Author: Alan Weissberger
Despite U.S. sanctions, Huawei has come “roaring back,” due to massive China government support and policies
On March 30th we wrote that Huawei Technologies was back, with its net profit more than doubled from the same period last year (2023). Today, a Wall Street Journal (WSJ) news story reaffirmed that with reasons which were really no surprise! Huawei’s profit more than doubled last year, the largest jump in at least two decades. Roughly two-thirds of its revenue comes from domestic (China) clients.
Five years ago, the U.S. sanctioned Huawei, cutting off the Chinese company’s access to advanced U.S. technologies like semiconductors and the Android OS for its smartphones. Initially, the company struggled. In 2021, its revenue dropped almost 30% from the year before. Its core telecom equipment business was suffering. Apple’s iPhone was taking over Huawei market share in smartphones.
Yet in the last year, Huawei has come roaring back, boosted by billions of dollars in China government support. Huawei has expanded into new businesses, boosted its profitability and found fresh ways to curb its dependence on U.S. suppliers. It has held on to its leading position in the global telecom-equipment market, despite American efforts to squeeze Huawei out of its allies’ networks. Also, it’s making a big comeback in high-end smartphones, using sophisticated new chips developed in-house, such that it has captured 15% market share in China (knocking Apple out of the top five smartphone brands).
“The U.S. government’s campaign against Huawei is inadvertently bolstering the company’s resilience, echoing the age-old adage that what doesn’t kill you makes you stronger,” said Sameh Boujelbene, an analyst at research firm Dell’Oro Group.
China state support has paid off big time! After the U.S. imposed restrictions, Huawei and China’s government grew closer. Soon, Huawei leaders declared that every product they made going forward should be able to rely entirely on components developed by Chinese companies. China government contracts and company registration records, as well as WSJ interviews with former and current employees, reveal that billions of dollars flowed from the Chinese government to Huawei through preferential buying contracts and subsidies. State-owned enterprises, government agencies and Communist Party bodies sought Huawei chips, smartphones, cloud services and software, with some procurement contracts calling for Huawei gear by name.
Local governments have bought Huawei businesses, providing cash injections. Once reliant on Google’s Android for its consumer devices, Huawei built its own operating system. It has even made a foray into electric vehicles, a task that Apple gave up on, and developed its own version of Bluetooth. Huawei still faces challenges. Its most advanced semiconductors remain a step behind industry leaders such as Nvidia, whose chips are made by TSMC in Taiwan, which Huawei no longer has access to due to U.S. sanctions. U.S. export restrictions, which effectively barred Huawei from using American technology anywhere along the chipmaking process, meant the Chinese company could no longer source its chips from TSMC. Some analysts believe it will be hard for Huawei to keep innovating without access to more advanced Western technologies, especially chip making equipment and software.
One current U.S. official said Washington is closely tracking Huawei’s efforts to make its own semiconductors, in case more actions are needed to block China from manufacturing artificial-intelligence-focused chips that can give Beijing a military edge.
On May 16, 2019, China’s local government in Shenzhen, where Huawei is based, registered an investment company Shenzhen Major Industry Investment Group (SMII), focused on semiconductors, investing in foundries, manufacturing equipment and materials that would help ensure Huawei was supplied with enough domestically made chips and other technologies. Two companies established by SMII, including a chip foundry, employed former Huawei executives, according to people familiar with the matter. One received around a dozen patented technologies transferred from Huawei. Huawei human-resources managers had asked company researchers if they would work at that entity, promising them they could keep their benefits if they moved, according to people familiar with the matter. Shenzhen’s imports of semiconductor manufacturing equipment surged after SMII’s inception, official data shows. Through various state-backed funds, the Chinese government has invested in more than two dozen chip-related startups, over the past five years, according to corporate database Tianyancha.
That’s in addition to government investments in Huawei’s HiSilicon chip unit (more below), which made the silicon used in the company’s popular Mate 60 Pro smartphone. HiSilicon became an independent, wholly owned Huawei subsidiary in 2004. It was founded in 1991 as Huawei’s ASIC Design Center.
A majority-owned Shenzhen company also bought Huawei’s Honor smartphone business, which was struggling because of the U.S. sanctions. The deal was worth several billions of dollars, a person familiar with the transaction said. The cash allowed Huawei to focus on other businesses, including its higher-end Mate series of phones.
“We’ve been through a lot over the past few years. But through one challenge after another, we’ve managed to grow,” Huawei said in a written statement, adding that the company owed its survival and development to the trust and support of global customers, partners and “all sectors of society.” Sustaining R&D investment will be crucial going forward, the company said.
“We’ve been through a lot over the past few years, but through one challenge after another, we’ve managed to grow,” Huawei said in a written statement, adding that the company owed its survival and development to the trust and support of global customers, partners and “all sectors of society.” Sustaining R&D investment will be crucial going forward, the company said.
Huawei focused on building out more of its own supply chain and expanding into new areas that could generate revenue to help keep the company going, including cloud computing and other services, according to Chris Peirera, a former Huawei senior director in public affairs. “In the past, we chased the ideal of globalization, determined to serve mankind. What are our goals now? It’s to survive. We will make money wherever we can,” Huawei founder Ren Zhengfei later told the company’s staff in an internal letter.
Huawei received over $1 billion in China government grants in 2023, more than quadruple the amount it received in 2019, according to Huawei’s financial reports. In all, Huawei received nearly $3 billion in the past five years, accounting for 3% of its total R&D expenses.
Source: Huawei via WSJ
China’s government directed state agencies to buy more of Huawei’s software, chips and mobile devices, a policy that boosted Huawei while reducing China’s reliance on American companies, including Apple, whose iPhones are no longer allowed in the workplace for many government employees. A Chinese government research unit named Huawei as one of four tech giants spearheading the nation’s push to wean itself off foreign technology, while another government body singled out Huawei as a preferred state supplier of AI chips, servers and other enterprise software.
Though Huawei is still seeking to sell its products abroad in places such as Southeast Asia and Africa, it is more reliant on China’s market than ever, with 67% of revenue last year coming from domestic clients. The company often portrays itself as a national champion that gives priority to serving China.
