Sandvine - $12M Expansion Orders; $27M in Two Weeks

We reach now $27M in winning announcements released by Sandvine since November 20th (see previous announcements of $4M, $4M and $7M).

The latest cam today, as Sandvine announced that it has "received expansion orders totaling $12 million from a major cable operator customer in North America. The orders largely relate to ongoing deployment of Sandvine’s market-leading Policy Traffic Switch (PTS) 32000 to enable business intelligence and traffic optimization use cases. Sandvine previously announced orders for the PTS 32000 from this operator in November and December 2014 [see "Sandvine: $5M Repeated Order for the 100GE Platform by US MSO" - here] 

.. The orders were all received in Sandvine’s fourth quarter and the company estimates that approximately $1 million will be recognizable as revenue within the quarter, with the remainder to be recognized throughout fiscal 2016.

With these orders, Sandvine’s Record Generator is now part of the operator’s Big Data business intelligence strategy. The operator will be able to cross-join key data about Internet usage with data from other business lines, like cable TV, to get better overall insight into subscribers and network activity for an improved subscriber experience. Record Generator will integrate with Hadoop for this initiative.

See "Sandvine Receives $12 Million In Expansion Orders For PTS 32000 From Fixed Line Operator In North America" - here.

Sandvine: 2 Orders, $7M

Sandvine continues the wining announcements spree (2*$4M orders here, here), with a two orders amounting to $7M including a PCRF (see "Sandvine Will Compete on PCRF Projects" - here), and the 100GE PTS 32000.

The company said that it has "received orders totaling $7 million from two communication service providers in the Middle East & Africa (MEA). 

• The first order comes from an existing Sandvine customer with a converged mobile and fixed network covering 36 million subscribers .. The PTS 32000 will be in both the fixed and mobile properties of the existing customer, which will allow it to unify policy control for subscribers across networks, regardless of how they are accessing the Internet .. Additionally, after a thorough competitive evaluation, the converged operator has purchased Sandvine’s Service Delivery Engine, which includes the company’s Policy and Charging Rules Function (PCRF).

Sandvine PCRF ServiceDesigner interface

• The second order is from a new fixed line customer .. will be using Sandvine’s PTS 32000 and related software to optimally manage network traffic and enhance the security of the underlying networks.

See "Sandvine’s 100GE PTS 32000 And PCRF Included In Orders For $7 Million From Two MEA Customers" - here.

Sandvine Receives (Another) $4M Order

No confusion here - it is the 2nd time in 3 days that Sandvine announces that it has "..received a software license expansion order for more than $4 million".

This time "covering its deployments in the mobile properties of a major multi-national operator group in the Caribbean and Latin America region. The order reflects growth in the customers’ deployments of Sandvine’s Network Analytics, Traffic Management and Usage Management solutions".

See "Sandvine Receives $4 Million Software Expansion Order From Mobile Properties Of Major Operator Group" - here.

Sandvine Receives $4M Order

Policy Traffic Switch 32000

Sandvine announced that it has "..received an expansion order for more than $4 million. The order expands the implementation of Sandvine’s solutions for a major fixed line Communications Service Provider in North America that has been a customer since 2005 .. The customer is using Sandvine’s products to provide business intelligence for capacity planning, customer experience measurement, and other strategic initiatives.

The purchase relates to Sandvine’s Policy Traffic Switch (PTS) 32000 [see "Sandvine Adds a 200Gbps/2RU Appliance w/100GE Interfaces" - here] hardware. Approximately $1 million of the order value is expected to be recognized as revenue in the company’s fourth quarter, with the remainder to be recognized in FY 2016".

See "Sandvine Receives $4 Million Order For Market-Leading 100 GE PTS 32000 Platform" - here.

Allot's Q3 Revenues: $23.5M; Expects $25-30M for Q4

Allot Communications has released its Q3 2015 results, showing revenues of $23.5M (see "Allot Communications Announces Third Quarter 2015 Financial Results" - here). The company "reiterates its previously provided guidance and expects total non-GAAP revenues to be in the range of $100 million to $105 million for full year 2015" - i.e. expecting Q4 revenues of $25.4-30.4M, vs, $30.6M in Q4 2014.

