Dell’Oro: RAN revenues declined sharply in 2023 and will remain challenging in 2024; top 8 RAN vendors own the market
According to a new report by Dell’Oro Group, the Radio Access Network (RAN) market is now in a downward trajectory. That’s no surprise to readers of the IEEE Techblog, as we forecasted the “5G train wreck” many years ago and continued the drumbeat due to the scarcity of 5G SA core networks, without which there are NO 5G features/functions. Also that URLLC performance requirements were not met by either the 3GPP Release 16 Enhancements for URLLC in the RAN spec or the ITU M.2150 recommendation which is the official standard for 5G NR.
Following the >40 percent ascent between 2017 and 2021, RAN revenues stabilized in 2022, and are on target to decline sharply in 2023. Market conditions are expected to remain challenging in 2024 as the Indian RAN market pulls back, though the pace of the global decline this year and for the remainder of the forecast period should be more moderate.
“The big picture has not changed. MBB-based investments are now slowing and the upside with new growth areas including FWA and private wireless is still too small to change the trajectory,” said Stefan Pongratz, Vice President at Dell’Oro Group. “Also weighing on the MBB market is the fact that the upper mid-band capacity boost is rather significant relative to current data traffic growth rates in some markets, which could impact the timing for capacity upgrades,” continued Pongratz.
Additional highlights from the Mobile RAN 5-Year January 2024 Forecast Report:
- Worldwide RAN revenues are projected to decline at a 1 percent CAGR over the next five years.
- The Asia Pacific region is expected to lead the decline, while easier comparisons following steep contractions in 2023 will improve the growth prospects in the North America region.
- 5G-Advanced is expected to play an important role in the broader 5G journey, however, it is not expected to fuel another major capex growth cycle.
- RAN segments that are expected to grow over the next five years include: 5G NR, FWA, mmWave, Massive MIMO, Open RAN, private wireless, small cells, and Virtualized RAN.
Dell’Oro said in November said it was optimistic about the long-term growth prospects of the RAN space, but simultaneously noted that after a peak in 2021, RAN revenues will track downwards until the second half of the current decade; overall it predicted a 1% compound annual growth rate between 2020 and 2030. That forecast will now have to be revised DOWN significantly as 6G- the next big RAN mover- won’t be standardized till 2031 at the earliest.
RAN remains a concentrated market, with the top 8 RAN suppliers accounting for more than 98% of the 1Q23-3Q23 RAN market. New technologies, architectures, and segments can in some cases present opportunities for vendors with smaller footprints. Still, the track record for new entrants is far from perfect.
Dell’Oro Group’s Mobile RAN 5-Year Forecast Report offers a complete overview of the RAN market by region – North America, Europe, Middle East & Africa, Asia Pacific, China, and Caribbean & Latin America, with tables covering manufacturers’ revenue and unit shipments for 5GNR, 5G NR Sub 7 GHz, 5G NR mmW and LTE pico, micro, and macro base stations. The report also covers Open RAN, Virtualized RAN, small cells, and Massive MIMO. To purchase this report, please contact us by email at [email protected].
References:
RAN Decline to Extend Beyond 2023, According to Dell’Oro Group
https://techblog.comsoc.org/2024/01/18/where-have-you-gone-5g-midband-spectrum-fwa-decline-in-capex-and-ran-revenue-in-2024/
Dell’Oro: RAN market declines at very fast pace while Mobile Core Network returns to growth in Q2-2023
Dell’Oro: OpenRAN revenue forecast revised down through 2027
Dell’Oro: U.S. suppliers ~20% of global telecom equipment market; struggling in RAN business
Dell’Oro: Private 5G ecosystem is evolving; vRAN gaining momentum; skepticism increasing
https://www.sdxcentral.com/articles/contributed/what-to-expect-from-ran-in-2024/2024/01/
From Light Reading:
“We expect the decline to continue in 2024, but to be less pronounced than in 2023, and the RAN market size to reach between $37 billion and $40 billion in 2024,” said Remy Pascal, a principal analyst with Omdia (owned by Informa which also owns Light Reading).
In December, when Omdia last crunched the numbers, it estimated the RAN market would generate sales of about $40.2 billion for 2023, down from about $45.2 billion the year before. In the worst-case scenario, then, sales could drop another 8% this year. The decline has been heavily blamed on a sharp contraction in North America, where big telcos have slashed capital expenditure on network equipment after a splurge in previous years.