Source: Huawei via WSJ
A WSJ investigation found more than 300 government procurement contracts worth around $5 billion specifically calling for the purchase of servers and other tech infrastructure powered by Huawei’s Kunpeng central processing units, or CPUs, in 2023. Other contracts listed Huawei CPUs among a handful of preferred local vendors. All of this was a sharp contrast to five years ago, when government agencies specifically requested products from U.S. chip makers Intel or AMD.
China’s buy-local policy is even more pronounced in the telecom-equipment space, Huawei’s largest revenue source. State-owned Chinese wireless carriers have largely stopped buying equipment from Huawei’s foreign rivals, Sweden’s Ericsson and Finland’s Nokia, even when one of them priced their contracts more cheaply than Chinese companies. The shift came while Sweden and other European countries indicated that they would cut Huawei and another Chinese equipment maker, ZTE, from their networks. Ericsson and Nokia held about 15% of China’s cellular network equipment market before 5G began rolling out in 2019. In China’s current 5G cellular-equipment market, Huawei holds about 4% to 5%, according to market research firm Dell’Oro.
They peg Huawei’s 2023 global telecom market share (#1) at 30% – double that of #2 Nokia as per this pie chart:
With so much government support, Huawei was able to avoid massive job and spending cuts that would have gutted its R&D or led to a talent exodus. Huawei boosted R&D spending to almost 165 billion yuan, or $23 billion, last year, up from 102 billion yuan in 2018. More than half of Huawei’s 207,000 employees are in R&D.
Huawei is now at the vanguard of China’s push to develop cutting-edge chips to wean reliance on Nvidia and Intel, as the Biden administration seeks to curb China’s ability to develop advanced chips and technology that could aid its warfare and surveillance. U.S. chip juggernaut Nvidia singled out Huawei as a top competitor in February.
Huawei is leading a government-funded project to develop memory units for advanced AI chips, people familiar with the matter said, with at least 11 national AI data centers now using Huawei chips. WSJ reports that last summer, a group of Huawei researchers gathered at a barbecue restaurant on the outskirts of Beijing to congratulate engineers who worked on the Mate 60 Pro chip set at Huawei owned HiSilicon.
“You HiSilicon people kick ass,” one of the Huawei researchers said, according to a person who attended. “Managers tell us daily that our work helps the country fight against foreign oppression,” a HiSilicon engineer who was present responded. “We’re becoming more and more like a state-owned company, aren’t we?” another researcher chimed in.
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References:
https://www.wsj.com/business/telecom/huawei-china-technology-us-sanctions-76462031
Huawei is back – net profits more than doubled in 2023!
Dell’Oro: 2023 global telecom equipment revenues declined 5% YoY; Huawei increases its #1 position
Huawei to revolutionize network operations and maintenance
Huawei pushes 5.5G (aka 5G Advanced) but there are no completed 3GPP specs or ITU-R standards!
China’s mobile data consumption slumps; Apple’s market share shrinks-no longer among top 5 vendors
China Telecom with ZTE demo single-wavelength 1.2T bps hollow-core fiber transmission system over 100T bps
China Telecom, along with its partners [1.], says it has launched the world’s first live single-wavelength 1.2T bps hollow-core fiber optics transmission system with unidirectional capacity over 100T bps.
Note 1. ZTE, Yangtze Optical Fibre, Cable Joint Stock Limited Company and Huaxin Design Institute were also involved in the project, which was deployed over a transmission distance of 20km in the live network of the All-Optical Network Technology and Application in the Intelligent Computing Era seminar of the CCSA TC618/NGOF.
ZTE optical transport equipment was used for project, alongside some improvements in spectral efficiency, baud rate optimization, and amplification optimization technologies. The system extends 41 C-band 1.2T bps and 64 L-band 800G bps wavelengths, and archives unidirectional transmission capacity of over 100T bps and a transmission distance of 20km in the field network.
This demonstration completed the hollow-core fiber deployment and large-capacity transmission between China Telecom’s Hangzhou Intelligent Computing Center and Yiqiao IDC. As a key node of China Telecom’s intelligent computing power layout “2+3+7+M”, the Hangzhou Intelligent Computing Center has been deployed with the 1k GPUs computing power of the China Telecom Cloud. It also hails ‘breakthroughs in hollow-core fiber fusion splicing technologies,’ such as low-power discharge and mode field matching related to the demonstration.
To meet the requirements for distributed computing power with large bandwidth and low latency of optical networks, ZTE used its advanced high-speed optical transport equipment. Combined with improvements in spectral efficiency, baud rate optimization, and amplification optimization technologies, the system extends 41 C-band 1.2Tbit/s wavelengths and 64 L-band 800Gbit/s wavelengths. It achieves a unidirectional transmission capacity of over 100Tbit/s and a transmission distance of 20km in the field network.
The hollow-core fiber cable, independently developed by YOFC, is deployed in the field network with multiple waterproofing solutions. For instance, water-blocking glue and double-layer plastic caps are used at the cable ends to isolate the atmosphere, a pulling unit with a swivel is employed for cable deployment to minimize wear on the end caps, and a horizontal waterproof cable closure is utilized at the fusion splice point. Additionally, breakthroughs in hollow-core fiber fusion splicing technologies, such as low-power discharge and mode field matching, have achieved 0.05dB fusion splice loss between hollow-core fibers and 0.25dB fusion splice loss with 54dB return loss between hollow-core fibers and standard solid-core single-mode fibers.
China Telecom’s Zhejiang branch said: “We have always maintained the leading position in the field of basic transmission networks. By undertaking the national key R&D project, we have demonstrated and verified the hollow-core fiber and 1.2Tbit/s transport system in the field network, and can offer detailed engineering data and demonstration applications. In the future, we will further cooperate with the industry to conduct research on a larger scope, and provide practical scenarios for the interconnection of distributed intelligent computing centers.”
China Telecom says they will continue to expand the hollow-core optical cable environment and build a platform for testing and verifying new technologies and applications oriented towards intelligent computing scenarios. This effort aims to continuously promote technological innovation and application expansion in the telecommunications industry.
