Gratitude to the Heroes.
These are most unusual times. As difficult as the situation is for most of us working from home, we should remember how fortunate we are, and how grateful we should be.
We are especially grateful for the efforts of the true heroes of the past few months: the medical professionals, first responders, emergency personnel, and law enforcement officers who, to keep the rest of us safe, put themselves in jeopardy on the frontline every day. Every last one of them is a hero and every last one deserves all the thanks and appreciation we can demonstrate. We pray for their well-being.
We also recognize the service employees working in our communities: delivery people, post office workers, paper goods producers, grocery store staff and others, working around the clock to provide basic services for the rest of us.
In the developed world, and outside of large cities, we are fortunate to be able to keep social distances, walk around the block and have access to running water to wash our hands. Not everyone is as fortunate.
At many companies, Inphi included, we are very grateful to our critical employees who have to go into the workplace to maintain basic operations and enable the rest of us to work from home.
At Inphi, our employees are key to everything we do, and they are our number one priority. In these most uncertain times, we have instituted programs to allow our valued employees to work from home, and to assist with the challenges that may arise for them or their families. Inphi has also provided financial support to communities in eleven of Inphi’s sites in nine countries, for non-profit organizations focused on medical supplies or food.
While the rest of this update will be about Inphi and how we are experiencing and responding to these current events, we could not start this message with anything other than this important note of appreciation.
Maintaining Robust Operations.
Inphi is focused on steering our company’s business through uncharted waters. Because we have operations in both Wuhan, China and Pavia, Italy, we had an early glimpse into the impact of the pandemic. In response, we organized our entire operation to work from home and to continue to deliver on our customer commitments, including taping out chips, finalizing firmware, validating new products and taking them to production. We have also strengthened our supply chain and, with only minor disruptions, have continued to deliver on customer commitments. We are thankful for our supply partners around the world for their continued and excellent support. Due to the work from home and social distancing initiatives, the demand for bandwidth is skyrocketing; as a result, we are currently experiencing accelerating demand for our solutions. In response, we are working relentlessly to help our customers roll out fast, reliable connections over short, medium and long-haul distances.
Crisis Highlights Critical Nature of Bandwidth Around the World.
Just as Inphi has moved to a work from home protocol, so too have many companies and industries. And as our actions converted to digital, we have seen a global explosion in bandwidth demand. Inphi is in the “bandwidth business,” helping move data within communities, metro areas, countries, and around the world. Our customers have witnessed a spike in bandwidth demand for their applications. In our corporate presentation on the Inphi website, we have highlighted eight trends that drove data and traffic explosion around the world for the past few years:
- Cloud, and high-performance computing (HPC)
- Artificial intelligence (AI)
- 5G wireless
- New media/video
- Virtual & augmented reality
- Internet of Things (IoT)
While these trends still apply, there is now new behavior emerging out of the COVID-19 crisis driving new types of bandwidth demand. To fully understand the various applications driving such demand, I reached out to our employees around the world and asked what new applications they were using during this crisis. Their responses are shown below, and fall into in the following categories:
- Work from home. In a recent U.S. survey, 62% of employees indicated that their employers have requested them to work from home. This resulted in increased use of video conferencing or messaging for collaboration inside the company and with outside stakeholders. Zoom, Cisco WebEx, Google Hangouts and Microsoft Teams are now household names. In fact, the U.S. witnessed a 1,457% increase in downloads of remote work applications in early March. Security is an important part of these applications. We have also witnessed an increase in document sharing and approval through services like DocuSign.
- Socialize and learn from home. In addition to the explosion in video conferencing in the business world, schools from K-12 through universities are running virtual classrooms, using specialized applications such as Moodle, Blackboard, and Google Classroom. Alibaba’s DingTalk had to add 100,000 servers to cope with their increased demand. In the US there was a 1,087% increase in downloads of remote learning applications in early March. To socialize on the home front, where user interface is more important, other video conferencing applications are being used, including native phone apps, Zoom, WhatsApp, and Houseparty.
- Play from home. Video gaming is up an astounding 75%, per Verizon data. This includes specific games, like Fortnite and Animal Crossing, multi-game platforms, like Xbox Live and Tencent, and 100% streamed games like Google Stadia and NVIDIA GeForce. Twitch, one of the world’s biggest streaming platforms for gamers, is estimated to have grown its audience by 24% in March alone.
- Stream from home. Streaming movies at home increased so much that it brought some countries’ internet services to their knees. As an example, the EU had to request that Netflix and other streaming providers restrict high-definition streaming until the pandemic is over. New movies, which would normally have been released to theatres first, are now released directly on a streaming platform, such as Universal’s The Hunt, The Invisible Man, and Trolls World Tour. In fact, Universal claims that Trolls World Tour, an animated kids’ film, achieved the “biggest digital debut ever.” In a recent survey, 52% of worldwide consumers indicated they will increase their streaming online as a result of COVID-19.
