Ericsson expects RAN market to be flat with 5G build-out still in its early days; U.S. cellular industry growth to slow in 2023
Ericsson is planning for a flat RAN market and is structuring its cost base and operations accordingly. Underlying the flat market is a technology shift to 5G from earlier generation. 5G build-out is still in its early days with only about 20% of all base station sites outside China installed with 5G mid-band. Because 5G is still in its early days, vendors like Ericsson and Nokia are seeing lower margins. Therefore, they are relying more heavily on patent royalties to boost profits. Because 5G is still in its early days, vendors like Ericsson and Nokia are seeing lower margins. Therefore, they are relying more heavily on patent royalties to boost profits.
Given the rapid increase in network traffic levels, operators’ investment in performance and capacity is expected to remain robust. The 5G RAN market is expected to grow by over 11% per annum over the next three years, with potential further upside from areas such as Fixed Wireless Access, Enterprise connectivity, XR and Mission Critical Services (which require URLLC which meets performance requirements in ITU M.2410).
In Networks, Ericsson expects to expand its global footprint and enhance gross income through continued investments in technology for performance and cost leadership and, in addition, improve productivity and capital efficiency across the supply chain. In particular the Segment will continue investing in enhanced portfolio energy performance, enabled by Ericsson Silicon and innovating next-generation open architecture, such as Cloud RAN – key areas of strategic importance for its operator customers. Cloud RAN also offers potential in the enterprise segment.
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Separately, Morgan Stanley analysts forecast that the U.S. wireless industry growth will slow in 2023.
“Carriers could move to cut pricing in order to maintain their subscriber bases,” the Morgan Stanley analysts wrote in a report to investors issued Thursday. That could reduce the operators’ ability to make money, they noted. “A continued adoption of premium plans could also support wireless service revenue growth,” they added.
Morgan Stanley analysts expect the U.S. wireless industry – including Verizon, AT&T, T-Mobile, Dish Network and cable companies like Comcast and Charter Communications – to collectively add 8.7 million new postpaid phone customers during 2023. That’s down only slightly from 8.9 million during 2022 and just below the record 10 million that providers collectively added over the course of 2021.
“We see the biggest slowdown in 2023 adds at AT&T, while Verizon could grow adds modestly yoy [year over year] off a low base, and T-Mobile can do slightly better given this year saw the impact of the Sprint network shutdown,” the Morgan Stanley analysts wrote. “We will be watching the growing deployment of eSIM technology to see if it opens the door to higher switching activity, while it should also help carriers lower costs through an easier activation process.”
References:
https://www.prnewswire.com/news-releases/ericsson-capital-markets-day-2022-301704231.html
https://telecoms.com/519003/ericsson-expects-ran-market-growth-to-be-flat-for-years/
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From Mike Dano of Light Reading:
Niklas Heuveldop, the head of Ericsson’s North American business, said he’s preparing to cut 5-7% of his company’s workforce in the area. The cuts are part of Ericsson’s global round of layoffs that will see a total of 8,500 employees leave the company.
Ericsson employs roughly 105,000 people across the world, and 12,000 of those are in North America. In the US specifically, Ericsson counts 9,000 employees.
“I think the leadership has been wise about keeping a tight ship,” Heuveldop told Light Reading, arguing that the company’s current round of layoffs are relatively light, given the slowdown in operator spending. He attributed the situation to Ericsson’s moderate rate of growth while supporting early 5G demand. “We’re coming off an exceptional period of acceleration,” he said.
Ericsson’s Networks division is the company’s biggest, and North America is the company’s biggest region by sales. Heuveldop said AT&T, Verizon and T-Mobile in the US have all been furiously buying Ericsson equipment (alongside equipment from the likes of Samsung and Nokia) to add midband spectrum to their 5G networks. Now, he said, that spending is slowing as the operators finish their early network buildout efforts.
However, “we’re not done yet,” Heuveldop said.
Heuveldop argued that Ericsson expects mobile traffic volumes to grow 4x through 2028, and he said operators will need to further invest in their networks to keep pace with that growth. Additionally, he pointed to the new fixed wireless offerings from T-Mobile and Verizon as another catalyst for growth.
Specifically, he said that network operators throughout North America will continue to purchase Ericsson equipment to expand their 5G networks into rural areas, and to then reinforce those networks with small cells and indoor networking equipment.
But big mobile network operators aren’t Ericsson’s only potential customers. The company is also pursuing enterprise customers through the sale of private wireless networking equipment, an effort underscored by Ericsson’s recent $1.1 billion purchase of Cradlepoint.
“We see a lot of enterprises ‘cutting the cord,'” Heuveldop said. He said such customers are shifting all of their operations onto 5G, essentially removing the need for wired enterprise connections.
However, Heuveldop said enterprise equipment suppliers – those that build robots, sensors, manufacturing machinery and mixed reality devices – need to support 5G more broadly. “The device ecosystem is not where it needs to be,” he said. “We need the ecosystem to start maturing.”
Finally, Heuveldop nodded to the GSMA’s new “Open Gateway” initiative, under which more than a dozen big mobile network operators around the globe are pledging to develop standardized application programming interfaces (APIs) into their respective networks. He described that announcement as a “breakthrough” because it could position operators (Ericsson’s main customers) to develop new ways to make more money.
https://www.lightreading.com/5g-and-beyond/ericssons-heuveldop-prepares-to-cut-jobs-but-stays-upbeat/d/d-id/783488?