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Separately, China Telecom received four awards at the “Asia’s Best Managed Companies Poll 2024” by FinanceAsia, a reputable financial magazine in Asia:
⚫ “Best Investor Relations in China” – Gold Award
⚫ “Best Managed Company in China” – Silver Award
⚫ “Best Telecommunication Services Company” – Silver Award
⚫ “Best Large-Cap Company in China” – Bronze Award
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References:
https://www.telecoms.com/fibre/china-telecoms-claims-a-world-s-first-hollow-core-fibre-demonstration
https://www.chinatelecom-h.com/en/media/news/p240730.pdf
ZTE reports higher earnings & revenue in 1Q-2024; wins 2023 climate leadership award
ZTE and China Telecom unveil 5G-Advanced solution for B2B and B2C services
China Telecom, ZTE jointly build spatiotemporal cognitive network for digital transformation
China Mobile & ZTE use digital twin technology with 5G-Advanced on high-speed railway in China
Highlights of Dell’Oro’s 5-year RAN forecast
Market conditions remain challenging for the broader RAN market. Following the 40% to 50% ramp between 2017 and 2021, the RAN market has been declining since then. These trends are expected to prevail throughout the forecast period. However, the pace of the decline should moderate somewhat after 2024.
“It is not a surprise that there is rain after sunshine,” said Stefan Pongratz, Vice President for RAN market research at Dell’Oro Group. “In addition to MBB-based coverage-related challenges, this disconnect between mobile data traffic growth and the capacity boost provided by the mid-band, taken together with continued monetization uncertainty, is clearly weighing on the market,” Pongratz added.
- Worldwide RAN revenues are projected to decline at a 2 percent CAGR over the next five years, as continued 5G investments will be offset by rapidly declining LTE revenues.
- 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 American region. Even with some recovery, North American RAN revenues are expected to remain significantly lower relative to the peak in 2022.
- 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.
Commentary:
Worldwide RAN revenues are projected to decline at a 2% CAGR between 2023 and 2028, as rapidly declining LTE revenues will offset continued 5G investments. This is predicated on the assumption that the MBB portion of the RAN market will continue to trend downward, and the upside from new growth opportunities is not enough to change the trajectory.
The mix between existing and new use cases has not changed. We still forecast private/enterprise RAN to grow at a 20%+ CAGR while public RAN investments decline. At the same time, because of the lower starting point, it will take some for private RAN to move the broader RAN needle.
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, there are serious concerns about the timing of capacity upgrades. The network utilization metric will play a much more significant role as we move further into the capacity phase.
Generally, the less advanced 5G regions are expected to perform better than the mature 5G markets. As a result, markets with lower 5G POP coverage, including Middle East & Africa, Caribbean and Latin America, and APAC Excluding China/India should perform better.
Easier comparisons following steep contractions in 2023 will improve the North American region’s growth prospects. Even with some recovery, North American RAN revenues are expected to remain significantly below peak levels in 2022.
5G-Advanced will play an essential role in the broader 5G journey. However, 3GPP Releases 18-20 are 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. Also, ITU-R WP5D has not started any work related to a 5G-Advanced recommendation(s).
More importantly, some RAN segments will stand out even as the broader RAN market shrinks. RAN segments expected to grow over the next five years include 5G NR, Non-MM 5G NR, FWA, mmWave, Open RAN, vRAN, private wireless, and small cells.
References:
Analysts: Telco CAPEX crash looks to continue: mobile core network, RAN, and optical all expected to decline
Dell’Oro: 2023 global telecom equipment revenues declined 5% YoY; Huawei increases its #1 position
Dell’Oro & Omdia: Global RAN market declined in 2023 and again in 2024
Dell’Oro: RAN market declines at very fast pace while Mobile Core Network returns to growth in Q2-2023
Dell’Oro: RAN Market to Decline 1% CAGR; Mobile Core Network growth reduced to 1% CAGR
Global 5G Market Snapshot; Dell’Oro and GSA Updates on 5G SA networks and devices
ITU-R: IMT-2030 (6G) Backgrounder and Envisioned Capabilities
China’s mobile data consumption slumps; Apple’s market share shrinks-no longer among top 5 vendors
Mobile data demand is in a steep decline in China, the world’s largest 5G market by subscribers. China’s MIIT numbers released this week show per user data consumption (DOU) grew just 8.1% in the first half of the year. That compares to a 68% increase in 2019, the year that 5G licenses were issued. That fell to 13% in 2022 and 11% at end- 2023. Since then, there’s been a decrease in growth of nearly three percentage points in six months.
| Indicator name | unit | Cumulative from January to June | Year-on-year
Growth ( %) |
| Total volume of telecommunication business (at constant prices of the previous year) | 100 million yuan | 8992 | 11.1 |
| Operating income | 100 million yuan | 10712 | 2.8 |
| Including: Telecommunication business income | 100 million yuan | 8941 | 3.0 |
| Total call duration of fixed-line outgoing calls | 100 million minutes | 380 | -3.4 |
| Total mobile phone call duration | 100 million minutes | 10688 | -4.6 |
| Mobile SMS traffic | 100 million | 9407 | 0.5 |
| Mobile Internet access traffic | 100 million GB | 1604 | 12.6 |
| Average mobile Internet access traffic per household in the month (DOU) | GB/household · month | 18.15 | 8.1 |
| Note: 1. The duration of fixed-line outgoing calls and mobile phone calls includes the corresponding IP phone call duration.
2. Starting from February 2024, the 5G mobile Internet access traffic and the number of 5G mobile Internet users of China Radio and Television Network Group Co., Ltd. (hereinafter referred to as China Radio and Television) will be included in the industry summary data, and the data for the same period last year will be adjusted synchronously. |
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“While China has rapidly rolled out 5G and continues to perform well vs other markets, there is a limit to the number of people in the market that will engage in advanced data services; the slowdown in traffic growth is an indication that we could be reaching that limit,” according to GSMA.
Commercial 5G standalone (SA) networks, now present in seven APAC countries (Australia, India, Japan, the Philippines, Singapore, South Korea, and Thailand), will help fuel this growth, alongside 5G Advanced, RedCap and AI, creating opportunities to launch new 5G applications and kick start a fresh round in 5G investments for enterprises and consumers.
The authors of the report, GSMA Intelligence, expect 5G to add almost $130 billion to the Asia Pacific economy in 2030, with the manufacturing industry forecast to benefit the most, driven by new 5G-enabed applications including smart factories, smart-grids, and IoT-enabled products. Financial services and public administration are also expected to be big beneficiaries, as they turn to 5G to digitally transform services and operations. To help support this growth the GSMA today launched the GSMA APAC Fintech Forum, a new community programme to unite the connected fintech and commerce sectors with Asia Pacific’s mobile network operators through new technologies.