The following chart compares the results ratio of the two remaining public DPI vendors - Allot and Sandvine.

[Infonetics]: The DPI Market is Slow to Adapt NFV; to Reach $972M in 2015

A new report by Shira Levine [pictured], research director for service enablement and subscriber intelligence IHS on the DPI market:

• "projecting the global deep packet inspection (DPI) market to grow to $972 million in 2015, up 15 percent year-over-year, as communications service providers continue to use DPI as a key tool for bandwidth management and the creation of new services and feature ..
   
• The majority of the traditional DPI appliance suppliers had a challenging first half of 2015, but smaller players, particularly the embedded DPI suppliers such as Qosmos, saw healthy year-over-year growth [see "Openwave Mobility Integrates Qosmos' DPI " - here]
  
  [Related posts: "Is there a problem in the DPI Market ?" - part1, part2, part3]
  
  The chart on the right shows Infonetics' prediction for the DPI market from 2010

• While the major DPI suppliers are tackling the virtualization trend head-on, moving aggressively to introduce virtualized versions of their products and forge relationships within the NFV ecosystem, their customers are slower to jump on the bandwagon. Performance concerns remain an issue, and operators continue to be conservative with deployments of virtualized DPI technology
   
• DPI is playing a key role in another hot area—analytics—with operators increasingly interested in leveraging network intelligence gleaned from DPI as part of their larger ‘big data’ strategies
   
• There is renewed opportunity for DPI suppliers to address operators’ security concerns, leveraging their solutions to tackle network infrastructure threats such as distributed denial of service (DDoS) attacks, worms and viruses on a real-time basis" [related post - "Allot: $8M Expansion Order for Security Services" - here]

See "Deep Packet Inspection to Play Key Role in Operator Analytics, BigData Strategies" - here.

Sandvine CEO: We see IBM as a Big Part of Our Future

Sandvine published its Q3 results (revenues of $27.3 - here - as expected following its preliminary announcement). During the earning call, David Caputo, CEO made several references to the relations with IBM:

• "IBM was a 10% plus customer [see chart] in the quarter and sold product to three end customers. We also had one 10% plus end customer in the quarter. Together, these customers represented 24% of revenue in Q3. We have no 10% plus customers for the year-to-date, we remain pleased by this diversification.
  
  [Related post "Sandvine: IBM is a 10% Reseller with an "active pipeline of opportunities"  - here]
   
• Certainly we are excited that we closed three deals with IBM. We see them as a big part of our future in terms of someone who is looking to integrate best-of-breed solutions.
  
  We have certainly individual countries largely outside of North America we have localized partners that help us with supporting in local language and that sort of thing. 
  The IBM relationship is continuing to develop. In that, there were workshops recently on some business intelligence initiatives that they are looking to pitch and get trained on enough to do further integration to some of their solutions, but as you could see the mix to direct is a little bit more pronounced as we become a larger player, as we become more familiar with some of the larger customers outside of North America, some of them are feeling more comfortable to take that business direct with us as well". 

See "Sandvine's (SNVNF) CEO Dave Caputo on Q3 2015 Results - Earnings Call Transcript", by SeekingAlpha, here.

Allot: $8M Expansion Order for Security Services

Allot Communications' strategy of focusing on security (see "Allot CEO: We Compete Against Security Vendors" - here and "Allot's Former CEO: "Security is the Right Direction for Allot"" - here) shows results.

Allot's Allot ServiceProtector

The company announced that it has ".. received an expansion order of approximately $8 million from a major APAC tier-1 fixed-line operator for Allot Service Gateway Tera, Allot Service Protector and Allot Websafe. 

This incumbent operator is using Allot’s Service Protector in-line solution to protect national critical infrastructure, business communication, and IT infrastructure nationwide against destructive DDoS attacks. 

This is an expansion order to an existing project, which augments the solution’s scale, providing rapid identification and in-line mitigation of large scale attacks . 

