If one needed fresh evidence that current full or partial country lockdowns are sparking a surge in cloud computing and gaming and, as a result, putting a strain on telecom networks and data centers, Verizon and Nintendo just provided it. The US telecom giant reported streaming demand was up 12% week-over-week, web traffic up 20% and gaming up 75%. Quite unsurprisingly, Nintendo announced that its Switch online services had been experiencing outages in the U.S. and parts of Europe.
True, some of these usage spikes won’t last forever (video streaming, gaming) as people will go back to work and school. But as we already said in our March 13 update, we strongly believe that the outbreak of the coronavirus is triggering the start of a fundamental shift in many of our habits. The way we live – work, communicate, collaborate, shop, eat, entertain and heal ourselves – will be profoundly changed.
In the corporate world, IT departments are currently working almost 24/7 to grant employees with Citrix remote accesses, to enable Zoom or Cisco’s Webex video conferencing solutions and to democratize the use of Office 365. Collaborative platforms like Microsoft’s Teams or Slack, Software-As-A-Service companies like Salesforce, Workday or ServiceNow are setting new traffic records. The most sophisticated companies are using new generation cloud-based platforms like Zscaler or Okta to secure work from home and to keep hackers at bay.
This could be the beginning of a secular work-at-home trend with many employers finally starting to realize that having all of their employees physically present in their offices is not a necessary condition to be fully operational and to continue to deliver quality products, services and support. Employers will also measure the savings’ potential in terms of occupied surfaces and their related costs like electricity consumption and office cleaning.
Other sectors, like health care and education, could undergo a similar “remote” revolution. As for telemedicine, the US government just expanded coverage to 62 million Medicare beneficiaries and lifted several restrictions.
And eLearning services like 2U or K12 are back under the spotlights, a temporary effect which could, in our view, transform into a long-lasting change for the education sector.
To accompany this change, telecom and data center infrastructures will need a massive upgrade over coming months and years as the current traffic spikes and subsequent outages show that they’re not ready to handle “at-home” or “remote” way of doing things.
At the start of the year, investment trends in fiber backbones, 5G wireless networks and data centers were already extremely healthy and the Covid-19 outbreak reinforced and even accelerated them!
Many Chinese and Taiwanese specialty chip makers are currently receiving additional orders for wireless and photonic semiconductors that will power this next generation infrastructure. In order to comply with regulators, telecom operators must rollout 5G equipment in order to guarantee a certain level of coverage over a specific timeframe. Verizon, for example, just announced a capex increase for 2020 (+$500m to $17.5bn-$18.5bn) while the Chinese government strongly recommended to its three national operators to increase the number of 5G antennas deployed in the country.
Data centers around the world are also in need of a significant upgrade as the fifth generation of wireless network will kick start many data hungry technologies like autonomous vehicles, Internet-of-Things or telemedicine just to name a few. Significant increases in internal communication speed, processing power and storage capacity are mandatory, as the tremendous amount of generated data will need to be processed and analyzed in real-time with Artificial Intelligence algorithms. Google recently reiterated its 2020 $10bn infrastructure budget and independent data center operators like Equinix or Digital Realty are relentlessly and increasingly investing in capacity as well as geographic reach in order to comply with digital privacy rules.
Photonics, the fusion of silicon manufacturing techniques with optical data transmission, is the only technically available path to reach the very high bandwidth levels (600Gbps+) required inside data centers. A major networking infrastructure upgrade cycle is starting this year. In this specific area, companies like Inphi, Infinera or Lumentum just to name a few will benefit from this multi-year capex stream. In the processing space, usual suspects like Intel, AMD or Nvidia already started to see server chip orders’ acceleration in Q4, a trend likely to resume when the current health crisis ends. Finally, next gen high-end storage solutions from Pure Storage or privately held Violin Systems for example will also see strong demand going forward.
Data center operators and corporates using hybrid-infrastructures (on-premise servers + cloud computing services) need software platforms “gluing” together their hardware assets (servers, networking and storage) as well as synchronizing their heterogeneous IT platforms. The likes of VMWare (Dell), Red Hat (IBM) and Nutanix provide these so-called “software-defined-data-center” or hyperconvergence software solutions.
In conclusion, the digitalization of the economy is an inevitable and unstoppable secular trend that the Covid-19 shock is unfortunately proving and reinforcing. To support remote applications and services, a state-of-the-art infrastructure, based on 5G wireless networks and a constellation of new generation data centers, will be built … “whatever it takes”!