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Meanwhile, Apple’s smartphone market share in China shrank by two percentage points in the second quarter of 2024 and the company is no longer one of the top vendors, according to data from market research firm Canalys. The decline underscores the difficulties the U.S. tech giant faces in its third-largest market.
Huawei’s smartphone shipments surged 41 per cent year on year in the the quarter, bolstered by the launch of its new Pura 70 series in April. Chinese smartphone vendors held the top five spots in the second quarter.
“It is the first quarter in history that domestic vendors dominate all the top five positions,” said Canalys Research Analyst Lucas Zhong. “Chinese vendors’ strategies for high-end products and their deep collaboration with local supply chains are starting to pay off in hardware and software features. HONOR’s latest Magic V3, which leverages GenAI, has significantly enhanced the user experience of foldable devices. Conversely, Apple is facing a bottleneck in mainland China. The vendor’s current channel strategy maintains a healthy inventory level and aims to stabilize retail prices and protect margins of channel partners. In the long term, the Chinese high-end market is ripe with opportunity. Local brands such as Huawei, HONOR, OPPO, and vivo are leading the way by incorporating technologies such as GenAI into products and services. Additionally, the localization of Apple’s Intelligence services in mainland China will be crucial in the next 12 months.”
People’s Republic of China (Mainland) smartphone shipments and annual growth
Canalys Smartphone Market Pulse: Q2 2024
|
Vendor |
Q2 2024 |
Q2 2024 |
Q2 2023 |
Q2 2023 |
Annual |
|
vivo |
13.1 |
19% |
11.4 |
18% |
15% |
|
OPPO |
11.3 |
16% |
11.4 |
18% |
-1% |
|
HONOR |
10.7 |
15% |
10.3 |
16% |
4% |
|
Huawei |
10.6 |
15% |
7.5 |
12% |
41% |
|
Xiaomi |
10.0 |
14% |
8.6 |
13% |
17% |
|
Others |
14.8 |
21% |
15.1 |
24% |
-2% |
|
Total |
70.5 |
100% |
64.3 |
100% |
10% |
|
Notes: from Q1 2021, HONOR is not included in Huawei’s shipments; OnePlus is included in OPPO shipments. |
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References:
https://www.miit.gov.cn/gxsj/tjfx/txy/art/2024/art_e2f06366bb134479a40cf4cf86445b1e.html
https://canalys.com/newsroom/china-smartphone-market-Q2-2024
https://www.lightreading.com/5g/slowing-mobile-numbers-cast-doubt-on-gsma-s-buoyant-forecasts
GSMA: China’s 5G market set to top 1 billion this year
MIIT: China’s Big 3 telcos add 24.82M 5G “package subscribers” in December 2023
Microsoft choses Lumen’s fiber based Private Connectivity Fabric℠ to expand Microsoft Cloud network capacity in the AI era
Lumen Technologies and Microsoft Corp. announced a new strategic partnership today. Microsoft has chosen Lumen to expand its network capacity and capability to meet the growing demand on its datacenters due to AI (i.e. huge processing required for Large Language Models, including data collection, preprocessing, training, and evaluation). Datacenters have become critical infrastructure that power the compute capabilities for the millions of people and organizations who rely on and trust the Microsoft Cloud.
Microsoft claims they are playing a leading role in ushering in the era of AI, offering tools and platforms like Azure OpenAI Service, Microsoft Copilot and others to help people be more creative, more productive and to help solve some of humanity’s biggest challenges. As Microsoft continues to evolve and scale its ecosystem, it is turning to Lumen as a strategic supplier for its network infrastructure needs and is investing with Lumen to support its next generation of applications for Microsoft platform customers worldwide.
Lumen’s Private Connectivity Fabric℠ is a custom network that includes dedicated access to existing fiber in the Lumen network, the installation of new fiber on existing and new routes, and the use of Lumen’s new digital services. This AI-ready infrastructure will strengthen the connectivity capabilities between Microsoft’s datacenters by providing the network capacity, performance, stability and speed that customers need as data demands increase.
Art by Midjourney for Fierce Network
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“AI is reshaping our daily lives and fundamentally changing how businesses operate,” said Erin Chapple, corporate vice president of Azure Core Product and Design, Microsoft. “We are focused both on the impact and opportunity for customers relative to AI today, and a generation ahead when it comes to our network infrastructure. Lumen has the network infrastructure and the digital capabilities needed to help support Azure’s mission in creating a reliable and scalable platform that supports the breadth of customer workloads—from general purpose and mission-critical, to cloud-native, high-performance computing, and AI, plus what’s on the horizon. Our work with Lumen is emblematic of our investments in our own cloud infrastructure, which delivers for today and for the long term to empower every person and every organization on the planet to achieve more.”
“We are preparing for a future where AI is the driving force of innovation and growth, and where a powerful network infrastructure is essential for companies to thrive,” said Kate Johnson, president and CEO, Lumen Technologies (a former Microsoft executive). “Microsoft has an ambitious vision for AI and this level of innovation requires a network that can make it reality. Lumen’s expansive network meets this challenge, with unique routes, unmatched coverage, and a digital platform built to give companies the flexibility, access and security they need to create an AI-enabled world.”
Lumen has launched an enterprise-wide transformation to simplify and optimize its operations. By embracing Microsoft’s cloud and AI technology, Lumen can reduce its overall technology costs, remove legacy systems and silos, improve its offerings, and create new solutions for its global customer base. Lumen will migrate and modernize its workloads to Microsoft Azure, use Microsoft Entra solutions to safeguard access and prevent identity attacks and partner with Microsoft to create and deliver new telecom industry-specific solutions. This element alone is expected to improve Lumen’s cash flow by more than $20 million over the next 12 months while also improving the company’s customer experience.
“Azure’s advanced global infrastructure helps customers and partners quickly adapt to changing economic conditions, accelerate technology innovation, and transform their business with AI,” said Chapple. “We are committed to partnering with Lumen to help deliver on their transformation goals, reimagine cloud connectivity and AI synergies, drive business growth, and help customers achieve more.”
This collaboration expands upon the longstanding relationship between Lumen Technologies and Microsoft. The companies have worked together for several years, with Lumen leveraging Copilot to automate routine tasks and reduce employee workloads and enhance Microsoft Teams.