The solution manages and secures traffic of up to two Terabits per second without the need to redirect traffic to a scrubbing center. The operator’s complex and high capacity network requires effective protection at a vast scale, which is achieved by Service Gateway Tera and its integrated security services". 

See "Allot Communications Receives $8M Expansion Order from a Tier-1 Operator" - here.

Allot CEO: We Won an MNO with "Tens of Millions of Subscribers"

Allot Communications released its Q2 results (here), with revenues of $21.6M - right in the middle of the range provided in the preliminary announcement. The revenues guidance for the rest of the year remains at $100-105M, i.e. $48.9-53.9M for the the 2nd half of 2015.

Last month I quoted an interviewed with Allot's former CEO, Rami Hadar (see - "Allot's Former CEO: 'Security is the Right Direction for Allot'"- here). Allot's President and CEO, Andrei Elefant [pictured] statements made during the earning call, follow up Rami's recommendations ("win more large operators .. I think security is the right direction for Allot":

"According to our strategic plan, we expanded our customer base with new strategic accounts, which we provide constant flow of revenue. .. bookings from new customers was well above our average. During the quarter, we won five new tier-1 operators of which three are mobile operated. 

• One of these mobile operators selected Allot Service Gateway Tera and our ClearSee solution for its new HP network. This network targets tens of millions of subscribers. The customer has already pledged a multimillion-dollar follow-on order at the beginning of Q3. We see this order as a validation to our strategy of increasing our installed base, creating greater stability in revenue. 

• Another new customer, this one a fixed line operator purchased 100GE solution, which was delivered during the quarter [here]. Moving into 100GE network is a tend we see with many fixed line operators [indiscernible], and we expect to see additional benefits from this trend going forward.

Large deals reached 21 in total, none of which represent new customers; 15 came from mobile operators, five from fixed line service providers and one from cloud operator. The mobile sector continues to be our main focus and we are pleased with the flow of large orders from this vertical.

• One of our security customers, a tier-1 mobile operator with more than 20 million subscribers began purchasing another security service two years ago. Today, they provide security services to over 5 million end users. They charge each end user an average of $1 per month with a total of incremental annual revenue of about $50 million. Our security offering is [Technical Difficulty] to our customers because the benefit goes directly into the top line.

See "Allot Communications' (ALLT) CEO Andrei Elefant on Q2 2015 Results - Earnings Call Transcript", by SeekingAlpha, here.

Allot's Former CEO: "Security is the Right Direction for Allot"

The Israeli financial paper, Globes, interviewed (by Shlomit Lan, here, Hebrew) Rami Hadar [pictured], former Allot Communications' President and CEO about his new activity as one of the 3 managing partners of  Eucalyptus, a new investment fund seeking now $300M investments.

The article also discusses Allot's current situation [see "Is there a Problem in the DPI Market?" - here], providing some remarks from Rami (who is still a member of Allot's board of directors):

• Of the 3 acquisitions made during his CEO term, Rami admits that one, the smallest, in the security space, was successful while the other two [see "Allot Buys Oversi for $16M in Cash" - here and "Allot to Buy Ortiva Wireless" - here] haven't yet shown success
   
• "Every company goes through a crisis each time it doubles its revenues. It happens to Israeli companies when they reach annual revenues of $100-120M and then they standstill till they find the next growth engine, which takes few years"
   
• "Almost half of Allot's revenues comes from 3-5 large customers [see "Allot: Two 10% Customers in 2014" - here] - that creates volatility. Andrei [Elefant, current CEO], understands that, and knows he needs to win more large operators and add complementary solutions. He announced recently that Allot entry into the security market [see "Allot CEO: We Compete Against Security Vendors " - here] - and I think it is the right direction for Allot" 

Is there a problem in the DPI Market ? (Part 3)

After wondering (here) if the revenues misses for Sandvine and Allot were just a matter of longer sales cycles and acceptance processes or a market problem, I thought I'd look at my historical posts (I am doing this for more than 5 years) and see what analysts were predicating then and recently:

