Interesting post Yalemba. Thanks for the insight.
I think where SVC stands on the development of new products/technologies is different from that of the majority of the technology industry. It started in the 60's, then with innovation throughout the 70's, 80's and even 90's until such time as the internet became more widespread and well known. That lead to huge growth and the massive tech bubble in 2000 and for those few years afterwards, a lot of tech companies went under. Only the best, profitable and/or those with long term prospects survived and are still around today.
Of course, many new ideas, innovations, concepts, etc. have been introduced by new companies since 2000 - so there's always innovations but on a smaller scale.
I think SVC falls into this latter category. I believe SVC commenced operations in 2001 and innovative ideas like DPI, network management, and the added layer of technology that may be necessary in an ISP network infrastructure were at its early stages (who knows, still may be at its early stages). Probably since 2004, SVC has continued to crystallize where it can most provide value in the overall network and based on the Co-Founder's comments at the last investor briefing, they all believe that significant growth potential is shortly ahead.
So I think SVC's technology is entering the growth phase with significant potential. Innovations will always occur and it's possible SVC will develop new revenue generating technology rather than enhancing its existing technology.
And as you mentioned yalemba, overall traffic just wasn't an issue in the 90's and most of the early '00's. Laying the basic internet infrastructure all across the world was the main focus. Now that more and more of the world is connected to the internet using that internet infrastructure, this has obviously led to the congestion issues ISP's seem to face.
Now that overall traffic seems to be a consistent problem for ISP's, SVC's technology makes sense as part of the 2nd layer of network infrastructure.
Net neutrality advocates state network management isn't necessary - ISP's should continue to invest in continually upgrading their network (ie. more fibre). Many ISP's are doing just that with many ISP's upgrading their networks although many continue to lag behind.
And I think SVC's technology has a big role to play and Caputo and the Co-Founders are convinced of this based on their Investor Briefing comments. Network Management provides intelligence - the goal is to smooth out peak period congestion, one time events (ie. Obama inauguration speech, Michael Jackson death) causing serious congestion on networks, helps laggish ISP's that delay upgrading their network, and even those ISP's that do upgrade, congestion is likely inevitable and common sense tells me no network can guarantee congestion will not occur. Network management will help even the innovative, advanced ISP's manage the inevitable congestion that will eventually occur before there's another upgrade in infrastructure (ie. beyond LTE, Wi-Max, etc.).
You mention ISP's squeezing every penny where it can. That won't change and it seems ISP's revenues are under attack from whatever trends ie. competition or otherwise. This bodes well for SVC as it would seem they have demonstrated their technology provides value to the ISP in potentially many ways.
Moreover, SVC has intelligently shifted its focus also towards the consumer - network management helps ensure a great user experience on the network. Common sense tells me if I'm playing video games online, I'd want the ISP to do what's necessary to ensure my experience is smooth and it would make sense that another user who is downloading a P2P file is slowed. In other words, I need my packets now vs. a P2P downloader who only asks that they get their packets within a reasonable amount of time. From what I understand, a P2P downloader wouldn't even notice if some packets were given priority to time sensitive users. And this is only during times of congestion and peak periods throughout each day.
I don't know if SVC's gross margins are under attack - managements goal is b/w 70-75% of revenue. I don't think they've fallen below this but if they do, it might be a sign of competitive pressures or the fact that ISP's will demand lower prices since they're revenues may be under attack. Add to this possibility the likelihood of the US Dollar continuing to drop over the long term and this may not bode well for SVC.
Hence, SVC really needs to diversify (and its trying) revenue to many different markets with various foreign currencies. My understanding is contracts are all in US Dollars but if a foreign country's currency increases relative to the US Dollar, one would think SVC would increase the contract price to reflect the lower US Dollar. In addition, I believe SVC's contracts with ISP's are fixed for 3 years (at least I keep hearing 3 years during conference calls) so any continued drop in the US Dollar will impact SVC's revenues which are reported in Canadian Dollars.
So in addition to potentially winning significant contracts in the United States with existing and/or new customers, it would be in SVC's best interests to win big deals with currencies that stay relative or rise in relation to the CDN dollar. The Euro (maybe), British Pound (maybe), China/India (maybe a rise eventually as the US Dollar continues dropping?) are the first currencies that come to mind. Of course, winning some Canadian Contracts in Canadian Dollars would make a heck of a lot of sense as well.
On the other hand, if the US Dollar can stay stable at around current levels, that also bodes well for SVC as the cost of its technologies to foreign ISP's outside of the US becomes that much more inexpensive (presuming their currency increased relative to the US dollar).
As one may notice, I'm intrigued as to how this story unfolds.