RE: upgrade from scotia 1-Sector Outperform TargetThanks for the great post col_oddball. Whoever wrote that research brief from Scotia deserves some kudos imo. A little surprised no one's commented on it. Here's the relevant parts I take out of it and some other thoughts I think are relevant:
1) we all know SVC is the leader in the cable market and we'll see where that takes them, in North America and otherwise; there's no mention of cable players in Canada but geez, it would make sense for a win or two on its own home turf.
2) what the brief did not mention was anything about Clearwire and whether they will be deploying SVC type solutions - Clearwire is for the most part cable's way of getting into mobile with Cox being one of a few exceptions as it has ventured on its own with its own LTE build out in the near future.
3) SVC wins through Huawei (Telefonica Group) & NSN (T-Mobile) - I'm presuming the former is the large dsl & mobile group Caputo has mentioned in conference calls and perhaps the latter SVC is and/or will continue to be a player with - seems SVC continues to get increased business from the group but would also presume that at this time, the business is relatively small when compared to the size of the group. Notwithstanding, the trend seems very positive and the fact is these two groups are quite quite large with a heck of a number of subscribers worldwide.
4) Caputo and the management team continually talk about convergence - I think that is and/or will be a major competitive advantage for SVC and is something ISP's are looking for. If so, Caputo and the management team called this one a long, long time ago and ensured SVC's products included such characteristics.
5) Possible Break through in North America - I think these may be the strongest words to date regarding DPI deployments by major carriers such as AT&T and Verizon from a credible source. Brief also mentions it's highly likely AT&T is trialling both SVC and Cisco's DPI stuff. What is most interesting, imo, is the fact the brief highlights a likely war b/w standalone DPI and integrated DPI. From what I understand, at this time, integrated DPI solutions, such as those offered by Cisco, are fundamentally flawed when compared to standalone DPI solutions and do not provide the ISP's with the performance, reliability, scalability, flexibility, efficiency, energy consumption, etc. they should ultimately looking for. Imo, based on my limited research, I am in agreement with the researcher when he/she says the integrated DPI solutions offered by SVC competitors are just not nearly that effective overall and definitely not over the longer run as traffic increases.
If I am AT&T and Verizon, don't I want the best solution and product (best of breed) in my network at a price that is probably relatively similar? We all know DPI and policy control deployments are really only a fraction of the total amount each ISP spends on Capex each year.
6) Following up with #5, I can only presume SVC has and continues to work on its standalone solution for LTE. The researcher's comments about Verizon are a positive sign LTE bound Verizon is considering (or has already chosen) a standalone solution which is good news for SVC. SVC's NTT win was also good news for SVC as NTT also plans to rollout LTE. What that means for SVC down the road I don't know but can only presume the NTT win was more than just another win and perhaps SVC will be involved in trialling its solution for its LTE rollout.
7) The Cisco's and Ericsson's don't like the SVC's of the world - obviously, their goal is to be the dominant supplier to a carrier such as AT&T and if it were up to them, they'd eliminate any other suppliers for any part of a carrier's infrastructure upgrades and deployments. Hence, I can strongly presume Cisco's goal is to provide an integrated DPI solution to maintain its sole supplier relationship and to keep any other players out, even smaller players like SVC since smaller players can and do become bigger players who can take away from Cisco's revenues for a particular market such as DPI. If standalone DPI wins the war, I can only presume Cisco's likely next move is to purchase a standalone vendor.
It's interesting Huawei & NSN are obviously much more flexible and ISP friendly - their approach seems to be providing its large ISP customers with the option of standalone DPI solutions. That to me is much better customer service than pushing an integrated DPI solution that is likely inferior to standalone DPI solutions down an ISP's throat and which is likely not in their best interests and could have significant long term implications.
At some point, Cisco made this decision to provide only an integrated solution and they will have made the right call if they can brainwash ISP's into believing its integrated DPI solution is great and works just as well or better than standalone DPI solutions. If eventually all you have in networks is integrated DPI solutions, how will an ISP know whether standalone is better than an integrated solution
I'm not sure Cisco banked on the ISP's taking as close a look as they probably are at DPI and policy control notwithstanding its importance in potential revenue generation and quality of service. We've heard Caputo comment on how SVC is and has access to meeting with the highest level exec's and most notably CTO's of these large ISP's - so imo, the CTO's and CEO's of large ISP's view DPI as a very strategic proposition that could have serious positive or negative long term revenue effects.
Imo, if they want the best of all worlds, standalone DPI seems to be the way to go. Or we could have it all wrong and integrated DPI is the best solution.
8) Notwithstanding many of the points above, like any good analyst, the Scotia researcher identifies the major relevant risks: "...attempting to identify when exactly any of these potential contracts could hit is risky business. At this stage we believe it will happen sooner rather than
later but we cannot really point to any conclusive evidence that any of the contracts we have
discussed will occur soon, if at all".
Overall, I'm more optimistic about standalone DPI vendors such as SVC. SVC has yet to produce consistent quarter to quarter profit but this is a classic risk/reward stock and the trend to me seems very positive at this time. But, who knows what the future holds and who knows how the markets and economy will do.