- Shopping, food and meal delivery. In addition to the usual demand for shopping online from Amazon and Alibaba, we have witnessed an explosion in food, grocery and meal kit delivery from companies like Uber Eats, and BlueApron. As a result, there has been a 322% increase in grocery delivery app downloads. Fortunately, this increase includes delivery of tens of thousands of meals to hospital workers and frontline services.
- Electronic payment. The COVID-19 pandemic has led to unprecedented public concerns about viral transmission via cash. Africa is reportedly using digital finance as a means to stem the spread of the virus. According to industry groups, preference for contactless payment is up by one third, and global e-commerce transactions were up 23% in mid-March. Grocery chains such as Publix, now at the frontline of the pandemic, have implemented contactless payment for the first time. In the U.K., the retailer contactless pay minimum for in-store spending was increased by 50%.
- Telemedicine and virtual fitness. On the health front, telemedicine has turned out to be a gift, saving doctors and patients from unnecessary in-person interactions, particularly for non-COVID-19 patients. Telemedicine leader Teladoc reported a 100% increase in virtual medical visits due to the onset of COVID-19 in the United States. Online fitness classes have witnessed a sharp increase in subscribers. YouTube online fitness classes are registering millions of users.
- New virtual experiences. As mass gatherings have been banned, operas, concerts, dance performances, religious services, and sports events have all gone virtual. On Easter Sunday, Andrea Bocelli’s “Music for Hope” from the vacant Duomo Cathedral in Milan drew 2.8M concurrent viewers and 28M views in 24 hours from around the world. Video views on TikTok, YouTube, Kuaishou and others, for fun as well as for general welfare and wellbeing have skyrocketed. The traditional social media channels have also seen an increase in activity with Facebook messaging increasing 50% across both WhatsApp and Messenger. And now, we have the new phenomenon of the virtual cocktail or dinner party, a new social practice among physically distant friends.
- Security. Unfortunately, there are always bad actors trying to take advantage of the situation. There has been a spike in cyberattacks against hospitals, phishing attacks on consumers, and new COVID-19 scams. This includes fake stimulus checks, “mandatory” COVID-19 preparedness tests, and fake online sales of face masks to capture consumer information. Trend Micro Research reports a 220X increase in spam, and a 260% increase in malicious URL hits from February to March 2020. COVID-19 related spear phishing attacks saw a 667% increase in March 2020. This has also put pressure on security solutions as more people are working on their enterprise network. Zscaler saw U.S. home-based employee network traffic grow from 15% to 35%.
Our Customers and Inphi are Adapting.
All this change was caused by COVID-19, and is driving an unprecedented surge in bandwidth demand worldwide.
At Inphi, we are in the bandwidth business. Given the changes above, our customers who serve these markets, cloud, data center and telecom and service providers, are experiencing an acceleration in demand for incremental high-speed bandwidth. Those customers rely on Inphi products and solutions to move their data reliably at blindingly fast speeds, be it to enable the cloud, the emerging 5G infrastructure, data centers hundreds of kilometers apart or contiguous servers on a rack. They are looking to us to enable data movement across the backbone as well as data reception at the edge. These critical communication links are vital to keep businesses running and people communicating across the globe.
Telling you there is an increase in demand is not new news. In addition to the statistics cited in the prior trends, let me offer some further specifics to help put that observation in context, as shown in the diagram below.
- OpenVault, a firm that provides data usage measurement and analysis suggests that in quarantined markets, data usage jumped 33% between January and March.
- In late March, Forbes reported that total internet hits have surged by between 50% and 70% since the crisis began.
- According to Zoom, 10 million people were using Zoom daily in December. By March, that number was 200 million daily video call participants.
- Demand for AT&Ts VPN increased 700% in March.
- WebEx backbone traffic connecting China-based workers has increased as much as 22 times.
- Bell Canada indicated daytime home internet usage is up to 60%.
- Akamai indicated a 30% increase in its Content Delivery Network traffic in March.
- Microsoft has reported an increase in cloud server usage service of 775% for certain apps in those regions under lockdown.
I could go on, but no matter where you look, the need and demand for bandwidth is increasing substantially. COVID-19 continues to demonstrate the highly interconnected nature of our world, hence, the name of this blog.
What Does all this Change Mean for the Infrastructure Business?
This substantial increase in bandwidth demand will drive continued innovation in and deployment of data movement interconnects for cloud and telecom customers, markets where Inphi is a leading provider of electro-optics solutions:
- 5G will take hold. China Mobile, China Unicom, and China Telecom are already at 31.7M 5G subscribers. They have issued new tenders to continue to build-out their networks aggressively. The US and the rest of the world have committed to catch up.
