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25 October 2019

Start of an edge M&A bubble? Intel and EQT make their moves

When a technology is in its hype phase, it usually results in a flurry of start-ups and acquisitions, and there are signs that the M&A process is beginning in edge computing. In the past week, Intel has acquired Pivot Technology’s Smart Edge platform, while data center operator EdgeConnex is said to be in acquisition talks with a Swedish would-be buyer.

Intel is paying $27m for Smart Edge, which provides a cloud-native platform to support edge deployments, largely deployed within mobile networks. The chip giant is clearly keen on the distribution of the cloud, because it will involve larger numbers of chips than a very consolidated infrastructure model, and may be less susceptible to the pressures of dealing with the webscalers.

Google, Amazon and Microsoft have all dabbled with alternatives to x86 processors, including their own designs, in a bid to reduce their costs and their reliance on Intel, and in China, Huawei has its own ARM-based cloud server processor while Alibaba is taking a keen interest in the open source RISC-V.

At the edge, there will be a larger variety of infrastructure deployers. These will include the cloud giants, but other providers will be smaller and more specialized, and lack the FANG companies’ ability to drive down prices and make or break architectures. Intel believes the edge market will result in significant new chip revenue and will be accelerated by 5G.

The company said in its statement that “the expansion of computing in the network and at the edge is an important growth opportunity for Intel – an estimated $65bn silicon addressable market by 2023. Edge computing is an opportunity that is accelerating with the roll-out of 5G networks.”

“This transaction enhances our ability to address the 5G network transformation with a leading position in edge computing,” said Dan Rodriguez, general manager of Intel’s network compute division.

Smart Edge, which was developed by Canada-based Pivot, already works with Intel as a Network Builders partner and its software runs on Intel-based servers that are located in the last mile of the mobile network.

The Smart Edge appliance provides an NFV environment to host virtual network functions (VNFs) for customer enterprise services, and integrates content delivery network functionality for caching and distributing content. It also incorporates a built-in analytics probe to collect real time statistics on data traffic and applications.

Pivot claims that Smart Edge reduces customers’ wide area network costs by 40%, and improves download speeds by 400% thanks to “caching and better network monitoring and data collection capability with a real time dashboard”.

Intel said this platform complements its own Open Network Edge Services Software project. About 25 Smart Edge employees will join the chip firm’s Network and Custom Logic Group when the transaction closes, which is expected before the end of the year.

According to Reuters, Smart Edge did not generate significant revenue for Pivot in the first six months of this year, but did lose about $1m before depreciation and amortization. In its most recent quarterly filing, Pivot said that a major customer “has agreed to resell the Smart Edge solution across its network”, without disclosing the identify of the customer.

Intel said this platform complements its own Open Network Edge Services Software project. About 25 Smart Edge employees will join the chip firm’s Network and Custom Logic Group when the transaction closes, which is expected before the end of the year.

Meanwhile, Swedish infrastructure investor EQT is reported to be in talks to buy EdgeConneX for about $2.5bn. According to Bloomberg reports, EQT is discussing a purchase of Virginia-based EdgeConneX with its current investors, including Providence Equity Partners and Brown Brothers Harriman.

Earlier this year, EdgeConneX denied reports that the company had hired investment bankers to explore its “strategic alternatives” including a sale. EQT has been a prolific dealmaker this year, having agreed to buy Germany fiber operator Inexio and Maltese operator Melita; mounted a $2.27bn bid for Australia’s fourth telco, Vocus; and joined with Digital Colony to buy fiber provider Zayo Holdings for $14.3bn.

The Digital Colony tie-up is interesting because there is a natural fit between Zayo, which has deployed dense fiber focused on small cells and edge nodes, and because Digital Colony has made several acquisitions designed to add data center capabilities to its core business in cell towers.

The marriage of cell towers and edge nodes is expected to be a significant element in the edge compute patchwork, even if some towercos are still cautious. EdgeConneX has built over 40 data centers in 30 markets in the Americas and Europe, ranging in size from 2-50 megawatts.