Danish Napatech thinks something is rotten in the state of 5G

Tiny Napatech must be one of Denmark's most obscure exports. In a country famous for Lego, Viking mythology and fairy tales about nudist monarchs and fish-tailed women, Napatech is knee-deep in the technological arcana of FPGAs and SmartNICs. But its profile has been rising in telecom, buoyed by the virtualization trend and the concern about network costs. Charlie Ashton, a senior director of business development for the company, has become a familiar face on the industry's events circuit in the last two years. And Napatech's stock is also rising. On the Oslo exchange, it has gained 50% since the start of the year.

That was partly thanks to a decent set of financial results for 2023 after previous wobbles. Sales fell about 19% in 2022, to roughly 159 million Danish kroner (US$23.1 million), and Napatech swung from a DKK40 million ($5.8 million) net profit the year before to a DKK48 million ($7 million) loss. It blamed that on macroeconomic difficulties and supply chain problems after the pandemic. But the company bounced back last year. Revenues were up 15%, to DKK183 million ($26.6 million), and Napatech's gross margin rose from 57% in 2022 to 73%. Losses narrowed to DKK32 million ($4.7 million).

Napatech remained unprofitable largely because of a management decision to go big on research and development. The company has until now made money in markets such as high-frequency trading, where computers execute transactions at mind-boggling speed (Michael Lewis wrote about the phenomenon in his book Flash Boys). Its SmartNICs (short for smart network interface cards) have proven to be a vital guarantor of that velocity. But these same technologies can now be applied in parts of the telecom network. If all goes well, the opportunity could double or triple the size of Napatech, Ashton previously told Light Reading.

Network in a box

Much of the focus is on a part of the 5G core network known as the user plane function (UPF), there to manage the flow of traffic around the network. Traditionally, this would have been done on appliances, dedicated hardware built by network equipment providers. In virtual networks, it has moved to the general purpose central processing units (CPUs) inside common, off-the-shelf (COTS) servers. Napatech's pitch is that offloading the UPF to one of its SmartNICs would be far more economical.

Napatech doesn't write core network code or manufacture chips. With an in-house team of just 77 people last year, it specializes in developing software for a type of chip called a field programmable gate array (FPGA), provided by either Intel or AMD. It is these FPGAs that would essentially replace the CPU on the job of UPF processing. By hosting them on SmartNICs, Napatech can offer a product that will easily plug into any COTS server.

Rather than adding servers to cope with a rising tide of network traffic, a company can just slot in an extra SmartNIC, said Ashton when he recently met with Light Reading in London. That pitch seemingly appealed to Microamp, a Polish builder of 5G private networks used in video-based security monitoring and for other high-bandwidth applications. "I said I can help take a rack of servers down to one or two servers," said Ashton. "Instead of the network in a rack, this is the network in a box."

Detailed claims about Napatech's UPF offload technology feature in a white paper produced by Heavy Reading (a Light Reading sister company). Working with partners including A5G Networks, AMD and Lenovo, Napatech proved to be eight times more energy efficient than keeping the UPF on a server CPU, according to that paper.

This comparison has turned out to be the most appropriate in marketing conversations, said Ashton. Originally, he thought Napatech's main rival would be Nvidia, which gained offload technologies with its $6.9 billion takeover of Mellanox in 2020. "We haven't found that, and most people don't know Nvidia has a solution," Ashton said. "They are focused on AI and our biggest competitor is the inertia of the legacy solution that works, and not wanting to mess with it."

On the customer side, Napatech's main target, then, has been companies like Microamp. "It is important to find high-traffic applications where it is easy to justify the return on investment in terms of cost savings and energy savings," said Ashton. "Some of the private network guys don't do high-traffic applications and there is not much return on investment."

Partner momentum

The bigger challenge, perhaps, has involved building an ecosystem of partners from the chip, server and software communities. In the example provided by Heavy Reading, AMD makes the chip, Lenovo contributes the server and A5G Networks is responsible for the core network software. In the case of Microamp, the packet core software comes from an Irish developer called Druid, which had already teamed up with Napatech. Numerous server companies are now also in the mix.

The holy grail for Napatech would be a deal involving a major telco, potentially for hundreds of SmartNICs. Big, traditional operators have tended to buy their core network products from big, traditional vendors. And attracting the attention of companies like Ericsson and Nokia has been difficult for Napatech, Ashton concedes. Nevertheless, virtualization has brought some change to that market and opened doors for smaller software players such as Mavenir and Athonet (owned since last year by HPE).

Broader acceptance of Napatech-like offload technologies, and what Nvidia calls "accelerated computing," should certainly help the Danish company. Citing unidentified third-party analysts, Napatech expects the NIC market to generate revenues of $7 billion in 2027, up from $4 billion last year. The various markets it serves are forecast to "consume" more than 20 million servers and appliances in 2027, compared with 14 million last year, said Napatech in its last annual report.

Having played his part in forging partnerships for Napatech, Ashton will spend the next few months off the events circuit. An avid walker, he is instead setting out on the 2,200-mile Appalachian Trail, an epic hike through bear country that will put him far beyond the reach of any 5G network for days at a time. Ashton's journey finishes with a 5,269-feet climb up Mount Katahdin in Maine, where he could probably use a celebratory beer. And if Napatech is simultaneously on the ascent, he will have even more reason to drink it.