This report is focused on operators of webscale networks (WNOs). WNOs are web-centric companies whose operations and... Read More
This report is focused on operators of webscale networks (WNOs). WNOs are web-centric companies whose operations and services rely heavily on hyperscale data centers and supporting connectivity. They typically have tens or hundreds of millions of customers/users, and rely heavily on scale and network effects in quest for profitable growth. Most WNOs build and operate data centers, but some rely largely on rented/leased resources. Netflix, Snap and Twitter are notable examples. Each of these spends heavily on cloud resources from other providers and is a candidate to build organically in the future. Or, purchase existing assets during a market adjustment.
WNOs tracked in this report include the "Top 8" companies (Alibaba, Alphabet, Amazon, Apple, Baidu, Facebook, Microsoft, and Tencent) and over 20 others: Altaba, Booking Holdings (formerly Priceline), ChinaCache, Cognizant, eBay, Fujitsu, HPE, IBM, JD.COM, LinkedIn, Netflix, Oracle, Qihoo 360, Salesforce.com, SAP, Sina, Snap, Sohu, Twitter, Weibo, Xunlei, Yandex, and YY.
Data coverage: for 30 financial data series, our coverage timeframe is 1Q11-3Q18. For vendor contracts, our database begins in 2008, and is updated through September 2018. This report includes "Network, IT & software" capex estimates, by provider, as well as an analysis of 2017 advertising revenues by company.
More details are available in the "sample file," above.
"The world's largest technology companies are investing heavily in webscale networks. These are centered around enormous webscale, also known as "hyperscale", data centers.
This WNO sector of companies invested $85.4B in capex in the first nine months of 2018 (YTD18), up an astounding 56% YoY. Free cash flow margins fell because of this, but webscale sector cash on hand (including stock) was relatively stable: $605.9B in Sept. 2018, from $609B in Sept. 2017. The outlook remains strong for continued investment growth in this sector, focused on data centers and international connectivity.
The WNO surge is not new. Webscale network operators (WNOs) invested $78.6B in capital expenditures (capex) in 2017, up 16% from 2016. Since 2011, WNO capex has grown an average of 19% per year. Webscale capex is now over 8% of revenues. Some WNOs, including Facebook and Alphabet, have capital intensities in the 15-20% range, similar to the biggest telecommunications network operators (TNOs). Further, nearly half of WNO capex is for technology. In the YTD18 period, Network, IT and Software amounted to 45% of total webscale capex; that's is down slightly from 46% the year prior.
A broad set of vendors are benefiting, from semiconductor players selling into the data center market (Intel, Nvidia, Broadcom, etc), to optical components & transport vendors selling into data center interconnect markets (Ciena, Infinera, Oclaro, Neophotonics, Lumentum, etc.), to contract manufacturers of white box/OCP servers such as Wistron and Quanta."