Network equipment vendors increase R&D; shift focus as 0% RAN market growth forecast for next 5 years!
In 2024, Ericsson’s R&D spending was SEK53.5 billion ($4.8 billion). “It is our firm commitment to really ensure that we have capacity to do the investments in R&D over time,” said Lars Sandström, Ericsson’s chief financial officer. “I think that has been the guiding star for the company for quite some years and I think, if you go long back into history, we felt that has been hurting our ability to invest when not having the right cash position.” Meanwhile, Nokia’s R&D spending rose 5% on the year, to about €4.5 billion ($4.6 billion).
Combined, that was only one-third of Huawei’s projected 2024 R&D spending of around 197.8 billion yuan or $27.3 billion which was ~20% higher than 2023. Huawei’s R&D spending has increased in recent years, from 102 billion yuan in 2018 to 164.7 billion yuan in 2023. It invests more than 10% of its sales revenue into R&D each year. In addition to telecom and IT equipment/software, Huawei is a leader in China’s efforts to develop advanced chips and technology. The company is involved in a government-funded project to develop memory units for AI chips.
Mobile network market shrinkage has not helped ROI in wireless network R&D projects. Overall RAN sales fell 11% in 2023, to about $40 billion, said researchers at Informa owned Omdia. At the midpoint of its most recently published data, Omdia was anticipating another contraction of 15% in 2024 to ~$35 billion.
Stefan Pongratz of Dell’Oro said that mobile infrastructure investments slowed significantly in 2024. Preliminary findings indicate that the Radio Access Network (RAN) market contracted by 10 to 20% year-over-year (YoY) during the 1Q24 to 3Q24 period (final 4Q24 and full-year data expected around mid-February). Network operators in many countries paused spending after their initial 5G rollouts did not lead to meaningful improvements in sales or profitability.
Following the intense 5G acceleration phase from 2017 to 2022, RAN investments declined sharply in 2023 and 2024, with the exception of India where RAN market growth is now tapering off.
While data for 2024 is unavailable, the top five vendors – Huawei, Ericsson, Nokia, ZTE and Samsung – served ~95.1% of the global RAN market in 2023, according to Omdia. That doesn’t leave much room for start-up or other RAN equipment makers (like Fujitsu, NEC, Datang Mobile, Mavenir, CICT Mobile, Comba, and other small players).
“The underlying message we have communicated for some time has not changed,” said Stefan Pongratz, Vice President for RAN market research at Dell’Oro Group. “Regional imbalances will impact the market dynamics over the short term while the long-term trajectory remains flat. This is predicated on the assumption that new RAN revenue streams from private wireless and FWA, taken together with MBB-based capacity growth, are not enough to offset slower MBB coverage-based capex,” continued Pongratz.
Additional highlights from Del’Oro’s Mobile RAN 5-Year January 2025 Forecast Report:
- Worldwide RAN revenues are projected to grow at a 0% CAGR over the next five years, as rapidly declining LTE revenues will offset continued 5G investments.
- Medium-term risks to the baseline are balanced, while the long-term risks are tilted to the downside and characterized by the data growth uncertainty with the existing MBB use case. As the investment focus gradually shifts from coverage to capacity, one of the most significant forecast risks is slowing mobile data traffic growth. Given current network utilization levels and data traffic trends in more advanced markets, there are serious concerns about the timing of capacity upgrades.
- The mix between existing and new use cases has not changed. Private/enterprise RAN is expected to grow at a 20 percent plus CAGR while public RAN investments decline. At the same time, because of the lower starting point, it will take some time for private RAN to move the broader RAN needle.
- 5G-Advanced positions remain unchanged. The technology will play an essential role in the broader 5G journey. However, 5G-Advanced is not expected to fuel another major capex cycle. Instead, operators will gradually transition their spending from 5G towards 5G-Advanced within their confined capex budgets.
- RAN segments that are expected to grow over the next five years include 5G NR, FWA, mmWave, Open RAN, vRAN, private wireless, and small cells.
