Status Update

Sep 8, 2015

Slides

Thank you for standing by, and welcome to the Arma Networking Software Conference Call. At this time, all participants are muted But if you require operator assistance, please press star and 0 on your telephone keypad at any time. I must advise you the conference is being recorded. On Tuesday, 8th September, 2015. And now I would like to hand the conference over to Phil Sparks. Please go ahead, sir. Thank you very much, and thank you everyone for joining our call this afternoon. I'm Phil Sparks from Arms Investor Relations team, and I'm joined today by Bob Munkman, Enterprise Segment Marketing Manager, and Jerome Ramel, Technology Analyst from Exane BNP. Today, Bob and Jerome are going to discuss the role that open source software will play in next generation networks and Arm's role in the open source community. This will be a listen only call. So if you have any specific questions you would like answered during the call, please email them to investor relations atom.com. If we don't get a chance to answer your call today, then we will follow-up with you afterwards. And if you would like to learn more about this topic after the call, you can view Bob's online webcast, which is currently available on our website ir.arm.com. So without further ado, I will hand over to Jerome. Yes. Thank you, Phil. Good morning and good afternoon. Good morning, Bob. Before digging into Arm's role in open source software, maybe we could spend some time to talk about the role of open source software. So to start with, Bob, what do you will be the implication of the migration to software defined networks and network virtualized function. Maybe at the hardware level, with the rearchitecture of the network with putting more intelligent into the network versus at the end of the network lead to more standard hardware equipment as opposed to highly optimized hardware. How do you see the trend? Thanks, Jerome. I think, we absolutely see the ARM ecosystem actually quite uniquely positioned to provide a pretty compelling value proposition to both the network operators and their equipment suppliers when more intelligence is put deeper into the network. And this is really the fundamental concept of what we call the intelligent, flexible cloud. And really what's behind that is the applications for network infrastructure intelligence are very highly storage, IO, network processing, packet processing and also acceleration in all of those areas. So there really is no one size fits all in sort of the big CPU plus a Nick over a PCI bridge that works well for sort of, PC workstations and vanilla servers doesn't always map well to all of the use cases in in networking infrastructure. And so what we see is that it's precisely this, the range of highly integrated and workload optimized SoCs, that's modeled by the ARM ecosystem that's needed in this, range of, of problem sets or, or, or use basis. Does that make sense? Yes. Okay, Jan. And at the software level, will the SDN and FFV lead to more crucial role played by software rather than hardware? So will the software be the key element in getting more flexible automated and network and and how will it work? Yes. So software will absolutely play a much bigger role than ever in yes, I think increasingly a more crucial role than hardware itself. It's rather subjective as to how it tips that balance, but What I see is the software relevance, moving forward is primarily going to manifest itself in three areas. Number 1, management and orchestration to automate and increase the efficiency of the network functions themselves. Number 2, with SDN in NFV, what you see is, there's a network virtualization layer. That is to say an abstraction of the management policy and control plane from the forwarding or data plane, the and data plane is where all of the the packets actually get routed, get identified, classified, and that's where all the high throughput and low latency is acquired. And so there's a great deal of innovation that needs an experimentation that's happening in this network virtualization layer. It's also where already there's a realization that it's not going to be quite as easy to use as is all of the new virtualization technologies and communications infrastructure, because again, I noted that in this space, when you're talking about quality of experience of, you know, connected devices and people wanting to watch video and this sort of thing, you need very low latency, very low jitter or variance, very high data rates, and it's far more demanding than a typical corporate enterprise network. And so they're already seeing, we're already sort of what sometimes is called the trough of disillusionment. And what that means is, while this is not working quite as well as we thought it was, It's not transferring as easily, so we're going to need to do a lot more work in this network virtualization layer. Thirdly, the other big area that I see software playing a big role is in what I call and others called the service enablement layer. And this is really where there's going to be a lot of innovation done by the operators themselves or they're either going to acquire it they're going to develop it in house, and it's going to be separate from the underlying open source NFE platform. And this is where really you have a framework, for launching, and executing some subscription based services to compete with the over the top players. And I think we can drill into that a little bit later in our conversations. But that's those are the three areas that I think that software is going to play a big role in. But I do want to emphasize that Again, when when you talk about the the high demands of this space, the hardware still matters. And, the acceleration still matters, particularly when you're trying to abstract and virtualize, because that in a self, while it makes it easier to logically manage and orchestrate a network and provision a network, it also adds overhead. And so everyone that we see in the, in the open platform for NFV umbrella project, for example, is agreeing that acceleration is going to be needed in optimized hardware will be required, but it is, in fact, the