- The transition to PAM and Coherent technologies is sure to accelerate because their new coding mechanisms provide higher bandwidth in the same footprint.
- Data activity at the edge is now surging, favoring metro links under 100 kilometer distances, ideally suited for ZR-based architectures.
- While already a focus, cloud operators will want to pack their data centers with even more computing and networking gear, at lower power, higher density, higher performance, and at a reasonable cost.
- Finally, the best way to accelerate performance is to accelerate the build out of advanced fiber optics networks across various distances.
The bottom line is that the need to move data fast has never been greater or grown as rapidly. At Inphi, in the midst of all this uncertainty, we are committed to continue to hire and invest in developing the products that will serve our customers and their customers’ data transfer needs. Inphi electro-optics data movement solutions are in the right place at the right time to support our customers’ needs.
Looking Ahead: Lots of Questions, Few Answers, but Bandwidth Remains Critical.
Many questions are being asked, as shown on the diagram below. While scientists cannot predict when, we all know that at some point they will develop a vaccine. We will once again go into our offices, dine at restaurants and go shopping without masks. We will return to a new normal. I say a “new normal” because some habits, now altered, will be forever changed. In the interval, business and society have developed new processes of working and socializing and those processes will all need high-speed bandwidth.
- How long it takes to find a vaccine and get it approved is a fundamental gate to resumption of “normal life”. On April 15, Morgan Stanley’s Medical Technology research team highlighted Johnson & Johnson’s recent update on the status of its COVID-19 vaccine, suggesting that if testing goes according to plan, then on a run rate basis, they should have 600-900 million doses in 1Q21, ramping to 1 billion by the end of 2021. Between now and then, the extent of the normalcy will depend on broader testing availability, and risk factors like the spread of the virus being controlled in developing countries.
- Just last week, Apple and Google announced an initiative to track those who test positive and their contacts. While there may be some associated privacy concerns, tracking, contact tracing and surveillance may have to be part of a pre-vaccine return to normalcy.
- Businesses are discovering that, for many, working from home is effective and efficient. Even after shelter-in-place or work-from-home are partially or fully lifted, not everyone will go back to the workplace simultaneously. Continued social distancing limits mass public transportation and it will take time for our mass transportation providers to scale back to pre-virus service levels. This also suggests further continuation of the work from home protocol.
- Congregating in large venues for sports, concerts or events will continue to be challenging. Travel and opening of borders may take time to resume. This suggests the shift to online/virtual events will continue.
- Telemedicine may be here to stay, as it is efficient for both patients and doctors for non-critical issues, and for rural areas.
- There is a lot of discussion on the depth of the recession that began in the first quarter of 2020 and is likely to reach its deepest level in the second quarter. Regardless of whether the shape of the recovery is U, V, or L, it will still be a challenging road back.
Regardless of the answers, it seems clear that internet bandwidth will continue to be critical. There are also questions about medium-term challenges, such as the impact of potential hoarding of components and inventory build-ups; whether the data center will continue to be an area of investment or whether it will be curtailed; and whether a deeper or longer recession will impact infrastructure spend after a certain lag. While we are very aware of these potential challenges, and keeping a close eye on inventory, Inphi is continuing to invest in the development of differentiated new products to service multiple customers in cloud or telecom. We expect that this will help us emerge out of the crisis with an even brighter future. In the end, COVID-19 has had and will continue to have a significant impact on the global economy, including accelerating the secular shift to cloud computing and an insatiable demand for bandwidth.
Inphi also has many growth vectors in place prior to COVID-19, and these are all still intact, including:
- Both cloud and telecom markets;
- Both PAM solutions for inside data centers and 5G, and coherent solutions for between data centers and long-haul and metro;
- Whole platform offerings, including DSP, TiA, Driver, and Silicon Photonics; and
- Multiple customers adopting these new technologies at different times, thus, creating the regular product lifecycle from early adopters, to mainstream, to late entrants.
A Final Thought.
Through all of this, we are mindful of those suffering human and economic costs. Prior to the COVID-19 crisis, we had decided to step up our contributions to STEM and local community non-profit organizations, and expand our Volunteer Time Off (VTO) program. Now, reaching beyond the direct Inphi ecosystem, we collaborated with our site leaders around the world to identify organizations to support the communities in which we live and work. Our early contributions, during the crisis, were focused on medical equipment. Currently, we are channeling our funds to support those in need of food and basic supplies, as shown below.
We believe that everyone is in a position to positively impact the outcome of this unfortunate calamity and its aftermath. Inphi, and our employees have all increased our contributions during this crisis. As we look to the future, we are eager for a time when our employees will again be able to use their VTO to work at their local charities, and help our communities adapt to the new normal.
Through this and future postings to this blog, we intend to keep you up-to-date on the evolving trends and their impact on the data movement infrastructure.
To all of you, please stay safe and stay healthy.