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Lumen’s CMO Ryan Asdourian hinted the deal could be the first in a series of such partnerships, as network infrastructure becomes the next scarce resource in the era of AI. “When the world has talked about what’s needed for AI, you usually hear about power, space and cooling…[these] have been the scarce resources,” Asdourian told Fierce Telecom. Asdourian said Lumen will offer Microsoft access to a combination of new and existing routes in the U.S., and will overpull fiber where necessary. However, he declined to specify the speeds which will be made available or exactly how many of Microsoft’s data centers it will be connecting.
Microsoft will retain full control over network speeds, routes and redundancy options through Lumen’s freshly launched Private Connectivity Fabric digital interface. “That is not something traditional telecom has allowed,” Asdourian said.
Asdourian added that Lumen isn’t just looking to enable AI, but also incorporate it into its own operations. Indeed, part of its partnership deal with Microsoft involves Lumen’s adoption of Azure cloud and other Microsoft services to streamline its internal and network systems. Asdourian said AI could be used to make routing and switching on its network more intelligent and efficient.
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About Lumen Technologies:
Lumen connects the world. We are igniting business growth by connecting people, data, and applications – quickly, securely, and effortlessly. Everything we do at Lumen takes advantage of our network strength. From metro connectivity to long-haul data transport to our edge cloud, security, and managed service capabilities, we meet our customers’ needs today and as they build for tomorrow. For news and insights visit news.lumen.com, LinkedIn: /lumentechnologies, Twitter: @lumentechco, Facebook: /lumentechnologies, Instagram: @lumentechnologies and YouTube: /lumentechnologies.
About Microsoft:
Microsoft (Nasdaq “MSFT” @microsoft) creates platforms and tools powered by AI to deliver innovative solutions that meet the evolving needs of our customers. The technology company is committed to making AI available broadly and doing so responsibly, with a mission to empower every person and every organization on the planet to achieve more.
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References:
https://news.lumen.com/2024-07-24-Microsoft-and-Lumen-Technologies-partner-to-power-the-future-of-AI-and-enable-digital-transformation-to-benefit-hundreds-of-millions-of-customers
https://fierce-network.com/cloud/microsoft-taps-lumens-fiber-network-help-it-meet-ai-demand
AI Frenzy Backgrounder; Review of AI Products and Services from Nvidia, Microsoft, Amazon, Google and Meta; Conclusions
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Lumen to provide mission-critical communications services to the U.S. Department of Defense
Dell’Oro: Optical Transport market to hit $17B by 2027; Lumen Technologies 400G wavelength market
Comcast faces competitive intensity; loses 120K broadband subs in 2Q-2024
Comcast today reported adjusted earnings of $1.21 a share for the quarter, beating Wall Street’s call for $1.12, according to FactSet. Revenue of $29.7 billion was slightly below consensus estimates of $30 billion. However, the company reported a loss of 120,000 total domestic broadband customers and 419,000 domestic video subscribers in the 2nd quarter.
“The competitive intensity that we’ve seen for the past several quarters, and which is particularly felt in the market for price-conscious consumers, remains essentially unchanged,” Comcast President Mike Cavanagh said on today’s earnings call.
“One of the most important metrics we monitor is the magnitude of data traffic flowing across our network. And again, we saw a double-digit year-over-year growth this quarter, with broadband-only households consuming over 700 gigabytes of data each month. And our customers continue to take faster speeds, with around 70% of our residential subscribers receiving speeds of 500 megabits per second or higher and one-third getting a gigabit or more. These positive consumer trends play to our strengths and will only accelerate with the shift of live sports to streaming, which together with entertainment on streaming accounts for nearly 70% of our network traffic today.My final thought on broadband is the importance of bundling with mobile, with 90% of Xfinity Mobile smartphone traffic traveling over our WiFi network. These two products work seamlessly together to benefit our customers from both the products’ experience and financial value standpoint.”
Seaport Research analyst David Joyce:
“Due to continued Broadband subscriber losses (where growth is driven by pricing), an elevated competitive environment for the time being, and the mixed Media topline and profitability trajectories, we remain Neutral,” Joyce wrote. Sentiment will improve when there are signs of stabilization in broadband market share, he added.
Comcast is moving ahead with HFC network upgrades, including “mid-splits” that dedicate more capacity to the upstream. Watson said mid-splits have been completed in about 42% of Comcast’s HFC footprint, a figure he expects to reach 50% by the end of the year. Comcast’s mid-splits are occurring alongside a plan to deploy DOCSIS 4.0 upgrades that are initially delivering symmetrical speeds of up to 2 Gbit/s. Comcast has D4.0-based services available in three markets – Philadelphia, Atlanta and Colorado Springs – with Seattle up next.
Broadband average revenue per unit (ARPU), which was up 3.6% in the quarter, remains a bright spot as customers continue to gravitate to higher speed tiers. Comcast CEO Brian Roberts: “Broadband ARPU increased by 3.6% and we delivered 6% revenue growth in our connectivity businesses, while expanding our Adjusted EBITDA margin across Connectivity & Platforms to a record-high 41.9%.”
“Faster homes passed growth shouldn’t be expected to turn broadband subscribership back into a growth engine, but it is a critical factor in keeping broadband subscriber results stable,” MoffettNathanson analyst Craig Moffett explained in a research note (payment required) issued today.
Comcast also expects to participate in the $42.45 billion Broadband Equity Access and Deployment (BEAD) program.
Comcast’s pay-TV business continued its downward spiral. The company lost 419,000 video subs in Q2, an improvement from a year-ago loss of 543,000. Analysts were expecting Comcast to shed about 502,000 video subs in Q2.
The Peacock streaming service, which broadcasts live sporting events like the upcoming summer Olympics, reported paid subscribers soared 38% from a year ago to 33 million, while revenue rose 28% in the 2nd quarter to $1 billion.