case that the hardware will be packaged and managed much more in a standard way, I would say. Yes. Thank you, Bob. And actually, yeah, that was one of the question I wanted to ask you is, how will software help to the operator, achieving the end game, which for them is generating more revenues and not being just a dumb pipe supplier with all in being there done by the OTT, as you mentioned, I mean, such as Skype, Netflix, WhatsApp. Yes. And this is what it's all about, So, I mean, the move to SDN NFV, there's several aspects to it. There is There is an idea that they may have some CapEx savings that's already being questioned. There certainly will be some OpEx savings standardized, having more standardized management and orchestration will make it, and everything more common and interoperability, that will lower the cost of interoperability. But you can't. The fact is that the OTT players do not have the cost of running the network. And so they've got to have revenue equation as well, right? And so I mentioned earlier that one of the big software areas will be this service enablement layer. And that's the ability to create and launch very quickly new innovative services that they can then compete directly with the OTT players. And I'm hesitant to kind of use this term, but it's a term getting bandied about sort of network App Store. And, I use it cautiously because networks are not consumer devices and the apps and the services that our people or the operators will run are much more niche and more sophisticated than broad, you're not going to run flappy potato on the network, right? So, but that's the concept it is a frame. It's a common framework, that they either develop in house or they partner with some sort, with some specialized provider to create, the ability to provision, launch, execute and manage these services and sell those services to their customers and derive revenue. So this requires a pretty big software investment that's already been going on in the research groups within operators. And in fact, there's already been some some evolution and deployment, so this is where it's all going to happen. And it's going to fit on top of the open source platform for NFV, for example, that, and it's going to drive this is what they're going to use to drive loyalty to drive to drive subscription revenue. Okay. So if the networking equipment world is moving more to standardized software approach. Why should this favor armed customers who are building the same ownership with specialist accelerators why does it not favor traditional server vendors? That's a great question. Really, this is quite different. I mean, we look at the communications infrastructure marketplace, it doesn't favor Arm, and it doesn't necessarily favor Intel either. Because the fact of the matter is, is really, all of this new open source, platform development software that's being done by the entire supply chain, the operators, the equipment providers, ISVs, the silicon vendors, a lot of it is brand new, and it's not even ready for prime time yet. So we're not It's not the same software, in other words, that's used in the cloud data center. I mean, Openstack itself is an example that many may have heard of. That's going to have crossover, but OpenStack is very new, and it still doesn't do very much. And so a lot is going to be added in the way of plugins and extensions for networking. And then you have pieces like open daylight and open virtual switch and KVM and so forth. And these are many of these pieces are brand new. And in fact, the one of the projects that I point to in this space, is this, I've mentioned it before. It's called OPNFE, and it's run by the, Linux Foundation and it is a collaborative project and the entire supply chain is working together to begin to improve these up stream projects, Openstack, Open daylight, KVM, OpenV switch, etcetera, and integrate them together. Because individually, they're they're all kind working on their own functionality, but OPNFE is about integration. And this project their second release is not until February of next year, and that's only characterized as a lab ready release. Deployment isn't even a consideration until the end of the year 2016. And so it's a really level playing field because much of this software, as I said, is still in development still evolving, still being hardened and flushed out. And so that levels the playing field. And by getting, we've been engaged in that project since October of last year. So when we get to the deployment time frame, it's going to be parity, and and we're not going to be at a disadvantage, but we also there's no inherent all the software is available to everybody, right? So whoever puts resources on it and whoever optimizes it on the individual platforms, we'll then have strong deployment solutions to win designs. Understood. Now, Bob, looking at the impact on software, Arm is obviously a strong believer in the open source software. So my question is, what makes you confident this is a trend in the industry,000,000 doors? You explained in your presentation the advantage of using open source software such as interoperability fastest time to market or even securities. But on there, any disadvantage, the the pushback I'm hearing sometimes is that, developing solution, the the the developing solution will be more in line with the developer wished rather than customers? Yeah. I mean, I think there's always that risk that individual developers can go off the rails a bit and work on adding things that they think are really needed. But I think when I look, when I very specifically look again at, very coordinated and organized efforts like the open platform for NFV, The operators are absolutely mandating that they want to see open source solutions. So they're driving it, and no one has really questioned that. I mean, certainly, certainly, we're going to see certain players who will try and because of the fact that they have a lot of developers they have been baking some concepts in house will try and influence the direction of the project. And so there's both good and bad here, right? I mean, one of the disadvantages of open source is that if you