The consistent message from the Nordic vendors has been that a rising tide of data traffic on mobile networks will eventually force operators to build additional capacity.
“[The] high-paced mobile data growth, further spurred by new use cases, is the underlying driver for the market to recover to a more normal level,” said Börje Ekholm, Ericsson’s CEO, in the introduction to the company’s third-quarter report. “We are also relatively early in the 5G upgrade cycle with 75% of all radio base station sites, outside China, not yet updated with 5G mid-band.”
Unfortunately, networks seem to be coping better with this traffic growth than equipment vendors would like. Nor have telcos seen much 5G-generated uplift in sales, despite Ericsson’s attempts to correlate 5G rollout with an improvement in average revenue per user. There is still no mobile application that demands a 5G as opposed to a 4G connection. Even if there were, it is doubtful this would boost consumer spending on telecom services. A likelier scenario is that money would flow to application developers.
Vendors are understandably worried, realizing their customers must grow if they are to sell much more equipment in future. It explains last year’s chatter about “network exposure.” Consumers might not spend more to receive a higher-speed, lower-latency connection, or for other network features. But application developers might. Through an initiative called CAMARA, the industry is trying to standardize the “northbound” application programming interfaces (APIs) between the 5G network and the services that sit on it. Developers would then pay for access to those APIs, using them to produce 5G-tailored applications. Or such is the hope.
Since last year’s Mobile World Congress (Feb 2023), when the GSM Association made a fuss about its “Open Gateway” APIs initiative, there has been little sign of commercial progress. Ericsson, meanwhile, has written down Vonage, the company it bought for about $6.2 billion to support these API-related efforts, by nearly $3 billion. Investors are not persuaded Ericsson is on the verge of big things. Since July 2022, when it bought Vonage, its share price has fallen by 22%.
Despite telco efforts to inject competition via “open” RAN, the market remains “concentrated,” said Dell’Oro. The top eight vendors – Huawei, Ericsson, Nokia, ZTE, Samsung, NEC, Fujitsu and Datang Mobile – accounted for 98% of the global market during the first nine months of 2023, Dell’Oro’s data shows, leaving a 2% sliver of sales split between the bottom 30 companies.
Regardless of open RAN, “more suppliers increasingly accept and realize that the traditional macro MBB [mobile broadband] market is extremely challenging to enter using the feature parity and pricing approach,” said Dell’Oro. That acceptance is prompting a “pivot” to segments where there is a greater chance of success, it reckons, including fixed wireless access, private wireless, neutral host and mobile broadband in rural and low-income markets.
Open RAN, though, is projected to account for between 7% and 10% of the RAN market this year. The concept was supposed to be about combining products from various specialists at the same mobile site, instead of buying an entire system from one vendor. Yet the biggest deal hailed as an open RAN one so far has gone to Ericsson. Under its $14 billion contract with AT&T, announced in December, it will initially stump up purpose-built baseband, RAN software and radios, the giant US telco has confirmed. For virtualization enthusiasts and smaller players, deals like that do not bode well.
https://www.lightreading.com/5g/ericsson-and-nokia-face-another-mobile-squeeze-in-2024
From Light Reading:
Outside China and India, big operators have slammed the brakes on network investment in response to inventory build-ups, inflationary pressure and flat revenues. For Ericsson, the world’s biggest western vendor of 5G equipment, the consequence last year was a 10% drop in sales on a constant-currency basis and a renewed focus on costs. Reported revenues fell 3%, to 263.4 billion Swedish kronor (US$25.2 billion), and Ericsson’s closely monitored gross margin shrank from 41.7% to 38.6%. After impairment charges affecting Vonage, the software company Ericsson bought for $6.2 billion in July 2022, the Swedish vendor went from a SEK19.1 billion ($1.8 billion) net profit the year before to a SEK26.1 billion ($2.5 billion) loss.
Ericsson is effectively camped out with its kiosk of goodies, waiting for the hunger pangs to overcome prospective customers reluctant to indulge. “It is important to note that, looking historically, large declines in the mobile network market are followed by a rebound,” said Börje Ekholm, Ericsson’s CEO, on his usual quarterly call with analysts. “Operators can sweat the assets up to a point but eventually will need to invest to manage the data traffic growth, cost, energy usage and, of course, network quality, and give the customer the experience that the customer demands.”