2nd Quarter 2024 Highlights:
• Adjusted EPS Increased 7.0% to $1.21; Generated Free Cash Flow of $1.3 Billion, Including a Tax
Payment Related to the Previously Announced Hulu Transaction and Other Tax Related Matters
• Return of Capital to Shareholders Totaled $3.4 Billion Through a Combination of $1.2 Billion in
Dividend Payments and $2.2 Billion in Share Repurchases
• Connectivity & Platforms Adjusted EBITDA Increased 1.6% to $8.5 Billion and Adjusted EBITDA
Margin Increased 90 Basis Points to 41.9%, Its Highest on Record
• Continued the Successful Execution of Our Domestic Network Expansion and Upgrade Strategy;
Expanded Deployment of Mid-Split Technology to 42% of Our Footprint; And Added 302,000 New
Homes and Businesses Passed in the Second Quarter
• Domestic Broadband Average Rate Per Customer Increased 3.6%, Driving Domestic Broadband
Revenue Growth of 3.0% to $6.6 Billion.
• Domestic Wireless Customer Lines Increased 20% Compared to the Prior Year Period to 7.2 Million,
Including Net Additions of 322,000 in the Second Quarter.
• Business Services Connectivity Adjusted EBITDA Increased 4.4% to $1.4 Billion and Adjusted
EBITDA Margin Was 57.0%.
• Media Adjusted EBITDA Increased 9.0% to $1.4 Billion, Driven by Improved Performance at Peacock
• Peacock Paid Subscribers Increased 38.0% Compared to the Prior Year Period to 33 Million;
Peacock Revenue Increased 28% to $1.0 Billion; Best Year-Over-Year Improvement in Adjusted
EBITDA for Any Quarter Since Launch in 2020.
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References:
https://www.cmcsa.com/static-files/68abe434-80f7-437e-8e7a-fa457e43e63b
https://seekingalpha.com/article/4705822-comcast-corporation-cmcsa-q2-2024-earnings-call-transcript
Verizon Q2-2024: strong wireless service revenue and broadband subscriber growth, but consumer FWA lags
Verizon Communications wireless and wireline subscriber growth expectations in the second quarter beat estimates with 148K postpaid phone net additions vs. 118K expected. There were 391,000 total broadband wireline net additions. The company ended the quarter with 11.5 million broadband subscribers, up 17.2% year over year. However, the telecom company posted lower operating revenue that was below expectations. Earnings mostly matched expectations, but were below the year ago level.
“Demand for the service is strengthening as small businesses and enterprises continue to trust the reliability of the product and the speed and east of deployment,” Verizon CFO Tony Skiadas said on Monday’s earnings call.
- Verizon added 160,000 business Fixed Wireless Access (FWA) subs in 2Q-2024 – a record quarterly gain in the category that was better than the 138,000 expected by analysts. That quarterly intake was up from a gain of 133,000 in the year-ago quarter and improved from a gain of 151,000 in the prior quarter. Verizon ended Q2 with 1.52 million business FWA subs.
- The company added 218,000 residential FWA subs in Q2 2024, down from a gain of 251,000 in the year-ago quarter, but ahead of the 208,000 residential FWA subs added in the prior quarter. Verizon ended the period with 2.29 million residential FWA subs.
A recent OpenSignal study revealed that Verizon’s 5G customers are rarely connected to the 5G network – in range just 7.7% of the time compared to AT&T (11.8%) and T-Mobile (67.9%). Verizon has not come close to adding as many FWA subs as T-Mobile has each quarter, particularly in the residential market.
New Street Research expects Verizon to cross the 4 million FWA subscriber mark in mid-August. In New Street’s follow-up note, analyst Jonathan Chaplin points to a recent estimate from the firm that data consumption among consumer FWA subs could be four to five time greater than business subscribers. On that basis, an estimate of FWA capacity for 4.1 million Verizon subs would really equate to 6.1 million total customers, he wrote.
2Q 2024 Highlights:
Wireless: Accelerated growth in wireless service revenue
- Total wireless service revenue1 of $19.8 billion, a 3.5 percent increase year over year.
- Retail postpaid phone net additions of 148,000, and retail postpaid net additions of 340,000.
- Retail postpaid phone churn of 0.85 percent, and retail postpaid churn of 1.11 percent.
Broadband: Double-digit broadband subscriber growth
- Total broadband net additions of 391,000. This was the eighth consecutive quarter with more than 375,000 broadband net additions.
- Total fixed wireless net additions of 378,000. At the end of second-quarter 2024, the company had a base of more than 3.8 million fixed wireless subscribers, representing an increase of nearly 69 percent year over year.
- 11.5 million total broadband subscribers as of the end of second-quarter 2024, representing a 17.2 percent increase year over year.
- Fixed wireless revenue for second-quarter 2024 was $514 million, up more than $200 million year over year.
Other results and FY 2024 forecast:
- Verizon reported adjusted earnings of $1.15 a share for the quarter, in line with analyst expectations, but a slowdown from last year’s adjusted earnings of $1.21 a share. This was also the lowest earnings per share for a second quarter since 2017.
- Total operating revenue came in at $32.8 billion, 0.6% higher than a year ago, but below estimates of $33.8 billion.
- Total wireless service revenue was $19.8 billion, up 3.5% year over year, driven primarily by growth in Consumer wireless service revenue.
- FY-2024 Outlook: Verizon reiterated a 2.0% – 3.5% wireless service revenue growth. It maintained an adjusted EPS of $4.50 – $4.70 versus consensus of $4.58.
References:
Nokia cuts sales forecast as mobile sales drop 25%
Yesterday, Nokia cut its full-year sales forecast as the telecom market remains uncertain with network operators continuing to cut spending (CAPEX) in new network equipment, especially for the disappointing 5G (which is actually 4G with a 5GNR for 5G NSA which are by far the majority of 5G network deployments).
Nokia, like its Swedish rival Ericsson, has struggled to replace the strong revenue, high-margin contracts they enjoyed in North America early in the 5G cycle. When work in the region dried up, India became the main revenue generator, but work there attracted much lower margins and sales have now also slowed sharply.
Overall, sales at Nokia’s key mobile networks business fell 25% on year, mainly due to the sharp drop in India, but the company got a EUR150 million boost from a contract resolution with AT&T. 2Q-2024 net sales declined 18% y-o-y in constant currency (-18% reported) primarily due to strong year-ago quarter in India.
Nokia doesn’t provide specific group sales guidance but instead offers sales growth assumptions across its business units, which are all now seen at a weaker level than earlier as the expected net sales recovery is happening later than previously hoped.
