Webscale Network Operators: 3Q20 Market Review – Webscale Sector Revenues Spike 16% YoY in 3Q20 to Just Under $1.6 Trillion on Annualized Basis; CapEx Growth Returns – ResearchAndMarkets.com
DUBLIN–(BUSINESS WIRE)–The “Webscale Network Operators: 3Q20 Market Review” report has been added to ResearchAndMarkets.com’s offering.
For the webscale sector, the analyst expects total revenues of $1.63 trillion and CapEx of $122 billion, with likely 2021 growth of 10% and 17% respectively.
Webscale Network Operators: 3Q20 Market Review analyzes the network infrastructure spending and financial position of webscale network operators (WNOs). WNOs tracked in this report include the “Top 8” companies (Alibaba, Alphabet, Amazon, Apple, Baidu, Facebook, Microsoft, and Tencent) and 12 others: Altaba, ChinaCache, Cognizant, eBay, Fujitsu, HPE, IBM, JD.com, LinkedIn, Oracle, SAP, and YanDex.
- Global coverage with company-level drilldowns of 20 companies
- Company-level annualized and quarterly trends across >10 financial data series
- Network-related spending estimates at market- and company-level, across quarters
- Revenues broken out by region for each company
COVID-19 Forces the World to Become Even More Online
The COVID-19 pandemic has depressed economic growth globally but spurred faster growth in the webscale sector. The sudden, widespread need to work and study from home has increased demand for the cloud services offered by many webscale players. The need for social distance has caused an uptick in usage of social media platforms such as those offered by Facebook, similarly kicking up growth rates. Consequently, revenues in the webscale sector grew by over 16% in 3Q20 on a YoY basis, pushing up annualized revenues to just below the $1.6 trillion mark.
CapEx up 25% YoY to $34.7B in 3Q20
Technology investments by the webscale sector are also on a tear. R&D spending increased by 17% in 3Q20 to $46.1 billion, pushing the annualized R&D to revenue ratio for webscalers up to 10.8% (10.7% in 3Q19). Webscale spending on their network infrastructure has also spiked. Total CapEx rose 25% YoY to hit $34.7 billion in 3Q20, increasing annualized capital intensity from 7.5% in 3Q19 to 7.6% in 3Q20.
A good portion of CapEx in 2020 has supported the growth of e-Commerce activity, which was given a lift by pandemic-related lifestyle changes. However, the Network/IT/Software portion of CapEx grew 31% YoY in 3Q20 to $16.0 billion. New data center construction slowed in 2020 but rapid growth of traffic and cloud services adoption forced operators to invest heavily in new servers and other incremental capacity additions.
The network spending of big webscalers is centered around immense, “hyperscale” data centers and undersea cable systems that support network traffic from the tech companies’ online retail, video, and social media platforms, along with cloud services. Webscale network operators (WNOs) may also own access networks, typically using fiber, microwave or mmWave, and even fixed satellite. WNOs exploring outer space for providing connectivity include Amazon, Apple, Alphabet, Facebook, and Microsoft.
Out of these, Amazon’s efforts gained fruition recently with the FCC approval for its satellite broadband initiative, Project Kuiper, to deploy and operate a constellation of 3,200+ low earth orbit (LEO) satellites. Satellite investments from non-webscale players such as SpaceX (Starlink) is heightening the webscale activity.
A broad set of vendors are benefiting from WNO CapEx spending – from semiconductor players selling into the data center market (Intel, AMD, Nvidia, Broadcom, etc), to optical components & transport vendors selling into data center interconnect markets (Ciena, Infinera, Neophotonics, Lumentum, etc.), to contract manufacturers of white box/OCP servers (Wistron and Quanta).
Profitability Holding Steady, Cash Reserves Continue to Rise
As the webscale sector’s topline has surged during the pandemic, the sector’s bottom line profitability has held steady. Free cash flow and net income margins have remained high over the last few quarters, on an annualized basis. FCF margins declined slightly in 3Q20 from 2Q20, due to a CapEx uptick, but remain high relative to many other industry sectors. Net profit margins increased slightly in 3Q20, and are also high on a relative basis. As webscale players continue to generate healthy margins, their cash reserves also grow. At the end of 3Q20, the webscale sector’s cash on hand rose to $739 billion, with total debt at a much lower level of $495 billion.
There are signs of increased regulatory pressure coming to bear on key players in the webscale sector. In China, Alibaba’s recent failed attempt to IPO its Ant Financial business is an example. Two years ago, Tencent faced regulatory restrictions on its gaming business which ate into growth. At the same time, China’s latest round of infrastructure investment targets are heavily dependent on the cooperation of these two private sector companies. In the US, a new President will be inaugurated in late January 2021.
There is a lot of pressure to either break up or more severely regulate key players in the US webscale ecosystem, including Alphabet and Facebook. Public concerns about abuses of privacy, facilitation of fake news, and monopolistic or (at the least) oligopolistic behavior will make it nearly impossible for these companies to stem the increased oversight likely to come soon from policymakers. Australia’s pending law, the “News Media and Digital Platforms Bargaining Code,” could foreshadow things to come for the webscale sector.
Spending and Investment Trends by Key Operators
A sub-group of important WNOs, the “Top 8”, continues to be important for tracking the sector. This group includes Alibaba, Alphabet, Amazon, Apple, Baidu, Facebook, Microsoft, and Tencent. Four of these accounted for at least 10% of total WNO CapEx in the twelve-month period ending September 2020 – all based in the US: Alphabet, Amazon, Facebook, and Microsoft. In 3Q20, Amazon was the standout, accounting for over 30% of industry CapEx, as its total CapEx more than doubled year over year.
Key Topics Covered:
- WNO Market: Key Stats Through 3Q20
- Company Drilldown
- Top 8 WNOs
- Company Benchmarking
- Regional Breakouts
- Raw Data
- Exchange Rates
For more information about this report visit https://www.researchandmarkets.com/r/pwn1ok
Laura Wood, Senior Press Manager
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