Invest in “Bottleneck Engineering”
Companies highlighted: American Tower, China Tower, Finisar, Luminum, Oclaro, Intel
Remember the dial-up internet and the finger tapping timpani it yielded?
Well, maybe a new era of the ‘world wide wait’ looms.
Global internet traffic is growing by at least 25% a year — far outstripping the current growth in bandwidth with mobile traffic growing at over 40% a year.
This is why billions are being invested in ‘bottleneck engineering.’
The internet, which is a global hodgepodge built on top of a century old telephone system, is being rebuilt on the fly.
True, there are now warp speed broadband core fibre optic links between the massive data centres, owned by the internet giants –Google, Amazon, Microsoft, Facebook with Alibaba, Tencent and Baidu building up fast — that increasingly orchestrate and service the online global economy.
But these data centres themselves are the biggest drivers of bandwidth demand and thus a singular part of the compounding capacity bandwidth problem.
Beyond the world of submarine fibre optic cables, there are mounting problems with low service levels on local, increasingly wireless links.
These bulk very large as there will need to be support by the early 2020s for at least a million wireless devices per square kilometre in many of the world’s urban regions running high definition video, augmented reality, 3D interactive games, fitness tracking, remote surgery, telepresence and ADAS applications by necessity in real time.
Source: Age of Earthquakes
And that will require more than the right radio spectrum and extended coverage.
The latter is a bottleneck problem that has to be addressed.
Global base station coverage is spotty to say the least, while available base station bandwidth has to be shared by thousands of users.
In short it’s part of the overall ‘bandwidth shortage’ issue.
This is good news for the upside of the REIT American Tower, which owns towers and other structures on which wireless companies rent space to install their telecoms kit.
Outside the US, American Tower has a growing presence in India, Nigeria and S.Africa and rents out space on nearly 150,000 sites worldwide in a sellers’ market.
In China, the dominant force in the field is China Tower, which serves its joint venture partners China Mobile, China Unicom and China Telecom, as China scatters the landscape with base stations and towers. China Tower has been a widely anticipated IPO for over a year with a chance it will float in Hong Kong by the year end. It’ll be bid when it does float.
5G is no done deal
Most of all, though, the mobile bottleneck problem will require lots of 5G wireless networks to solve it, which will operate 100x faster than the current still not universal 4G networks.
A world running on 4G would fall very far short of being able to deliver the mobile lifestyle paradise or dystopia, according to your take on the world, of the Neal Stephenson style ‘virtual metaverse’ that is envisioned by some seers as what is needed to divert and defang stressed, depressed, self-obsessed and largely jobless urban masses.
Despite rapid talk in some quarters this — 5G– is far from being a done deal.
Global standards have not been agreed, but more important some high tech hurdles have to be cleared — for example, the ability to engineer multiple antennas into receiving and transmitting devices and making each radio frequency carry many data streams at once without causing mix-ups and resulting gibberish.
This latter is the so called MIMO — multiple input-multiple output challenge.
Turning to the data centres — the ‘bit barns’ — which are being built out fast across the world as more and more is done by cloud-based computing, the server racks that take in, process, store and relay escalating volumes of data need to be constantly speeded up and turbo-charged but in a power efficient way as data centres are thermal sinks.
This is being tackled by doing more and more in software running on vast processor and memory arrays based on merchant market supplied chips from e.g., Nvidia, Intel, AMD, Xilinx, SK Hynix, Micron.
Operations are divided between multiple core processors working in parallel on the same chip to reduce the heat problem.
But at the same time, to keep up with the insatiable and ever growing demands of their customers for ever more advanced real time online services the cloud data centres need to operate within ever faster.
At present many of them are still operating at an overall speed of 40G–that is 40 billion ‘bits’ per second.
Far too slow looking ahead.
There are gathering migrations to 100G and led by Microsoft to 400G.
But this will call for more than turbo-charging servers, switches and routers.
It will also call for ever faster data links between them as they carry out their tasks and faster access to storage.
There is a shortage of the specialist 100G optical interconnect chips needed for these warp speed data links, let alone 400G interconnects and beyond. These chips use pulses of light rather than electrical current to do their work.
This is bandwidth at the smallest scale – on and between chips in the banks of data centre servers.
This is why the prospects for the specialist chip companies supplying optical interconnects look bright in a sellers’ market over the next two to three years as the world’s data centres strive to speed themselves
The pack leaders are Finisar, Lumentum and Oclaro.
They have the added attraction that they are the suppliers of the 3D sensors the smartphone industry is using to embed facial recognition into their handsets.
However, Finisar and/or Luminum fell behind schedule which is the chief reason why Apple had to delay putting its iPhone 8s on general sale.
The stocks of these companies have had a helter-skelter ride partly due to the Apple affair and partly due to a build up of inventory this year in China, mainly at Huawei and ZTE, which has poured a cold douche on Chinese demand.
But this is temporary.
The inventory has been worked through and a huge order pivotal from China Mobile is being finalised.
Huawei and ZTE are the prime contractors and Finisar, Luminum, and Oclaro are trusted sub-contractors.
And it’s not just China Mobile.
Next year will see Chinese companies led by the BAT accelerating their build outs of domestic and overseas data centres and China
Mobile, China Telecom and China Unicom upgrading their networks.
A clear prospect of a shortage of 100G and beyond optical interconnects.
Meanwhile, a couple of game changers, thanks to Intel, Micron and Samsung are on the way and promise to impact the scene, and not just the data centre/networking scene, in 3-5 years time.
The first is silicon photonics.
This has been in the lab for years and is moving to beta and now alpha.
It involves embedding photonics on-chip. At the moment they’re separated. Intel seems to have cracked it technologically and has the fabrication prowess to turn it into a mass production technology in relatively short order.
Others such as ST Micro, Mellanox, Cisco, Acacia Communications and Luxtera are at beta or alpha.
The second is merging super fast DRAM memory technology with ‘persistent’ flash memory in a unitary technology.
Both Intel and Micron have developed, via an ‘on-off’ collaboration, so called 3DPointX memory technology, while Samsung has its Z-NAND technology in the wings.
As and when these advances come to market they will transform the business of active storage in a super-fast operating environment, and eventually disrupt to DRAM and ‘flash’ memory markets in the process.
But they have been surrounded by years of hype and over-promising, chiefly by Intel.
Nonetheless, Intel has now started drilling early versions of commercial 3DPointX into the market.
We will wait and see.