June 12, 2020
The growth of cloud computing and the webscale companies that create, store and distribute digital content remain a key support system for the companies that also provide technology to telcos and cable operators.
A quick look at optical networking powerhouse Ciena shows how one traditional telco supplier has changed over time as cloud providers grow in size, scale and influence as the communications industry's new power brokers.
Ciena CEO Gary Smith, who spoke with Light Reading last week, following the company's earnings conference call, noted that cloud providers are doing so much more than just connecting data centers, Smith said.
"A lot of these networks now have meshes of 6500s [Ciena's family of packet-optical platforms], multiple links, redundant links – by anybody's standard these are world-class, global, complicated networks," he said.
For Ciena, 42% of the company's total revenue in the second quarter came from "non-telcos." The direct sales to webscale providers were about 24% of its total quarterly revenue.
In a note to clients, Argus Research analyst Jim Kelleher pointed out that Ciena's non-telco revenue of $376 million was "the highest percentage contribution to revenue since Ciena began breaking out this category."
The rise of the cloud providers has been so steady and enduring that it's almost background noise in a turbulent industry. Cloud providers still compete with telcos for with apps, content and services. They're also the telcos' greatest demand-generators, giving everyone a reason to stay connected, upgrade their broadband and invest in new forms of entertainment. The surviving optical networking equipment providers like Ciena have a lot to gain as telcos and webscale companies evolve.
According to data provided by Ciena, the company has now enjoyed nine consecutive quarters with more than $100 million in direct sales to its webscale customers. That's going to keep going. Google (Alphabet), Facebook, Microsoft, and Amazon had a combined capex of over $70 billion in 2019, according to data compiled by Omdia Senior Financial Analyst Gaurav Shukla.
In fact, among all companies Omdia classifies as communications providers (telcos, cablecos, webscale firms, carrier-neutral hosts, etc.), the firms that would fit in Ciena's "webscale" category made up about 24% of the entire industry's capex in 2019.
Smith said we should expect a further blurring of the lines between what cloud companies can offer in the way of communications services in the future. "They got to build a greenfield communications network, without all the regulatory legacy of traditional telcos – what the RBOCs [regional Bell operating companies] grew up with – around providing connectivity to consumers," Smith said.
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