just have an ad hoc, you know, distributed development with no sort of organization, no steering no road mapping, then it can be a bit chaotic, right? But open platform for NFV is a structured project. It has a steering committee It has a strategic committee, both of which I sit on. And so we debate, we consider, we carefully manage the overall direction and roadmap of the project. And so that gives it a, sort of, let's say, a bit of adult provision, if you will, to ensure that the project doesn't go off the rails and we're working towards real world hardened deployable solutions. And And again, it is possible to talk about your other concern about, say, one of the big vendors, to dumping a bunch of their code into the past. And I, and I think generally speaking, if the community is strong, they will push back on that and and that will get revised and, and, and, and done in a slightly different way. But there's no doubt that if a big, in the end, in the end when you have strong participation from a wide range of stakeholders, if the code is good, And I've seen this happen before. There was pushback. One vendor provided a base framework. But in the end, the code was quite good, and people could not argue against that. And when more people started to look at it and contribute to it and work with it, they got over that. And, and it ended up being, it's actually become one of the the key projects in in OPNFE, for example. So generally speaking, that can be mitigated, because it has to stand up to, the peer review of the people who have Understood. So maybe, Bob, moving to Lynaro, in your presentation, you described the way Lynaro operates and its mission. Placing narrow in the entire software genre ecosystem because there are so many, thing going on. I'm just curious to know, how should we think about Lynaro versus other initiatives? I mean, on Slide 12 of presentation, you mentioned some of the most popular open sales projects such as Openstack, Open daylight, Open Flow, Open Flow, Open Dataplane. So is Lynaro competing to this project or is it complementary? And if so, how? Absolutely. Is complimentary. And the way that it works is generally speaking, Lenaro, is not creating new open source building blocks, necessarily, what their primary goal in life is is to unify the Arm ecosystem and work on the existing, relevant and important, as judged by its members, the important existing, open source components as they are today and improving them, validating them, porting them, and optimizing them for the RM ecosystem. They generally never compete with another individual open source project. These service projects that we're talking about, such as Openstack And Open Daylight are very focused projects that, that work in a certain area. And in fact, this is the same thing, really, that OPNF is doing. OPNF is an umbrella integration project. So it's just integrating those components, piecing them together, filling gaps, And Lennaro is is really doing similar, contributing that same kind of effort. And Lenaro is also a member of Linux Foundation, and they also participate in OPNFE. And so it's really just making sure that the ARM ecosystem, has solid support for all of these pieces and stitching them together and making them work. So there's no competition there. Now Now open data plane itself is a bit unique because Lennaro actually did create that project, but they created it because there was no cross industry recognized standard for interfacing to the data plane for a wide range instruction set architectures in a wide range of different hardware approaches, whether it be FPGA or network processors, or plug in NIC cards. And so open data plane was something that Lenaro created from from scratch. And it actually has made it its way into the OPNFE community as a recognized and important, initiative. So sometimes they do create something new if it doesn't exist. And as as the problem that needs to be solved, Thanks. I would have a little bit more question on open data plane, but before that, if open looking at the different project we mentioned before, it seems that Open Starke and Claude seem to have received a strong endorsement from industry players but it's still not the case for open daylight, for instance, or even open data plane. So I'm just trying to understand what is missing pace to see a strong endorsement? Well, I mean, 1st of all, I think OpenStack is a management framework. And so I'm, you're correct. It definitely has, it has received a great deal of attention and endorsement as, one of the better potential approaches to creating management solutions, but you have to fill in plugins. You have to add policy above it and then put plug and below it and add things for it to do. It doesn't do anything in and of itself, the framework for management. And so it always has be customized. And it has been well customized for cloud. It's not yet fully fleshed out for network infrastructure, but it's that is going on. So I think that because it's more general, there are more people who are interested in, who are stakeholders in it. And so it gets more attention. Open daylight, for example, is much more it's very much focused on the network controller, the controller layer of software defined network concepts. And so it's much more niche. There's fewer developers that understand that. And it's it's an area of great, a greater debate. And in fact, there's a couple of 3 camps that we see out there that are looking at different alternatives to open daylight. But open daylight actually, it got off to a bit of a rough start but it has actually made quite a bit of, momentum in the last, in the last year or more. And, it it is now part of the standard. It is the the part of the standard stack and and plays a crucial role in OPNFEs. Arno release, which was released the first release they did in May of this year. And it still is the primary SDN controller for the B release the second release coming in the spring of 2016. So it has made progress. But again, I think it's related to the to how specialized it is. And, and, and it's the same really with open data plane. Open data plane is also very new. And it's it's even lower level