Welcome to the fifth edition of Open Insight, my newsletter about our market and company for investors and other stakeholders with an interest in our journey where I discuss projects like our joint innovation project with Vinnova and KTH.

Q4 & the whole year 2020

On 23 February, we presented the results for the fourth quarter and the full year 2020 and could see that we are still affected by the pandemic. The full year 2020 ended with a downturn, although we saw the first signs of our customers starting to invest and upgrade their networks again in the fourth quarter. Adjusted for effects of a stronger SEK we returned growth of 8.4 percent compared to the fourth quarter 2019.

2020 was a turbulent year in many ways. Towards the end of 2019 and at the start of the year we saw clear signs of continued growth and our customers showed considerable interest in investing in increased capacity in their networks. Tata Communications, one of the world’s largest digital infrastructure providers with one third of the global internet infrastructure from a consumer perspective, chose our Nimbra 1060 for the upgrade of its network to 100 Gigabit per second (Gbits), an amazing journey since we delivered a Nimbra solution for the first version of Tata’s backbone network, which was capable of handling 0.6 Gbits at the time. But when the pandemic hit in the spring, this led to practical problems with lockdowns and economic uncertainty globally.

With a number of different vaccines in the pipeline we are now starting to see the light at the end of the tunnel, even if we do not know at what rate things will start to brighten up. The first half of 2021 will remain affected by the pandemic, but we hope the year as a whole will be characterized by a return to growth on our  key markets. The pandemic may have had a number of structural effects, where some of the most important for us include an increase in remote production in the media sector and demand for live events with higher broadcast quality from traditional broadcasters and various streaming services. If investments continue in these areas, I foresee a  promising market for us looking ahead. Our express goal is to be a profitable growth company.

Our focused strategy

Just over a year ago, in early 2020, we sold Sye, our streaming business focused on the consumer market. Developing Sye into a world-leading streaming solution was an achievement in itself, and we accumulated internal knowledge that we can benefit from now that we are focusing on our core business and the growth we are seeing in remote production and cloud-based solutions. Divesting Sye was a logical step and the fact that Amazon was the buyer is evidence of the innovative solution we built up.

The divestment of Sye showed us the direction in which Net Insight should develop. In the summer of 2020, we formalized this in a new strategy focusing on our core business in Media Networks with our key products Nimbra and Aperi.

As a consequence, in February we signed an agreement relating to the sale of ScheduALL to Xytech Systems, which means that we are divesting the Resource Optimization business area. Through ScheduALL, we offered software solutions for resource planning and optimization for media companies, which is a very interesting field for the customers that Media Networks approaches. Instead of offering these services ourselves, we can now work through various partnerships, including through a collaboration relating to shared solutions alongside Xytech. We are now focusing on technology for processing and transfer of media streams, where we are a global leader and benefit from growth potential.

Time synchronization has potential on new markets

As I have outlined in two previous newsletters, alongside Sweden’s innovation agency Vinnova and KTH Royal Institute of Technology, we have participated in an innovation study examining whether our time synchronization technology Time Transfer, which we have developed for, and sell to, digital TV networks, can be adapted for use in other networks including 5G, where demands on time synchronization are very high.

The study is in three phases: a technical market study, interviews with representatives of network operators and measurements in a Nordic mobile network. The study has now been completed, and shows that our time synchronization technology holds promise for mobile operators and has the technical standard necessary to offer a cost-effective complement to current synchronization solutions in 5G and other critical networks. Where other solutions require hardware support in each network node, which implies substantial investments in new equipment, we can distribute time synchronization over existing networks. This means that our solution is potentially attractive to operators that are currently unable to upgrade their entire networks.

The technical market study shows that the extension of the 5G network means that synchronization solutions for the mobile communication industry are now moving away from costly and complex satellite-based network synchronization, with GPS or other satellite-based systems, towards solutions that use its own network. The study examined customer requirements in a series of interviews focusing on commercial roll-out, alternative synchronization solutions, and construction methods and integration. 90 percent of participants in the survey responded to a question about how important synchronization is by indicating a five on a five-degree scale. Respondents emphasized the importance of being independent of satellite systems because of the risks associated with a technology that they do not control and which can be disrupted. During the period of the study, the Swedish Post and Telecom Authority auctioned off 5G frequencies where high security requirements were included for the first time, and which stipulated that 5G networks must be operated independently of foreign systems, such as GPS. This increases the need for a reliable and cost-efficient network-based synchronization solution.

Long-term measurements and test were carried out with Time Transfer in a Nordic telecom network. The tests were carried out over an existing IP-MPLS with measurement values that exceeded the accuracy required for time synchronization of 5G networks, i.e. performance over and above immediate requirements.

The results are promising, and customer interviews suggest that the potential market is substantial. Synchronization in connection with the roll-out of 5G networks is more important and costly than for 3G or 4G networks, as the requirements are so much greater for 5G. There are calculations that indicate that 3-5 percent of the 5G market could comprise technology for time synchronization, which is to be compared with 3G and 4G where the proportion is approximately 0.25 percent. Although precise percentages are uncertain, this relates to substantial volumes globally.

However, I want to emphasize that we are at the early stages of our work and need to adapt and develop our solution further. We have started talks with customers and partners, and have initiated the first customer tests. There is also a growing number of critical networks with very high demands on time synchronization, and where our solution is a close fit. Although the potential is considerable, there is also a lot of work to be done and many challenges.

You can access the report here.

Roll-out of new pricing model

I have also previously written about our new subscription-based pricing model, but it is worth mentioning again because we have got further down the line and will start offering it to new customers during the spring. The intention is to also eventually offer it to existing customers. We are starting with new customers as we do not have to take existing agreements into account. The introduction of the new pricing model is a step in the process of our gradual adaptation towards offering more software and cloud-based solutions. It is also a pricing model that we see growing demand for, primarily from customers that we have so far been unable to reach. If we are to expand our customer base, I believe that this transition will be necessary.

By packaging and offering our software and services as subscriptions, we establish a comprehensive customer commitment. This makes it easier for our customers, as the solution meets their long-term need for functionality without requiring substantial one-off investments. At the same time, it ensures flexibility that facilitates adaptations to future change. I believe that this will ultimately become valuable to us as we are building up a base of ongoing, long-term and close customer relationships.

I now hope that the vaccination deliveries can gather momentum and that the EU’s new vaccination passports can be rolled out. We need to get moving again. Hopefully the passport solution can become global so that the whole economy including supply chains and meetings can get going. I look forward to it.