• My very first post (Jan 31st, 2010, here) showed Infonetics' Research predicting that " .. the market for standalone DPI products to grow rapidly, reaching $1.5 billion worldwide by 2013"
   
• The latest report from Infonetics showed that the DPI market size for 2014 was  ~$900M - see "Infonetics Reaffirms DPI Market CAGR: 22% ('13'-'18); Driven by LTE" (here)

• ABI Research had similar predictions in June 2010 "Deep Packet Inspection (DPI) will lead the field of mobile network test and optimization solutions by 2013 and is expected to generate equipment revenues of $1.3 billion in 2015" (here)

Conclusion? Analysts tend to be positive about the markets they cover, and the vendors they speak to are even more optimistic. 

Is there a problem in the DPI Market? (Part 2)

Dave Caputo [pictured], CEO of Sandvine, provided his views on the growth of the DPI market, in the company's Q2 earning call (revenues were $28.6M, as pre-announced, see "Sandvine Reports Q2 2015 Results" - here):

Q (by Richard Tse - Cormark Securities): Dave, can you give us a sense of the growth rate in the DPI market. We've seen only a competitor's sort of announced similar pull back or slowdown there. Maybe a tougher criterion so clearing these deals is there -- just a broader slowdown of market or just something else that sort of triggered all these requirements both getting other incremental and technical sign offs?

A: "well, I think this is the key question here. Based on a lot announcement in the past few days and are slower than expected start to the first half of the year. It's hard to imagine that the market or the market will likely not grow as quickly this year. And while we don't give guidance, we can say it will be a challenge to grow revenue as quickly as we did last year. But there are still opportunities for Sandvine to grow faster than the market .."  

Q (by Alex Henderson [pictured]- Needham and Company):  ". talking with the folks over at [Allot] it seemed quite clear in the way they discussed the trajectory of their business that they are seeing significant pressure on the growth rate particularly around the optimization portion of their portfolio whereas the service enablement functionality is actually still reasonably healthy. And they are talking about pivoting their strategy towards security because of that. They are really describing that is sort of change in the nature of the market as opposed to something they think is temporary. Now I know you guys have always focused more on the service enablement side but would you concur with that view of the world that the service enablement is the primary driver of the business going forward and that optimization is becoming less important?

A: "Yes. I would certainly agree with the idea of service creation and business intelligence has been the key drivers of our business for the past three and may be in four years. If I recall last year the traffic optimization and other part of our business was around 30% of our business back from -- if you back five years ago it had been 100% of our business. Although I do believe we grew at last year as well. And so I would say in general traffic management especially blunt force traffic management shaping and throttling, you could do increasingly available switches and routers out there .." 

See "Sandvine's (SNVNF) CEO Dave Caputo on Q2 2015 Results - Earnings Call Transcript", by SeekingAlpha, here.

Is there a Problem in the DPI Market?

Note the similarity. Both Allot Communications and Sandvine issued 2 press releases each, just after their 2nd quarter has ended. A bad one and an $8M optimistic one (see below). Also, for the first time since it became a public company, Allot provided revenue guidance, expecting "revenues to range between $100-$105 million for full year 2015", compared to $117M in 2014, a decline of close to 9%, meaning also they expect the revenues for H2 2015 ($49-54M) will be similar to H1 ($51M).

Based on the similarity, it seems that the problem is with a declining market, rather than sales execution. The basic technology and solution (DPI based traffic management) is not as attractive today as it was several years ago, when mobile networks started to see strong demand for data without having the proper infrastructure in place and Net Neutrality was just a proposal.

There are no "bandwidth  hungry" applications anymore you can, as an operator, control or throttle without customers noticing and switching.

The transition to other solutions (analytics, security, VAS, charging) offered now by the DPI players is either not a complete solution (security), generates smaller deals (analytics, as it may be enough to analyze smaller portion of the network) or attractive just in limited regions (monetization).