and more niche, more specialized. It's really right on top of the hardware. And so there's viewer stakeholders that need to or want to care about that level. But those who, those who do, the, you know, so the network stack people the virtual virtualization layer people and anyone who wants to interface directly to hardware, they will care about that, but that's a much smaller community. And so I think with respect to open daylight or open data plane, it's really, been incubated by a very core set of people who care about that. And we're just getting to the point now where It's going to be part of, it's now becoming part of the OPNF release, and we're starting to get outside and contributors to it. So more people will see it and understand its value and then it will start to take off. We're quite confident of that. So digging a little bit into open at the plane, line arrow line and initiated in 2013 and released its OPD version 1. So the aim is to support software until interoperability, whatever the instruction set architecture is, meaning it will be agnostic if it's run on arm, acting Mips or even for your PC. So the question I have is, does the move to a pencil software benefit arm any more than those other other architectures? I mean, if ODPR agnostic to the processor architecture, why semi vendors would choose Arm? Well, there's really yeah. So there's two questions in there. The first one is, you know, does it does it benefit as open source software in this, in the open data plane sense, in terms of, providing a common interface to the underlying data, data playing hardware, does it Advantage arm more than others? Fundamentally, no, it doesn't. Again, it's just open source software and And, you know, keep in mind that many, the people who, many of the SOC vendors who helped create open data plane, are just now coming out with their first arm SoCs, but they come from the MIPS and the power, the power world. And so that today, actually, their initial implementations of open data plane are on their MIPS and power SoCs that are still being sold every day into network design. And because that's where the hardware is today in the future, now they're developing their own version. So we've been quite agnostic there. And I mean, moving I think moving forward though, it's quite clear that the number of people who are just because of the broad industry usage of Arm and Intel in other markets, there's just a massive ecosystem, software ecosystem out there for Arm and Intel. And And so I think it'll be about how many developers, how many stakeholders there are that who will contribute to open data plane longer term for, you know, all the different architectures. And clearly, I think there will be more developers, more stakeholders on ARM and X86 moving forward because more really, the new design, new designs are happening there. There's going to be more emphasis there. But today, there's actually, actually about 5 or 6. There's 2 other, not so well known proprietary architectures that ODP is supported on, and everyone is free to contribute. Okay. And so and then there's a second there's a second part of that question was why would SOC vendors agreed to an abstraction, common software. And here's the real key for, if I may, for open data plane. We made a very conscious decision early on that we would separate implementation from the API layer. So it's very much an in the vein of what was done with Open GL 15, 20 years ago, there was proprietary graphics accelerators, and everyone had their own code, their own programming interface to these graphics engines, and they created an open source common API layer in Open GL. And then underneath, the innovation could shine. And the implementation implementations could compete based on their capabilities, their ingenuity and their ability to deliver. And so that's exactly how open data plane is done. So they don't, the SOC vendors are not limited to a one size fits all lowest common denominator. The API if they don't support something that's in the API, that they can, they can do a software implementation of it, or they can do a, an optimized hardware assisted version of it. That's where the competition will occur. But the point is that the software up top these one API layer. Okay. And could you update us on the actual achievement for SOC vendor, is there any proof of concepts to share with us? Yes. I mean, there are some private POCs and there are some very public POC. So there have been some proof of concepts with open data plane done, on the AMD platform. That's POC number 20 in the Etsy industry standards group. That's a virtual EPC. There's, POC number 31, I think, which is a virtual set top box that's done with Samsung and freescale hardware and applied micro hardware that There has been a, also a service provider edge application done with Ericsson. So there's been several official ones, and there's a whole number of, less less public ones that have been done as demos and shown a road shows, IP spec, appliances, security appliances, service function chaining, So those are really starting to proliferate now. The ODP is there and the hardware is coming online. We're going to see a lot of proof points in the next 3 to 12 months of sort of modern, newer arm SoCs with proof of concepts showing these NFP concepts how well they can perform. And I actually think that within the next few months, we're actually going to start to see finally some benchmarks as well as functionality, so making very good progress. Yes, it's quite impressive because it just started like 2 years ago basically. So, Bob, you conclude your presentation saying that you foresee more royalties for Arm coming soon. So I have a couple of questions on that point. The first one is, will Arm get any sources of revenues from software developed by line arrow? You know, that's it's not entirely out of the question. In the future, but that's not the way it operates today. The point of Alunaro is really to drive design wins for arm silicon by making sure that the needed commonly, popular commonly required, and worked on open source software is available and optimized for the ARM ecosystem. And so what happens is