. And while HPE had lots to say about AI, the cloud and enterprise opportunities in its official release on the takeover, telecom barely received a mention. HPE, moreover, has only a minor presence in this market and Juniper's service provider business would account for just 18% of total sales at the combined company. There is fear it could be left to languish or even sold off.
"The proposed acquisition will significantly boost HPE's presence in the telecom network equipment provider ecosystem," said Emir Halilovic, the research director for telecom technology and software for GlobalData, in a research note. "On the other hand, it completes a successful transformation of Juniper into technology provider to cloud service providers, telcos and enterprises – with telco likely playing a secondary role for HPE networking business going forward."
Reigniting service provider
Hence a few questions on this matter during the Q&A, with a smiling Rahim insisting telecom will remain a priority. "The benefits extend equally to our cloud provider customers and our service provider customers, which, of course, are very core to our business," he said. "Everybody today is building data centers – distributed data centers, centralized data centers. The ability for us to build comprehensive data center solutions with complete automation, AI capabilities, will extend across every single segment."
The combined company should certainly be able to put together a broader package of telecom goodies. Juniper brings its transport products for core, edge and metro networks, as well as a radio access network (RAN) intelligent controller (RIC). These RICs are a much-hyped possible feature of new-look 5G networks based on the concept of "open" RAN (or O-RAN), where components are provided by numerous suppliers instead of one vendor's system.
HPE, for its part, has Athonet, a small Italian developer of 5G core network technology it bought last year, along with its GreenLake cloud platform. It is also marketing its servers for deployment in the telecom network, where they would replace the traditional "appliances" sold by kit vendors like Ericsson and Nokia.
"The extension of virtualization to the radio access network – that is something at our compute business we've been working on, and we have an amazing solution," said Antonio Neri, HPE's CEO, during the media Q&A. "So now Rami will get access to more capabilities than the ones that he traditionally had in the core and the metro and the edge. This is a massive opportunity that will reignite and grow the service provider business with more assets than ever before."
The company message is that HPE will be able to package up these different elements and sell them in one go. "Today, one of the challenges for 5G O-RAN is the ability to piece together these components into a seamless, fully integrated solution for our customers," said Rahim. "We will have a much better opportunity to provide these comprehensive solutions."
The old Nokia line
The industry may take some convincing. For a start, open RAN to its stalwarts is about disaggregation – allowing an operator to mix parts that come from different suppliers – rather than buying a "fully integrated" product from a single vendor. What's more, even after their tie-up, HPE and Juniper will not have a fully integrated RAN offer. Neither makes radios or develops RAN software. Ericsson, a longstanding Juniper partner, could potentially fill those important gaps.
But the core, transport and RAN activities that Rahim and Neri highlight are entirely separate domains. Few operators today want to buy a fully integrated solution spanning all those domains from one vendor. Nokia previously attempted a similar approach, positioning itself under former CEO Rajeev Suri as an "end-to-end" supplier, with its range of core, IP and optical and access technologies. But the strategy was immediately scrapped when Suri was replaced by Pekka Lundmark in late 2020. "It is interesting to have 'end-to-end' discussions but that is not how customers buy," he told reporters back then.
The other flaw in the Juniper logic is the implication Athonet has a telco offer. While highly regarded for its technology, it develops core software for "private 5G" networks, generally associated with the enterprise sector, rather than the public 5G networks built by the likes of AT&T in the US or Vodafone in Europe. Indeed, when it comes to Athonet, the chatter is usually about the role its 5G technology would play versus HPE's Wi-Fi offers in an enterprise setting. "It will be a complementary access technology to Wi-Fi," said Rahim this week.
This could all matter because if the deal goes ahead – and analysts anticipate little resistance from regulators – HPE will be under immediate pressure to boost sales or slash costs. "The deal significantly increases the debt load, but HPE intends to maintain an investment-grade credit rating," said Raymond James in its research note. HPE's net-debt-to-EBITDA ratio will jump to about 3.3, it said, and managers aim to cut this to around 2 within two years of closing the deal. In all its markets, the combined company's performance will be under scrutiny.
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