Welcome to another Weekly Briefing.
This week I’m writing to you from the sunny and dry Vail Mountains in Colorado—how San Francisco Bay Area weather should be, but lately it's far from it. I’m here for the KBCM Technology Leadership Forum, so if you’re also here, shoot me a note and let’s connect.
While markets were active and news headlines flowed, last week started out a bit rough.
The world lost a great human and an absolutely brilliant mind early last week with the news that Vijay Gill passed away. As an esteemed leader across networking infrastructure and systems engineering disciplines, Vijay was truly one of a kind—an incredibly smart, eloquent, straight shooter. If you didn’t know Vijay, It’s possible you do by now through the endless amount of love and memories pouring out across LinkedIn and other social media channels. Rest In Peace good sir. Build no temples.
Let’s get into this week’s update.
Your Weekly Briefing
Cloudflare and Fastly reported second quarter earnings last week and while there were some surprises, I thought the results were as expected. The surprise was Fastly’s choice of CEO.
Fastly announced Todd Nightingale (Currently EVP Enterprise/Cloud @ Cisco) as the company’s next Chief Executive, replacing Joshua Bixby. Nightingale should be an improvement from Bixby, but that's unfair to Nightingale this early in the game. What this means is that Fastly is not getting an experienced Chief Executive, or someone with turnaround experience, but instead is getting a former engineering leader turned BU shepherd from a legacy networking incumbent, when they really need someone who is going to be paranoid enough to survive. Fastly reported $102M in revenue for the second quarter, flat q/q and up 21% y/y while gross margin continued to collapse, down 300bps from 1Q22 to 50%. Fastly added just 14 customers net, calling out higher churn in the quarter. This is the lowest net customer additions since 2Q19 when the company added 8 net customers. Nightingale’s job won’t be easy, and we’ll be keeping a close eye on progress.
Cloudflare on the other hand continues to prove it’s one of the most exciting and maybe one of the most important companies to watch in cloud infrastructure, reporting $235M in revenue, up 11% q/q, and up 54% y/y—it’s eight consecutive quarter of 50% revenue growth, while gross margin was 76%. The company now has 152,000 customers, adding 3,619 in the second quarter including 212 large customers which now total 1,749, representing 60% of revenues. Akamai, Edgio, and DigitalOcean report this week. Continue reading
- Google published an incident report for the London heat-wave induced data center shut down in the europe-west2 (London) region with includes excellent detail of the impact. Link
- Amazon published its sustainability report, which has some info about the cloud. Link
- Netskope acquired Infiot and introduced Netskope Borderless WAN, which will combine Infiot and Netskope’s Intelligent SSE to deliver robust access across mediums and locations types including the cloud as well as other SASE/SSE functionality. Link
- Some enterprise customers are considering running AI/ML workloads on-prem due to cost and poor broadband performance in locations such as retail shopping centers. Link
- A CNCF telco survey highlights that 75% of respondents say they will eventually convert 50-100% of physical network functions and virtual network functions to cloud-native functions that leverage a k8s container architecture. Link
- Aviatrix Chief Executive Steve Mullaney says the company now has 600 customers and in 5 years will be doing more than $3B in revenue. Mullaney, known for being a big personality also says the company will IPO within 2 years. My kind of CEO.
Cogent reported earnings and continues to struggle with its corporate segment as revenue remains impacted by the rising US office vacancy rates spurred by pandemic-related transformations around where we work. On the other side is the Netcentric business which provides IP transit services in data centers, which is chugging along and grew at 10% y/y while total revenue for 2Q22 was $149M and flat y/y.
India’s first 5G spectrum auction concluded with Reliance spending $11B, while Bharti Airtel and Vodafone spent $5.4B and $2.4B respectively. Spectrum sales accounted for ~71% of the total of 72Ghz offered in the auction.
- DigitalBridge and Columbia Capital officially launched XenithIG, a new APAC fiber business that I first covered back in May. The new company follows a similar theme around the naming/identity of other Columbia-backed fiber companies including SummitIG (Northern Virginia-US), and BandwidthIG (Atlanta, SFBA, Portland), and I’m sure a European play is being considered as well. Link
- Arista acquired Pluribus Networks and announced Unified Cloud Fabric. Link
- Intrepid Fiber appears to be a new startup from former Level3 and Zayo Executive Jack Waters who recently left his role as Chairman of European Digital Infrastructure investment group, D9 Infrastructure. Intrepid has not shared any information and doesn’t seem to have formally launched but its website says the company was founded in January 2022 and is backed by Brookfield Infrastructure. Link
- Stonepeak announced it has closed the acquisition of Lumen’s LATAM fiber and data center assets, and has revealed Cirion as the new company. Link
Not many data centers remain in public markets which unfortunately limits visibility into product related KPIs such as interconnection. Equinix has the most robust and detailed reporting, while Digital Realty discloses minor details such as revenue and cross connect counts, and CoreSite does the same. Switch shared some details as well, but 2Q22 will be the last time they report given the pending acquisition by DigitalBridge/IFM.
In 2Q22, as a percentage of revenue, interconnection makes up 18% of recurring revenues at Equinix, while Digital Realty’s interconnection product line is 8% of operating revenues and CoreSite (AMT) counts a 13% contribution from interconnection of total data center operating revenues.
New details have emerged about Virtual Cross Connect growth by Geography on Equinix Fabric. Equinix reports non-financial metrics that previously included geographic breakouts of cross connects up until the current quarter (2Q22) when they changed the reporting metric to total interconnections by geography, and are no longer breaking out the type of cross connect by region. This however, does provide a glimpse into virtual cross connect performance across regions in previous quarters.
In 1Q22, virtual cross connects in the Americas region grew 10% q/q, adding 1,700 virtual cross connects, contributing to a total of 18,600 virtual cross connects in the region, and representing 9.8% of total interconnections in the Americas. Over in EMEA, Virtual Cross Connects grew 8% q/q, adding 1,000 virtual cross connects, contributing to a total of 13,100 virtual cross connects in the region, and representing 8.5% of total interconnections in the EMEA region. And in APAC, virtual cross connects grew 6% q/q, adding 500 virtual cross connects, contributing to a total of 9,100 virtual cross connects in the region, and representing 10.7% of total interconnections in the APAC region. Megaport reports this coming week, as does Cyxtera, and Switch, so stay tuned for a broader interconnection update soon. Continue Reading
- 365 Data Centers is acquiring Sungard’s US Colocation and Network business out of bankruptcy for ~$53M and includes operations across 8 markets. Link
- NYI, in a Joint Venture w/ QTD Systems has acquired Equinix’s 60 Hudson operations as I wrote was going to happen back in may. Link
- Macquarie is acquiring a minority stake in VIRTUS Data Centers from ST Telemedia. Link
- Spanish media reports several data center operators/investors are considering developments in Spain including QTS, Prime Data Centers, Compass, and Edgnex. Colliers has said there are ~14 active projects to add more than 600MW of capacity in Barcelona and Madrid. Link
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