The company said Thursday that comparable operating profit guidance of 2.3 billion euros to 2.9 billion euros ($2.52 billion-$3.17 billion) this year remains intact, tracking toward the mid-point or slightly below the mid-point.
“We believe the industry is stabilizing and given the order intake seen in recent quarters we expect a significant acceleration in net sales growth in the second half,” said Chief Executive Pekka Lundmark.
High inflation and rising interest rates have seen network operators spend cautiously over the last couple of years, but orders have slowly ticked higher over the last couple of quarters and the trend is continuing, particularly in network infrastructure, he said.
Late last year the U.S. operator awarded a major network contract to Ericsson for OpenRAN, replacing Nokia equipment. Nokia had contracts with AT&T and the Finnish company said it will still receive the value of those contracts while remaining a significant customer through other deals.
Network infrastructure sales declined 11% on the year, but Nokia said the unit has returned to growth in North America, which is important as it was one of the first markets to experience the 2023 market slowdown.
Nokia is desperately trying to reduce annual costs. Lundmark’s goal is to make cuts of between €800 million ($875 million) and €1.2 billion ($1.3 billion) by 2026, reducing the size of the workforce from about 86,000 employees when the program was first announced to between 72,000 and 77,000. Expect at least 14,000 Nokia employees to be axed in the next 18 months
To date, Nokia has been able to achieve “run-rate” savings of about €400 million ($437 million), it revealed in its earnings report.
“With the challenges of 2023 behind us, and more normalized customer inventory levels, we believe we can now look forward to a stronger second half and a return to growth [in network infrastructure], which we expect to continue into 2025,” Lundmark said.
The company reported an operating margin of 8.7% in its mobile networks unit and it now expects to report a margin of between 4% and 7% in 2024, from 1% to 4% previously. It reported a margin of 6.4% in network infrastructure and still expects a margin of between 11.5% and 14.5% this year.
Group comparable net profit fell 21% to EUR325 million in the second quarter, beating a FactSet estimate of EUR280 million. Sales fell 18% to EUR4.47 billion, missing consensus at EUR4.78 billion.
Improving cash generation means Nokia now intends to accelerate its continuing EUR600 million buyback program with the view to completing it by the end of this year, compared to its previous end-of-2025 target, it said.
References:
https://www.lightreading.com/5g/nokia-takes-big-axe-to-mobile-jobs-but-grows-footprint-outside-at-t
Analysts: Telco CAPEX crash looks to continue: mobile core network, RAN, and optical all expected to decline
Nokia (like Ericsson) announces fresh wave of job cuts; Ericsson lays off 240 more in China
Ericsson expects continuing network equipment sales challenges in 2024
Recon Analytics (x-China) survey reveals that Ericsson, Nokia and Samsung are the top RAN vendors
Nokia: 5G Costs Hit Q1 Outlook as Shares Crash and Dividend Suspended
Highlights of Ookla’s 1st Half 2024 U.S. Connectivity Report
Ookla reported that:
- 5G continues to expand (but without new 5G SA core network deployments), with T-Mobile leading on top-line performance, and the rest of the market playing catch-up. Fixed broadband speeds are also on the rise, driven by greater fiber deployment, and cable technology upgrades.
- T-Mobile continues to dominate the mobile landscape in the U.S., boasting the fastest speeds, best consistency, and top user ratings. T-Mobile was the fastest mobile provider in the U.S. during this period, based on Speedtest Intelligence® data for all technologies combined, with a Speed Score (which is NOT an actual speed) of 205.98. Its median download speed was 234.82 Mbps, a strong increase from 164.14 Mbps during the same period the previous year.
- Verizon Wireless and AT&T were runners up, with both driving increases in median download speeds.
- T-Mobile also led on median upload speed, with 13.30 Mbps, and on latency, with 48 ms.
- Connecticut topped the state rankings for fixed broadband download speeds, with a median almost 160 Mbps faster than last placed Alaska. Mobile was a similar story, with Illinois leading, some 120 Mbps faster than Alaska.
- Pittsburgh, Pennsylvania had the fastest median mobile download speed among the 100 most populous cities in the U.S. at 321.06 Mbps. Kansas City, Missouri was second; Raleigh, North Carolina was third; Indianapolis, Indiana fourth; and Nashville, Tennessee was fifth.
- Anchorage, Alaska had the slowest median mobile download speed at 58.63 Mbps. Reno, Nevada was second slowest; Honolulu, Hawaii third slowest; Orlando, Florida fourth slowest; and Toledo, Ohio was fifth slowest.
- T-Mobile was the fastest provider in 73 of the 100 most populous cities in the U.S.. Verizon Wireless was the fastest provider in Denver, Colorado; El Paso, Texas; Henderson, Nevada; Hialeah, Florida; Miami, Florida; and Newark, New Jersey. AT&T was fastest in San Francisco, California. Results were statistically too close to call in 20 cities.
- Verizon has started making inroads on performance, and recorded the best 5G Gaming Experience (who cares about that?).
- AT&T Fiber led in speed and consistency, while Verizon was best for video and gaming experiences.
“With this report, there should now be no doubt that T-Mobile has reigned as the nation’s network champion for years,” said Ulf Ewaldsson, president of technology at T-Mobile. “As 5G solutions continue to evolve, we will be right there, driving the industry forward as we have done since launching the first nationwide 5G network in 2019.”
In a separate report last month, Ookla noted that T-Mobile in March gained access to additional 2.5-GHz spectrum it won at auction 108 in 2022. Similarly, AT&T and Verizon have both benefited from the recent early vacation of C-band spectrum by satellite providers. Furthermore, AT&T acquired additional 3.45-GHz licenses that it won at auction 110 in January 2022.
“Speedtest Intelligence data shows a clear correlation between the release of additional mid-band spectrum, 5G performance, and consumer sentiment for 5G networks, with all three national wireless providers benefiting over the past six months,” said report author Mark Giles, lead industry analyst at Ookla. As a result, he expects 2024 “to drive renewed competitive pressure” between all US service providers.
References:
https://www.ookla.com/research/market-reports/united-states-speedtest-connectivity-report-h12024
https://www.telecoms.com/5g-6g/t-mobile-tops-another-speed-test-as-mid-band-spices-up-the-us
Analysts: Telco CAPEX crash looks to continue: mobile core network, RAN, and optical all expected to decline
Dell’Oro has just cut its outlook for mobile core spending for the fifth consecutive time. Not a single operator has adopted 5G SA this year.
