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Inside Facebook’s Oregon data centre, where tens of thousands of energy-efficient servers handle the deluge of data generated by more than 800 million users Tis rising expenditure is narrowing the
difference in capital intensity – the amount of capital expenditure per dollar revenue – between Internet firms and telecoms companies. Te latter spend 17-18 per cent of their revenues on capital equipment on average globally, but the former weren’t very capital- intensive until recently. Across the sector, Internet companies’ capital intensity reached almost 6 per cent in 2014. ‘Google and Apple are the biggest spenders,
together accounting for 36 per cent of total ICP capex,’ said Walker. ‘Google and Facebook spend around 15 per cent of their revenues on capex. Te steady rise in capital intensity since 2012 makes clear that the group’s capex rise is not just because of their faster growth in revenue terms, but also a shiſt in business models that rely more heavily on network infrastructure investments.’ While these expanding investments are reaching beyond data centres, they generally
continue the theme, in the form of wide area networks that connect them. However, Google is also pioneering efforts to provide last-mile access with fibre roll-outs in select US cities. ‘Facebook and others are exploring other avenues to improve connectivity, especially in the developing world, such as Facebook’s
Internet.org work, which looks at unconventional options like drones and balloons,’ added Walker.
Deals to ‘like’? Supporting the demand upsurge at the component level creates challenges along with opportunities, Inniss explained. He cites the example of Applied Optoelectronics (AOI), which was shipping transceivers to Google for a WDM-PON product to support the search giant’s gigabit fibre-to-the-home plans. Speculation suggested significant revenues would follow, but the orders didn’t emerge as planned. AOI consequently had to announce
This is not a game - this is a real model of how the market is behaving today
this, and its share price declined. ‘Te volume demanded can be substantial
from just one customer – perhaps a million transceivers in a year,’ Inniss said. ‘Te component vendor may need to expand their capacity. Tey have to ask themselves whether they’re the only vendor, are they going to win this contract? Can they trust this customer? Some vendors go gung-ho, and they’re very successful. Tere are others where the market slows down and it’s not clear whether the Internet companies did not intend to buy the
Issue 7 • Spring 2015 FIBRE SYSTEMS 21
Walden Kirsch, Intel
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