Sweating the assets, though, is what many will continue to do this year. In December, Omdia, a sister company to Light Reading, expected the market for radio access network products (RAN) to generate sales of about $40.2 billion in 2023, down from $45.2 billion the year before. Its latest ballpark estimate is that revenues will dip further in 2024, to between $37 billion and $40 billion. Dell’Oro, another market research firm, thinks RAN revenues will drop from about $40 billion in 2022 to roughly $35 billion this year.
“As we look ahead, 2024 will be a difficult year and market conditions will prevail, and so we currently expect the market outside China to further decline as our customers remain cautious and the investment pace normalizes in India,” said Ekholm. A speedy rollout of 5G in the huge Asian country slowed down massively in the final quarter, explaining why Ericsson’s network sales in India fell sequentially by as much as 40%.
Paring back
With no rebound likely this year, Ericsson has warned of further cuts and even a narrowing of its activities. Previous efforts to slash annual costs by SEK12 billion ($1.2 billion) have claimed about 9,000 jobs across what Ekholm described as “internal and external headcount.” In its latest quarterly report, Ericsson recorded staff numbers of 99,952 at the end of December, down from 105,529 a year before. But the figure seems likely to continue falling after this week’s update.
Preparing for a “challenging market” this year, Ekholm told analysts he would “focus on taking costs out where appropriate” and “really pare back some of the investment areas we’ve had.” The overarching goal is “to be as lean as possible,” he said. Further details were not forthcoming, but this will inevitably fuel speculation about a possible retreat from some activities. Research and development (R&D) spending fell by SEK200 million ($19 million) year-over-year for the fourth quarter, to about SEK13 billion ($1.2 billion), after cuts at both the networks and the cloud software and services units, although it grew 7% for the full year, to SEK50.7 billion ($4.9 billion).
Ericsson also remains hopeful that Vonage can bring about a recovery. Along with other parts of the industry, it has been working to standardize the application programming interfaces (APIs) between the 5G network and the apps it would support. The idea is that a software developer would be able to write better 5G apps after paying for access to the Vonage platform where these network features are exposed. Money would trickle down to operators and they, in turn, would be more inclined to invest in network upgrades.
Today, however, it all seems very convoluted, and there have been few signs of commercial progress on network APIs in the last year. Vonage’s sales rose just 2% year-over-year for the fourth quarter, amounting to SEK4.1 billion ($390 million) in Ericsson’s report. And revenues of SEK6.6 billion ($630 million) at the broader enterprise segment housing Vonage represented just 9% of the company total. Enterprise also recorded a SEK3.3 billion ($320 million) full-year loss (based on earnings before interest, tax and amortization).
The AT&T affair
Much of the attention later this year will be on a $14 billion networks contract with AT&T, struck at Nokia’s expense. It has been heavily promoted by Ericsson and AT&T as an “open RAN” affair. That should mean products include new interfaces allowing AT&T to pair Ericsson with other vendors when it would previously have had to buy the whole system from Ericsson.
Yet others, including Nokia, which is to be gradually phased out of the AT&T network, have described it as a “one vendor” deal. Although Fujitsu has been named as another supplier of radios, the contract will clearly make AT&T far more dependent on Ericsson than it is today. Even Ericsson acknowledges that its market share will grow in North America later this year thanks to the AT&T win.
Executives seemed wary of going into much detail about the contract on today’s call with analysts, but it is expected to have some impact on revenues in the second half. Ekholm also denied it would lead to “material rehirings” in the US, saying Ericsson is today more dependent on third-party contractors than in-house service engineers.
As for Ericsson’s long-suffering cloud software and services unit, it managed sales growth of 5% for 2023, to SEK63.6 billion ($6.1 billion), and narrowed its loss to just SEK200 million ($19.1 million), from SEK1.6 billion ($150 million) the year before. Efforts to boost profitability continue, and they could include additional pruning of the portfolio, said Carl Mellander, Ericsson’s soon-to-depart chief financial officer. Less parsimonious telcos would undoubtedly help.
https://www.lightreading.com/5g/ericsson-eyes-more-cuts-after-slashing-9-000-jobs-as-outlook-dims