HPE juggling private 5G, Wi-Fi and even Dell after Athonet buy

Home Depot was perfectly happy with the Wi-Fi service inside its US retail outlets for various networking needs. But when the self-described home improvement company began to consider a drive-by service, allowing customers to have goods brought directly to their vehicles, it quickly decided a private 5G network was a much better idea. "The reason is that, broadly speaking, you get eight times the coverage over Wi-Fi," said Phil Mottram, the general manager of HPE's Intelligent Edge business.

That preference could have been a problem for Mottram's employer, well equipped in Wi-Fi but relatively empty handed in private 5G. HPE had made investments in developing some core 5G technology aimed at telcos. But this looked oversized for much of the private 5G market – like hiring a jumbo jet to fly a school sports team. Then came the much-trumpeted recent acquisition of Athonet.

Figure 1: HPE CEO Antonio Neri discusses his strategy at an event in June 2022.
(Source: HPE)

The Italian company was a highly regarded developer of 5G core networks for private use, counting Enel, an Italian energy firm, as one of its biggest clients. When it announced the deal in late February, HPE filled a gap in its portfolio that could have prompted the likes of Home Depot to look elsewhere.

And not just prospective clients worried about Wi-Fi's comparatively puny reach, either. Modern-day factories are increasingly staffed by connected robots whizzing around at speeds that are uncomfortable for Wi-Fi. "Some customers prefer to use private 5G or cellular technology because it copes with speed better," said Mottram.

No wireless fidelity

But none of this means HPE is suddenly giving up on Wi-Fi or that 5G technology is always preferred. Better coverage is no "slam dunk," Mottram told Light Reading during an interview at HPE's offices in central London. "It could be eight times more expensive," he said. He also dismisses suggestions Wi-Fi is inherently prone to interference and less secure, noting the most sophisticated hackers can tunnel into systems regardless of the wireless technology being used.

Predictions he has heard that Wi-Fi won't be needed three or four years from now are wide of the mark, Mottram insists. "Wi-Fi as an ecosystem and technology has been going for 20 years." Support for it is taken for granted across numerous household and office gadgets that still lack cellular connectivity. With those volumes and the resulting economies of scale, 5G will have a hard time overtaking it soon, he reckons.

Still, how the Athonet takeover affects HPE's approach to Wi-Fi is clearly up for discussion in the Intelligent Edge division that Mottram leads. For the time being, his team's recommendation is that private 5G and Wi-Fi should not be merged on the same access point. In the short term, doing that would produce a bigger box and could lead to interference between Wi-Fi and radio signals. Technical convergence, then, is currently limited to feeding those signals into the same campus switch. But Mottram does think a single access point is feasible in the next two years.

A bigger immediate issue is what the HPE takeover means for Athonet's commercial arrangements with HPE competitors, such as Dell. As first reported by The Mobile Network, the rival server maker had to destroy marketing material it had prepared around a partnership with Athonet when it learned of the HPE deal. "We may have bought them about four days before they were meant to announce that at MWC [Mobile World Congress]," smiled Mottram.

Athonet, though, is purely a software company and has previously been free to run its software on any third-party servers, depending on the commercial arrangements with their makers. "We are not messing around with their strategy at the moment," said Mottram. "If someone wanted to buy their software and Dell hardware it is not an ideal for us, but it is what it is."

"Over time what I would imagine we would try to do is develop some unique capability so that when you buy their software with our hardware you get extra things that happen," he added. Penalties for not choosing HPE servers are off the table. "We are not that sort of company."

Scaling up

The Athonet deal has not yet been signed off by all the relevant competition authorities, but Mottram is not anticipating any objections given its relatively small size. While the financial terms of the transaction have not been disclosed, Athonet employs somewhere between 150 and 200 people, according to Mottram. The main wish of regulators seems to be that HPE will continue to employ staff in Italy. "We want to expand," Mottram told Light Reading.

For HPE, the benefits are not limited to Athonet's technology. The Italian company comes with a list of "amazing customers and lots of case studies," said Mottram. Besides Enel, they include various mining clients in Australia as well as government bodies and defense organizations, some of which seem to be eyeing Athonet's technology for use on the battlefield (it is now possible to cram an entire core and radio network into a device that could be carried around on a soldier's back).

Figure 2: HPE's share price ($) (Source: Google Finance)

What Athonet appeared to lack was the sales outreach to establish itself and generate business in North America with hundreds of utility companies. "If you took Canada and the US and Mexico, I bet there are north of 1,000," said Mottram. "Athonet doesn't have that sort of scale, whereas we have 60,000 people and a brand."

A hot topic for years, the market for private 5G is forecast to generate about $7.7 billion in 2027, up from $1.5 billion last year, according to Analysys Mason, a consulting and analyst firm. But in a research paper on the Athonet deal, analysts Ibraheem Kasujee and Tom Rebbeck said even a $7.7 billion market would not be large enough "to support so many different competing vendors (or visions)," noting just how many companies are targeting this space.

Dealing with the telcos

The bigger market continues to be the mainstream cellular one, generating about $100 billion annually, according to Analysys Mason, but hardly growing after a few years of 5G investment. In the sub-sector for core network products, opportunity knocked for new players with the swap-out of software provided by China's Huawei – now deemed a security threat by European authorities – and the transition to 5G. Yet many of the contracts have gone to other incumbents. Sweden's Ericsson, for instance, won a Huawei swap-out job with BT and is also replacing a Cisco core in Vodafone's network.

Nevertheless, Mottram says HPE is now able to offer several of the key features in demand. "In the core, there are about 20 network functions you need to provide to customers to generate bills, authorize users onto the network and so on," he said. "We have technology that can support six of them and we've been partnering with other organizations to generate an offer that has all 20. There is some interest in that and some saying I just want to buy this network function."

Partners would include the likes of JMA Wireless, Casa Systems and Mavenir – and probably not Ericsson or Nokia. "An organization talking to Ericsson would be unlikely to come to us because it would package all 20 functions and buy them in one box from Ericsson," said Mottram.

HPE does feature in Pikeo, the futuristic network Orange is building in the French town of Lannion, experimenting heavily with the cloud, automation and the latest software tools. There may be less to shout about on the commercial side, but Mottram's Intelligent Edge unit was clearly the fastest-growing part of HPE in its last fiscal year, with sales up 11.3%, to nearly $3.7 billion. It also delivered an operating margin of 14.9%, the highest in the group.

Growth soared during the recent first quarter (ending in December), when sales were up nearly 25%, to about $1.1 billion, compared with the same period of 2021. "All areas are performing well," said Mottram. "The first quarter was excellent and that is driven across all product areas." With Athonet under its wing, HPE would seem to have at least one good reason to remain upbeat.

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— Iain Morris, International Editor, Light Reading