“It bears repeating, this is the fifth consecutive time we have reduced the growth rate of the MCN market as the build-out of 5G SA networks continue to wane compared to 5G Non-standalone networks,” said Dave Bolan, Research Director at Dell’Oro Group. “This is the first 5-year forecast out of the last five where the 5-year CAGR (2023-2028) has fallen into negative territory. The count of 5G SA networks commercially deployed by MNOs remains the same as it was at the end of 2023, about 50 5G SA networks.
“For the same reasons outlined for the MCN market, we reduced the 5-year cumulative revenue forecast for the Multi-Access Edge Computing (MEC) market, a sub-segment of the MCN market, by 18 percent. In the case of MEC, the adoption rate is slowed much more dramatically than the overall MCN market. The industry is addressing these concerns with several initiatives such as open gateway application programmable interfaces (APIs) to attract the application development community to develop applications for the mobile industry that can easily be leveraged across all MNOs. Release 18 is introducing capabilities for new use cases, and Reduced Capability (RedCap) RAN software to bring more 5G IoT devices to market. However, these will take time to bring solutions to market and more importantly at scale to have an impact on the overall market growth,” Bolan added.
Additional highlights from the Mobile Core Network & Multi-Access Edge Computing 5-Year July 2024 Forecast Report:
- The CAGR is negative for all product segments—Packet Core, Policy, Signaling, Subscriber Data Management, and IMS Core.
- The CAGR for the market segments is positive for 5G MCN and MEC, and negative for 4G MCN and IMS Core.
- The CAGR by regions is positive for Asia Pacific excl. China, Europe, Middle East and Africa (EMEA), and Worldwide excluding China. The regions with negative CAGRs are North America, CALA, China, and Worldwide excluding North America.
Dell’Oro has called the RAN market as “a disaster.” “It’s difficult to find a silver lining in the first quarter,” said Stefan Pongratz, Vice President and analyst at the Dell’Oro Group. “We’ve been monitoring the RAN market since the year 2000, and the contraction experienced in the first quarter marked the steepest decline in our entire history of covering this market. In addition to the known coverage related challenges that the market is dealing with when comps in the advanced 5G markets are becoming more challenging, there are now serious concerns about the timing of the capacity upgrades given current network utilization levels and data traffic growth rates,” continued Pongratz.
While the overarching RAN sentiment appears to be mostly aligned over the long term, it is worth noting that internal expectations across the key players vary quite a bit over the short term. In addition to the coupling between coverage capex and the state of the 5G networks (per Ericsson’s Mobility report, 5G POP coverage is lower in CALA/MEA/APAC excl China&India), the dynamics between urban and rural sites also impact growth prospects. The Chinese RAN vendors are generally more optimistic about 2024 than the leading non-Chinese RAN suppliers.
It’s no secret that telecom operators are scaling back their investments in 5G. Preliminary findings show that worldwide telecom capex, the sum of wireless and wireline/other telecom carrier investments, declined for the full year 2023 in nominal USD terms, recording the first contraction since 2017. This deceleration in the broader capex spend is consistent with the aggregate telco equipment slump previously communicated for the six Dell’Oro telecom programs (Broadband Access, Microwave Transmission & Mobile Backhaul, Optical Transport, Mobile Core Network, Radio Access Network, Service Provider Routers & Switch).
“The fundamental challenges have not changed. Operators have a fixed capital intensity budget and capex is largely constrained by the revenue trajectory,” said Stefan Pongratz, Vice President and analyst with Dell’Oro Group. “What is complicating the situation is that the revenue pie remains fixed. Following some positive developments amidst the peak of the Covid-19 pandemic, our analysis shows that operator revenue growth slowed in 2023 and has more or less remained stagnant over the past decade. And based on the guidance, operators, in general, are not overly optimistic that emerging opportunities with generative AI, edge computing, enterprise 5G, FWA, and 5G-Advanced will expand the pie,” continued Pongratz.
Additional highlights from the Dell’Oro March 2024 Telecom Capex report:
- Global carrier revenues are expected to increase at a 1 percent CAGR over the next 3 years.
- Market conditions are expected to remain challenging in 2024. Worldwide telecom capex is now projected to decline at a mid-single-digit rate in 2024 and at a negative 2 to 3 percent CAGR by 2026.
- The mix between wireless and wireline remains largely unchanged, reflecting challenging times still ahead for wireless. Wireless related capex is on track to decline at a double-digit rate in the US in 2024.
- 5G era capital intensity ratios peaked in 2022 and are on track to approach 15 percent by 2026, down from 18 percent in 2022.
The market research firm and also forecasts optical transport spending (which includes 5G backhaul) to decline as well.
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What’s more important is that mobile network traffic growth is slowing. In the latest Ericsson mobility report, the authors cut mobile data traffic figures for the second half of 2023, yet declared that the growth outlook was virtually unchanged.
William Webb, a consultant and senior advisor at Access Partnership, is one who’s called out the authors of the report for this leap in logic. “If lower numbers are being reported for 2023 … then why should the traffic growth rate predicted remain the same?” he posted on LinkedIn. He denounces the forecast as “a mess,” pointing out that the report, without any explanation, has somehow introduced a 10% jump in growth over 2023-24 to bring its new forecast into line with the old.
Separately, a new Analysys Mason paper says the telecom industry is running up against the limits of growth and faces a “crisis of bandwidth overproduction.” It says the telco responses to this looming crisis – volume price discounts and untried business models – replicate every other other industry in the same predicament. “Growth rates are not declining because of supply-side constraints such as spectrum or coverage; access networks have never been emptier,” the author argues. “Rather, the two principal drivers of traffic growth, smartphone usage and broadcast-to-streaming migration on mobile and fixed networks, respectively, have both run up against human limits; limited hours for engagement and the limits of human vision.”
If demand does not revive, then the lower unit costs brought about by over-investment in capacity will result in further deflation of margins and profitability, the paper maintains. It calls on telcos to reduce CAPEX to make available more resources to invest in M&A, into other adjacent infrastructure businesses, or in some key non-connectivity B2B segments.
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References:
https://www.lightreading.com/6g/the-specter-of-a-capex-drought-looms-over-6g