Networking Mergers Seen as Datacenters Are Stretched
Video streaming and emerging concepts like the Internet of Things (IoT) are beginning to overwhelm datacenters. For networking providers, that's proving to be a good thing as growing demand for data services are lighting up "dark" fiber optic lines installed over the last decade.
Indeed, a telecommunications industry forecast notes that cloud computing, machine-to-machine (M2M) communications and big data management are expected to drive the need to expand network capacity. The seemingly endless demand for broadband network capacity also is expected to drive merger and acquisition activity in 2016, according to a forecast from investment bank SDR Ventures.
As more mobile devices are used to connect with cloud-based services and more workloads are processed in the cloud, current 4G/LTE networks are straining to keep pace. The expected number of connected mobile devices and the resulting data usage are forecast to double in the next several years, the investment banker said.
A series of mergers and acquisitions during the last quarter of 2015 illustrates how the networking and telecom sectors are, like other IT industry sectors, likely to see more consolidation in 2016. A case in point was Advantech Corp.'s (TPE: 2395) November acquisition of Ottawa-based B+B SmartWorx Inc. from a group of investors for about $99.85 million. SDR Ventures said the deal was driven by the Taiwanese embedded computing manufacturer's plans to expand into industrial connectivity, an area analysts believe will be the takeoff point for IoT applications.
Advantech said it expected the merger to hasten its development of industrial wired networking and fiber infrastructure and to accelerate the expansion of the industrial IoT business with the goal of "becoming a leader in the industrial networking area."
Major networking players are also looking for ways to scale their capabilities while boosting capacity as networking increasingly becomes a bottleneck for the delivery of big data and streaming video services. Cisco Systems (NASDAQ: CSCO) and Swedish telecom vendor Ericsson (NASDAQ: ERIC) formed a "strategic partnership" late last year. For now, they have stopped short of a full-blown merger.
The partnership also is seen as an attempt to remain competitive in a consolidating telecom industry that also is seeing the emergence of global players like China's Huawei Technology Co. (SHE: CN:002502).
Meanwhile, Cisco is forecasting that annual global datacenter IP traffic will reach 6.6 zettabytes by the end of the year. Worldwide datacenter IP traffic is expected to reach 554 exabytes per month this year, up from 146 exabytes per month in 2011. The networking giant also estimates that two-thirds of all workloads will be processed in the cloud by the end of this year.
Hence, networking is increasingly seen as a bottleneck, a hurdle telecom and networking vendors will likely address through acquisitions designed to expand their global footprint while boosting capacity, SDR Ventures said.