all of that software So let me back up a little bit. It used to be, maybe 5, 8 years ago, a lot of that soft each SOC vendor did themselves. It was fragmented. People were duplicating work. It wasn't necessarily done interoperability in an interoperable way. Well, that's what Lenaro was formed due to stop duplicate efforts, to reduce fragmentation, and to upsource upstream available for everybody in the Arm ecosystem, all the common work that was needed for everybody. And then they could differentiate with their own specialized stacks around men and on top of that. And so once that's upstream, typically what happens is, let's say for the tool chain and the Linux platform itself and other piece is those are typically woven into the distributions of commercial vendors who who do a business model of doing support and services around open source. So this is the red hats and the canonicals and the Tuesdays, and when, you know, River and EMEA and so forth and so on. So these guys, those guys, our ISV partners, are the ones who will provide the software is available to everybody, but ISVs will provide support and integration services they'll charge, you know, for that value add, and, and armed, you really just not get directly involved in that part of the supply chain. We're about enablement and interoperability and positioning our partners to win more designed and sooner because the software that's needed is there. And so when I made the comment about driving more royalties sooner, what I meant was if we make sure that the right software is available, highly optimized and available as soon as possible, then we'll get more design wins in our and that the customers of our SoC partners we're going to market, we'll get to market sooner because there's less work that they have to do. And therefore, the volumes come quicker, right? And so that's that's the point. And so far today, that's our role in this. But I wouldn't put it off the table for the future that we could look to provide some sort of services based offering as well. But today, that's just not part of our plan. Okay. Clear. As a general trend, what do you think is value proposition of Army Networking? Is it just about power consumption or is it more than that? It's definitely more than that. Power is always a central part of our value proposition. That's clear, right? And so, but we talked earlier about the Intelligent Flexible cloud and why we thought, arm would play, would uniquely offer a pretty distinct value proposition in this trend that we see of intelligence being pushed from the endpoints down into the network for IoT, for analytics, for a lots of different specialized services. And it comes down to the fact that These use cases are highly varied. And because the the ARM ecosystem, the ARM model is a range of suppliers will focus on, going after certain segments, going after those different use cases, then a range of players will build the right combination of IO and compute and acceleration and storage. Those different use cases. And so fundamentally, one of the big value propositions besides power is the fact that you can build these workload optimized SoCs that fit into these cases. I mean, we absolutely believe and get validation that one size does not fit all. And even though a server just doesn't meet everything in the network, and that's will need some needs in the network, but not all. So that's one, that's the second thing. And then I think what we see in network particularly in the forwarding plan. When you talk about packet processing, that responds much better to smaller, more quantity of smaller, more efficient cores than throwing big single threaded cores at them. In other words, we have seen time and time again these kinds of workloads where having 42 or 100 smaller cars is much more in terms of the aggregate throughput is much more efficient on a sort of performance per watt per square inch, standpoint and delivering those workloads. And so that's where we'll win in that overall position. Okay. Yeah. That's that's what about my last question, Bob, is as you said, one side doesn't fit all. So Do you think ARM based system on chip would be deployed in the whole spectrum of networking chips? I mean, access layers, routing, switching, wireless active point, base bond, etcetera, or more specifically to some niches. And the very last question is, how do you see traction from on some event or the networking, using Arm? Yes. So we absolutely do see people in our ecosystem going after the whole range. I mean, we it is it is true that early on, our, our, our, penetration into networking is in small to medium routers and switches and into the access layer. What we absolutely have, partners who have announced, you could, you know, either publicly announced from Cavium and from Broadcom and others who clearly are going after the very high end, let's say, the core of the network, which are very much high performance server applications in certain aspects of of, the evolved packet core. So, it's absolutely the case that some of the vendors will choose, that's where they're gonna going to go and compete head on, for the high, ultra high performance and others are going to be more nuanced and and, focused on attacking other, other targets within the network infrastructure where they feel like they can carve out a more effect of niche based on their expertise and their capabilities. So we do see the whole range. Okay. So, thank you very much, Bob. That was my last question. Thanks for the explanation and I will now give the hand back to Phil. Thank you very much to Jerome for leading the call today. And thanks everyone for listening. As a reminder, if you would like to learn more about the topics discussed today, you can find an online presentation on ir.com.com. And if you have any follow-up questions for Bob or myself, you can email at investor. Relations@arm.com. Our next investor event is the Analyst and Investor Day, which takes place in London next Tuesday, 15th September. And for those of you who can't make it to London, there will be a live webcast and a replay also on our Investor Relations website. So thanks again, everyone, and goodbye.