[Heavy Reading]: The Market for DPI and Policy Control is Saturated; Yet to Double by 2018

A new report on DPI and Policy Control by Graham Finnie [pictured], Chief Analyst, Heavy Reading, finds "a significant slowdown in growth, from a whopping 30 percent in 2012 to around 17 percent in 2013. A key factor: The initial market for policy servers and deep packet inspection (DPI) gear is pretty much saturated, at least in the wireless sector .. our forecast predicts. We expect the market to nearly double from $1.45 billion in 2013 to $2.8 billion in 2018, a CAGR of 13 percent -- still pretty respectable by the standard of the overall telecom market"
 

Opportunities:
  

".. there are many new use cases driving a second or third round of spending by telcos ... enable telcos to offer a wider range of service packages and options, such as packages built around specific applications, shared usage plans, temporary passes, and so on. Support for VoLTE, telco WiFi, end-user security, prioritization under congestion, M2M, and sponsored data are also emerging on wish lists .. The good news is we've clearly moved on from theory to practical implementation with some of these ideas, with both vendors and operators reporting a wider range of new packages actually being deployed, especially in emerging economies. Here, it's not unusual to see 20 or more plans, with Facebook-only, Google Zero, and daily data passes among the options"

Challenges:

The not-so-good news is that these plans require a different kind of business justification, based on new revenues rather than lower costs -- which is often harder to justify .. Vendors report long lead and deployment times, slowing revenue recognition .. In the longer term, meanwhile, the risks are primarily associated with the transition to virtualized networks, including networks based on SDN"

See "Policy Revenues Climbing, but Hazards Loom" - here.

Allot: Customers Double Orders within 2 Years; We Don't See F5

Hadar (left) and Elefant,
 Photo: Azi Ronen (2006)

Quotes from Rami Hadar, retiring CEO, Allot Communications (see "Andrei Elefant to Replace Rami Hadar as Allot's CEO" - here), notes during the company's Q1 earning call.

[See "Allot Communications Reports Non-GAAP 17.2% Revenue Growth for First Quarter of 2014" - here]

• "Our past experience shows that booking delivered collectively from new customers in the given year is in the range of 50% to 20% of the annual booking. While new deals tend to be lower than average in gross margin they are our major contributor to our future growth. Given the fast growth of data and the desire for new value added services typical mobile customer will more than double its orders from Allot within two years from the initial sale. Those following orders are most soft oriented and therefore tend to be with high gross margins than average"
   
• "Gross margins during the first quarter was 73% slightly below our usual 75%, 76% range. The main underlying reason is one large deal with the new Tier-1 fixed customer which was highly competitive and where the initial order was more hardware-biased versus software. We don’t think this represents a new trend. We are happy to say that we have already won a following order of this account which carries higher gross margins compared to the initial deal .. It was a multi-million dollar deal .. I’m proud that Allot prevailed in one of the deals. This is a very large Telco in APAC .. Obviously, we like the software content to be higher. The specific deals that we took in APAC was to the other side because of a large geographical distribution"
   
• "During the first quarter, we have continued to make progress with our value added service business which represented 28% of our bookings for the quarter"
   
• About F5 - "we haven’t seen them any pure DPI RFP. Now, having said, I caution, we don’t have perfect worldwide coverage, it could be that they are showing in certain locations. And we are not aware of it. But, we haven’t ran into them in a straight out RFP. It seems to me sitting on the sidelines, I’m just more focused on doing a good job on security front. And it seems that they are complaining of their progress in DPI and policy control and charging functions. It could be just me but this is me kind of watching their statements and public discussions"
   
• US - " It is a fairly slow quarter for America on a relative basis to other region, as you can figure out, the large deals came in other territories. We totally hope to continue our success with penetrating Q1 mobile operators in the U.S."

See "Allot Communications' CEO Discusses Q1 2014 Results - Earnings Call Transcript", by SeekingAlpha, here.