U.S. 5G spending slowdown continues; RAN revenues set to decline for years!
The 5G spending slowdown in the U.S. is broader than many analysts and executives expected. Dell’Oro’s Stefan Pongratz recently wrote:
“Even if it is early days in the broader 5G journey, the challenge now is the comparisons are becoming more challenging in the more mature 5G markets and the upside with the slower-to-adopt 5G regions is not enough to extend the growth streak. Meanwhile, growth from new revenue streams including Fixed Wireless Access and enterprise LTE/5G is not ramping fast enough to change the trajectory. With 5G-Advanced not expected to trigger a new capex cycle, the question now is no longer whether RAN will grow. The question now is, rather, how much will the RAN market decline before 6G comes along?”
AT&T, Verizon, T-Mobile and Dish Network broadly spent 50% less on their 5G network build-outs than Crown Castle [1.] CEO Jay Brown expected. As a result, Crown Castle cut $90 million in expected services revenues from its full year 2023 financial forecast.
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Note 1. Crown Castle offers services including new cell site development and equipment installation. The company has a nationwide footprint of 40K+ cell towers, ~115K small cell nodes on air or under contract and more than 80K route miles of fiber optic cable.
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“So the back half of 2023, we did see a change relative to what we previously expected,” Brown said last week during his company’s quarterly conference call, as per a Seeking Alpha transcript. “The first half of 2023 came in exactly where we thought it was going to, and we saw the change in activity during the quarter. And that’s what affected our second half of the year, the activity that we’ll see in the – we believe we’ll see in the third and the fourth quarter.”
“I believe this initial surge in tower activity [among U.S. network operators] has ended,” Brown said, arguing that early 5G network buildout programs are coming to an end. “In the second quarter, we saw tower activity levels slowed significantly. As a result, we are decreasing our 2023 outlook primarily as a result of lower tower services margin.”
“From our perspective, this new guidance is as close to a disaster as it gets,” wrote the financial analysts at KeyBanc Capital Markets in a note to investors last week. The analysts said the cell tower industry broadly is very stable, and warnings like those from Crown Castle are few and far between. “We struggle to understand how the … trajectory could change so materially.”
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Nokia and Ericsson take a hit:
5G network equipment vendor Nokia experienced a huge revenue drop of 40% from the North America market. Nokia CFO Marco Wiren stated that was “a result of declines across all business groups as inventory digestion continued and [communication service providers] reevaluated their spending plans.”
“The weakness was clearly visible,” Nokia CEO Pekka Lundmark said earlier this month, according to Seeking Alpha.
Nokia’s 5G FWA business has run into some market challenges, specifically tied to the vendor being “highly sensitive to a very small number of customers.” “Especially in North America, now when those deployments are significantly more slow, there is inherently some volatility here,” Lundmark explained.
Likewise, Ericsson’s CEO Borje Ekholm said the vendor’s quarterly sales in North America represented “one of the lowest shares we’ve seen in many years. But on the other hand, we see India growing very, very fast.”
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“We believe AT&T is a primary culprit with slow spending, but inventory absorption is occurring with other operators too,” wrote the financial analysts at Raymond James in a recent note to investors. “CommScope has exposure to the same mobile and fixed access projects as well as an operator bias to its business. Ciena has high exposure to the North American operators (fiber backhaul from cell sites), but we think guidance it offered in early June reflected AT&T absorbing inventory. Ciena, Infinera, and Juniper have material cloud exposure that we believe is improving as an offset to slower telcos.”
References:
https://www.sdxcentral.com/articles/analysis/open-ran-growth-slows-to-a-crawl/2023/07/
Wow, the 5G market matured fast. One has to wonder if Verizon and AT&T will further cut capital expenditures to pay for the remediation of old lead cables.
Will there be a killer app (e.g. communications to driverless taxis) to jumpstart the market again?
From Light Reading:
The market for open and virtual RAN products has not taken off as quickly as advocates hoped, and the broader RAN market is now in a slump. Dell’Oro expects the RAN market to shrink by 13% this year in North America, historically the most profitable region for Ericsson and Nokia. In July, it also revised down its short-term expectations for open RAN, noting “some hesitancy about these next-generation architectures,” although it still thinks open RAN will account for between 15% and 20% of total RAN sales by 2027. Other analysts are more bullish.
https://www.lightreading.com/semiconductorsnetwork-platforms/intel-has-also-fallen-victim-to-network-spending-crash/d/d-id/785883?
Light Reading referred to OpenRAN as Vendor Lock-in 2.0: “trading 1 form of vendor lock-in for another” https://www.lightreading.com/open-ran/say-hello-to-open-ran-ecosystem-or-vendor-lock-in-20/d/d-id/767225
Also “If only open RAN components were truly “plug and play,” as easily replaceable as a broken bit of Lego.” Ensuring two suppliers can harmonize like choirboys takes lots of effort, and that probably helps to explain why single-vendor open RAN holds appeal.
https://www.lightreading.com/open-ran/the-oxymoron-of-single-vendor-open-ran-is-on-rise/a/d-id/782542
Dell’Oro anticipates a 13% contraction in the RAN market in North America this year, which has traditionally been the most lucrative region for Ericsson and Nokia.