• Sandvine said on June 8th that "it has received an expansion order for more than $8 million" (here). and
  
   " it expects revenue for its second quarter to be between $28.0 and $28.5 million .. The timing of closing certain large deals created variability in our quarterly results but we believe that these opportunities will close soon. Also, as we have discussed on previous conference calls, we are seeing more customer acceptance tests in contracts .. [however!] Sandvine’s book-to-bill ratio in the second quarter was greater than one"
  
• Allot announced on July 6th that "three strategic wins across the globe in the second quarter (Q2) of 2015. The new sales, summing approximately $8 million  .. A multi-million dollar order from a new Tier-1 mobile operator in Asia Pacific .. A multi-million dollar order from a new multinational, Tier-1, mobile operator based in Latin America .. A multi-million dollar order from a new Tier-1 Mobile operator in EMEA" (here). And it
  
  "expects revenues in the second quarter of 2015 to be in the range of $21-$22 million. The Company also expects to generate a net operating loss in the quarter .. [however!] Allot’s book to bill ratio in the second quarter was above 1 and cash reserves comprise of cash, cash equivalents, bank deposits and marketable securities as of June 30, 2015 were approximately $120 million" (here)

NI Deployments [359]: SoftBank [Japan] Uses Procera for Subscriber Experience Visibility

Just before replacing its CEO (here) Procera Networks announces a high profile customer for its DPI and analytics solutions (Perspectives).

"SoftBank has deployed Procera’s PacketLogic solutions to enhance its LTE service offerings in Japan. Procera was selected to replace the existing traditional analytics and assurance vendors [see other solution they use below] due to the enhanced Subscriber Experience visibility that Procera was able to provide for the operators on top of traditional mobile analytics. 

Softbank is committed to providing a superior subscriber experience as broadband usage increases with the popularization of smart phones and tablets .. This deployment was delivered to SoftBank in partnership with ITOCHU Techno-Solutions Corporation". 

Procera reported in Q1 (here) that "For the three months ended March 31, 2015, revenue from Itochu Techno-Solutions Corp. represented 14% of net revenue" - bringing the revenues from Itochu to $2.9M in Q1 2015 (which may include other customers and represents just a portion of the revenues from the SoftBank deal),

Related posts:

• Softbank Selected JDSU’s ariesoGEO - here
• SoftBank Uses Ericsson's Mobility-based Policy to Relief Congestion  - here
• Softbank Uses ALU for Better QoE  - here 

See "Procera Networks Deployed on SoftBank’s LTE Network" - here.

Procera Gets a New CEO

Procera Networks announced today that its Board of Directors has "..named Lyndon Cantor [pictured] as chief executive officer to replace James Brear, who has announced his departure from the company"

This comes shortly after Procera was acquired by Francisco Partners Management turning it back to a private company (see "Procera Networks' Acquisition Completed Successfully" - here).

".. Lyndon Cantor has 30 years of experience in telecommunication and enterprise technology markets. Most recently he served as president of Tektronix Communications [recently acquired by NetScout Systems], a network assurance solutions provider serving network operators across fixed, mobile and cable environments. In his three years as president, Cantor helped increase revenue from $323 million to $463 million, while considerably increasing operating margins. He also drove an aggressive innovation agenda that launched several new products". 

See "Procera Networks Names Lyndon Cantor as CEO" - here.

PCC / DPI Opportunity - RFI by Ethio Telecom

Ethio Telecom issued a "Request for Information (RFI) for the procurement policy and charging control (pcc) and deep packet inspection solution (dpi), RFI No. 3209012. The RFI remains floating from June 5, 2015 up to June 30, 2015".

This is the 2nd time we see a procurement  process for DPI - the first time was 4 years ago (here). In May 2012, it was published that Ethio was using DPI for censorship (here).

See "Invitation to international request for information (RFI) for the procurement of policy and charging control (PCC) and deep packet inspection solution (DPI)" - here.

Procera Networks' Acquisition Completed Successfully

Procera Networks is now a private company. The tender that was announced in April (here) has been completed. Do I am left with the other two players as far as revenues and other public reports are concerned. 

