Netweb Technologies 02/01/2024

Understanding the Investment Potential of Netweb Technologies: A Deep Dive

Today, we turn our lens on Netweb Technology, a player in the tech industry that's trying to corner a sophisticated niche.

Understanding Netweb's Business Model

Netweb has made headlines with its unique positioning in the technology sector. Initially known as a supplier of supercomputers, the company has evolved, now playing a significant role in cloud computing and AI services.

Basically, they understand how to build enterprise-level computers. They don’t build regular desktops. They instead build big, heavy-duty computers which can process a ton of data. And all their different revenue streams are built around this.

Netweb's Core Offerings and Revenue Streams

The company's revenue streams are diverse. About 40% comes from supercomputer sales, another 40% from private cloud infrastructure, and the remaining from other tech services like AI.

Organisations such as oil and gas exploration companies need supercomputers because they have a lot of geological data, weather data, financial markets data, etc. If they were to process all this data on a desktop computer, then the computer may take years to carry out all the calculations needed. On the other hand, a supercomputer will do these calculations within minutes. It’s like how if you have an Excel sheet which has data worth 1,00,000 rows and then you use a desktop computer with low RAM to process that data. How is that experience? Instead, if you had a supercomputer then data in those 1,00,000 rows could be processed in a few seconds. This is a rough analogy of why big enterprises need supercomputers.

Now let’s think about what is the requirements of a private cloud. This is the other big offering that the company has. If you are a bank you can use AWS or Google Cloud to keep your data and to process it on a daily basis. But that would cost you a lot of money. So big enterprises would instead prefer to move to a private cloud. And Netweb helps first build servers for that private cloud and then also helps companies to move to that private cloud. So these are the two big business lines for this business.

Intel Partnership and Server Manufacturing

The company recently spoke about its partnership with Intel. This collaboration, expected to boost server production in India, raises questions about the company's strategic direction. Is Netweb shifting towards becoming a primary server manufacturer for hyperscalers? Or is the tie-up with Intel only meant to help the company build servers to use for its supercomputing and private cloud business? This is something that I will be watching out for.

Private Cloud Adoption and the Role of RISC Architecture

Netweb's focus on private clouds, leveraging ARM RISC architecture, could also really help achieve cost efficiency for legacy enterprises. This architectural shift might help companies manage their cloud computing expenses more effectively. The management claims that running compute on ARM RISC architecture is a lot cheaper than on other kinds of architectures. And that is that the company has also started offering its clients.

5G ORAN: A Game Changer?

Netweb's venture into 5G ORAN technology could lower 5G deployment costs, especially for telecom companies with limited capital. This move could be a strategic advantage in the telecom sector. I am not sure if ORAN has been proven as a viable technology anywhere across the world. So let’s see how this goes.

Financial Health and Investment Thesis

Examining Netweb's financials, we notice moderate gross margins and a heavy reliance on large client orders. This aspect, coupled with a considerable percentage of revenue from repeat customers, necessitates a closer look at their business sustainability.

Conclusion: Watching and Waiting

Netweb Technology presents a complex investment opportunity. Its innovative approach in technology sectors like supercomputing and cloud services is intriguing but difficult to understand for me. As an investor, I will be doing some ongoing scrutiny and analysis of Netweb's developments.

Disclaimer: The views expressed in this blog are personal. I may or may not hold investments in the stocks mentioned.