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So how do incumbent RAN vendors cope? Ericsson is becoming more heavily reliant on software sales. CEO Börje Ekholm told analysts on the company’s last earnings call: “It is going to take some time for customers to realize we are increasingly becoming a software business. If you go back 15 years, we were much more hardware-centric, and then it was a bigger question for customers. As you move into becoming a software vendor, the working capital becomes less and less and less.”
Nokia is turning to data center connectivity for growth. CEO Pekka Lundmark declared that data centers are now the company’s top growth target, shifting away from its traditional focus on telecommunications networks and services. Nokia is developing and promoting data center switching platforms, IP networking solutions, and automation technologies to cater to the needs of hyperscalers and enterprise customers. The company has secured notable contracts with companies like CoreWeave, a leading AI hyperscaler, which demonstrates their growing presence in the data center space. It’s also in the process of acquiring fiber optic equipment company Infinera which will enhance both inter and intra- data center connect capabilities. Nokia is emphasizing open-source software like SONiC alongside its own SR Linux operating system to provide flexibility and cater to diverse customer requirements.
References:
https://www.lightreading.com/5g/ericsson-and-nokia-flaunt-cash-as-open-ran-pack-struggles
RAN Equipment Market to Remain Uninspiring, According to Dell’Oro Group
The decline in the RAN market is understandable as 80% of time people are using WiFi when accessing the internet on their mobile devices. There doesn’t seem to be a killer app in the consumer market that would drive demands for new 5G capability or speeds. The business and industrial apps are probably at the margins. Interestingly, I ran across this article the other day from Nokia talking about their emphasis on network programmability through the use of APIs.
https://www.nokia.com/blog/recap-of-api-days-paris-2024-nokias-network-as-code-inspires-innovation/
Compare the puny $4.8 billion + $4.6 billion Ericsson and Nokia spent on R&D in 2024 with the cloud giants/hyper-scalers.
The NY Times reported in its Feb 8, 2025 print edition that Amazon’s capital expenditures — a figure that includes data center construction and other items like warehouses — could top $100 billion this year. Microsoft said its spending could surpass $80 billion. Alphabet said it would spend $75 billion, and Meta reaffirmed plans to have capital spending hit as much as $65 billion. Combined, they could spend roughly $100 billion more than last year on these projects.
Many of the those hyper-scalers say they’re constrained by the supply of chips, land and power needed to build data centers, and are racing to get more of them open. Microsoft, Alphabet and Amazon all said they could have had higher cloud computing sales if they had the capacity. Cloud services are the typical way A.I. is delivered to customers. Note that unlike Microsoft, Alphabet and Amazon which rent time on their cloud data centers to customers, Meta does not and uses 100% of its data center capacity for its own apps and advertising.
Alphabet saw “demand that exceeds our available capacity,” Anat Ashkenazi, Alphabet’s finance chief, told investors. “So we’ll be working hard to address that and make sure we bring more capacity online.”
Microsoft has been saying it has been constrained for a while, and previously told investors that the pressure would ease early this year. But last week, when it reported its latest earnings, executives told investors that it might take until summer to get enough capacity up and running to meet the full demand.
Cloud resident data centers are where A.I. systems are developed and also where A.I. is deployed. Those are two different steps: training a model that underpins ChatGPT, versus asking ChatGPT for a recipe suggestion.
Deploying A.I. is known as “inferencing” in the industry; it is where, the tech companies increasingly say, their businesses will boom.
As costs come down, “A.I. will be much more ubiquitous,” Satya Nadella, Microsoft’s chief executive, told investors last week.
Andy Jassy, Amazon’s chief executive, told investors on Thursday that while a world where every app was infused with A.I. could be hard to fathom, “this is the world we’re thinking about all the time.” That vision, he said, has inferencing at its core.
https://www.nytimes.com/2025/02/08/technology/deepseek-data-centers-ai.html