Francisco Partners Management announced the ".. results of its tender offer to purchase all of the outstanding shares of common stock of Procera Networks // for $11.50 per share .. as of the expiration of the tender offer at 12:00 a.m. New York City time at the end of the day on Thursday, June 4, 2015, a total of 16,529,499 shares of Procera common stock had been validly tendered and not validly withdrawn, representing approximately 79% of Procera’s outstanding shares .. the condition to the tender offer that a majority of Procera’s outstanding shares be validly tendered has now been satisfied and Francisco Partners intends to complete its acquisition of Procera later today"

See "Francisco Partners Announces Results of Tender Offer" - here.

Before Procera Disappears from the Public Eye

With the public tender for Procera Networks stock (see "Procera to be Acquired for $11.50/Share (Current Price $9.51)" - here and here), Q1 is probably the last quarter in which we get the financial results of the 3 leading pure-play DPI vendors.

So, let's enjoy it while we can ..

Q1 2015 market share is very similar to full 2014. Sandvine leads, and Allot Communications shows a small decline.

Procera filling to the SEC for Q1 (here), disclosed that "For the three months ended March 31, 2015, revenue from Itochu Techno-Solutions Corp. represented 14% of net revenue, British Telecommunications plc represented 13% of net revenue, and revenue from Shaw Communications, Inc. and one other customer each represented 11% of net revenue with no other single customer accounting for more than 10% of net revenue. For the three months ended March 31, 2014, no customer accounted for more than 10% of net revenue".

[Infonetics]: Gradual Transition to NFV-Based DPI; Allot and Sandvine Lead the Market

A new report by Shira Levine, research director for service enablement and subscriber intelligence, Infonetics Research, forecasts that the "..market for deep packet inspection (DPI) solutions deployed as a virtual network function (VNF) will grow at a 66 percent compound annual growth rate from 2014 to 2019

.. we are seeing trial activity and limited commercial deployments. Operators are likely to deploy virtualized DPI incrementally, leveraging it to support separate lines of business such as M2M and MVNO, and gradually expanding those engagements over time as they become more confident about the technology”

Related posts on the DPI vendors NFV activity: Sandvine, Procera, Allot  Qosmos,

Other highlights:

• The FCC has released its net neutrality rules in the US, but the issue is far from resolved and court challenges are underway; regulations in Western Europe are under reevaluation as well and the topic is rearing its head in emerging markets
   
• The focus of the deep packet inspection market is shifting toward use cases such as video optimization, granular charging, network security and content connectivity
   
• In machine-to-machine (M2M) applications, DPI technology is being used to enable better identification of traffic generated by connected devices and mitigate its impact on the network
   
• Sandvine and Allot are neck-and-neck in the race for the DPI market share lead, followed by Cisco and Procera

See "Virtualized Deep Packet Inspection (DPI) to Grow at 66 Percent CAGR Through 2019" - here.

Procera to be Acquired for $11.50/Share (Current Price $9.51)

 
Procera Networks announced that it has "signed a definitive agreement to be acquired by private funds managed by Francisco Partners Management, L.P., a leading global technology-focused private equity firm, in an all-cash transaction valued at approximately $240 million.

Under the terms of the definitive agreement, Francisco Partners will commence a tender offer no later than May 5, 2015 to acquire all outstanding shares of Procera’s common stock for $11.50 per share in cash. This represents a premium of approximately 21% over the closing price of Procera’s common stock on April 21, 2015, and a premium of approximately 32% over the unaffected closing price on January 22, 2015, the last day prior to an article reporting the potential sale of the company. Procera’s Board of Directors has unanimously approved the transaction"

Contract is here.

Procera also announced preliminary results for the first quarter ended March 31, 2015:

"Revenue for the first quarter of 2015 is expected to be in the range of $19.5 million to $20.5 million. The ratio of bookings to revenue for the first quarter was below one. The company expects the gross margin percentage to be approximately 60% and to incur a net operating loss on a GAAP and non-GAAP basis for the first quarter of 2015. The company is not revising its previously announced guidance for the full year".

See "Procera Networks to Be Acquired by Francisco Partners" - here.