By Matt Walker
Cisco, Samsung, and ZTE benefit most from Huawei bans in 2021 in the telco Network Infrastructure market. (However, the market share gains were miniscule= <1% for each network equipment vendor).
2021 results for the 100+ vendors selling into the telco market are just about finalized. Contrasting 2021 telco network infrastructure (NI) market share with 2020, we note the following NI Equipment Vendor Market Share Changes:
Cisco clearly came out on top, gaining 0.7% share in a market worth $231.4 billion (B). Cisco was helped both by a telco shift in 5G spending towards core networks, and Huawei’s entity list troubles.
Samsung’s share growth of 0.3% was due to a big win with Verizon and a growing telco interest in seeking RAN alternatives beyond Ericsson and Nokia. ZTE, which has escaped the US entity list to date, also picked up some unexpected 5G wins but its growth is more broad-based due to optical, fixed broadband, and emerging market 4G LTE business.
Dell (including VMWare), Microsoft, and Amazon also picked up share as telcos have begun investing in 5G core and cloud technologies. Their growth has little to do with Huawei, and more due to telcos’ ongoing changes to network architecture and service deployment patterns. Corning was an unexpected winner in 2021, gaining 0.2% share on the back of fiber-rich wireless deployments and government support for rural fiber builds.
On the flip side, both Nokia and Ericsson lost share in the overall telco NI market in 2021. Their RAN revenues benefited from Huawei’s troubles in 2020 but telco spending has since shifted towards product areas with more non-Huawei competition. Both vendors are attempting to diversify beyond the telco market, with Nokia so far having more success; its non-telco revenues grew 12% in 2021.
Huawei’s share of telco NI declined to 18.9% in 2021, down from a bit over 20% in both 2019 and 2020. The US Commerce Department’s entity list restrictions were issued in May 2019 but hit the hardest in late 2020 and 2021, after Huawei’s inventory stockpiles began running out.
Huawei’s messaging on its recent fall is muddled. During its annual report webcast yesterday, it cited three factors behind its 2021 revenue decline: supply continuity challenges, a drop in Chinese 5G construction, and COVID. In MTN Consulting’s opinion, supply continuity was the main factor. A related factor were the many government-imposed restrictions on using Huawei gear around the world, especially in Europe where 5G spending was strong in 2021. The other two factors cited by Huawei’s CFO, however, are misleading. Chinese telco network spending, overall, was relatively strong in 2021: total capex for the big three telcos was $52.8B, up 8% from 2020. Without this rise, Huawei’s 2021 results would have been worse. As for COVID, few other vendors cite the pandemic as a factor restraining 2021 telco spend. More vendors cite the opposite: 2021 spending was strong in part because telcos were forced to delay many projects during COVID’s early spread.
To date, Huawei’s troubles have impacted RAN markets the most, but in 2022 and 2023 will begin spreading more clearly to IP infrastructure, optical, microwave, fixed broadband, and other areas. A number of vendors are eager to pursue new opportunities as this happens, including Adtran/ADVA, Ciena, Cisco, CommScope, DZS, and Infinera. The CEO of Infinera, in fact, said on its 4Q21 earnings call that “it was a nice taste, a nice appetizer in 2021, but…we said all along that we would see the design wins and RFPs really scaling and we thought that we’d see revenues from that really beginning to take hold as we got into 2023.”
To date, Huawei has been unable to fully adapt to the supply chain restrictions put in place in 2019. It remains the global #1 in telco NI, however, due to dominance in China and a huge installed base across the globe. The company is investing heavily in carrier services & software, Huawei Cloud and new product areas. One certainty is that it won’t simply fade away, despite the current decline.
In contrast, Dell’Oro estimates suggest the overall telecom equipment market advanced 7% in 2021, recording a fourth consecutive year of growth, underpinned by surging wireless revenues and healthy demand for wireline-related equipment spurred on by double-digit growth both in RAN and Broadband Access. Total worldwide telecom equipment revenues approached $100 B, up more than 20% since 2017.
Initial readings suggest the playing field is more even outside of China, with Ericsson and Nokia essentially tied at 20% and Huawei accounting for around 18% of the market.
According to a newly published report by Dell’Oro Group, total global revenue for the Broadband Access equipment market increased to $16.3B in 2021, up 12 percent year-over-year (Y/Y). Growth came once again from spending on both PON infrastructure and fixed wireless CPE.
“2021 was a record year for PON (Passive Optical Network) equipment spending, with some of the highest growth coming from the North American market, where expansion projects and fiber overbuilds are picking up considerably,” said Jeff Heynen, Vice President, Broadband Access and Home Networking at Dell’Oro Group. “These fiber expansion projects show no signs of slowing heading into 2022.”
Additional highlights from the 4Q 2021 Broadband Access and Home Networking quarterly report:
- Total cable access concentrator revenue increased 4 percent Y/Y to just over $1B. Steady growth in Distributed Access Architecture (DAA) deployments helps offset declines in traditional CCAP licenses.
- Total PON ONT unit shipments reached a record 140 M units for the year, bucking the supply chain constraints that have dogged the cable CPE market.
Separately, Dell’Oro just completed the 4Q2021 reports for all the Telecom Infrastructure programs covered, including Broadband Access, Microwave & Optical Transport, Mobile Core Network (MCN), Radio Access Network (RAN), and SP Router & Switch. The data contained in these reports suggests that total year-over-year (Y/Y) revenue growth slowed in the fourth quarter to 2%, however, this was not enough to derail full-year trends.
The market research firm estimates suggest the overall telecom equipment market advanced 7% in 2021, recording a fourth consecutive year of growth, underpinned by surging wireless revenues and healthy demand for wireline-related equipment spurred on by double-digit growth both in RAN and Broadband Access. Total worldwide telecom equipment revenues approached $100 B, up more than 20% since 2017.
In addition to challenging comparisons, we attribute the weaker momentum in the fourth quarter to external factors including COVID-19 restrictions and supply chain disruptions.
The analysis contained in these reports suggests the collective global share of the leading suppliers remained relatively stable between 2020 and 2021, with the top seven vendors comprising around 80% of the total market.
Despite U.S. sanctions, Huawei continued to lead the global market, underscoring its grip on the Chinese market, depth of its telecom portfolio, and resiliency with existing footprints. Initial readings suggest the playing field is more even outside of China, with Ericsson and Nokia essentially tied at 20% and Huawei accounting for around 18% of the market.
The relative growth rates have been revised upward for 2022 to reflect new supply chain and capex data. Still, global telecom equipment growth is expected to moderate from 7% in 2021 to 4% in 2022.
Risks are broadly balanced. In addition to the direct and indirect impact of the war in Ukraine and the broader implications across Europe and the world, the industry is still contending with COVID-19 restrictions and supply chain disruptions. At the same time, wireless capex is expected to surge in the U.S. this year.
Top 10 Enterprise Network Equipment Vendors:
ZTE is on a roll! China’s #2 telecom firm said in its annual report that it gained market share in China last year for servers, core networks and storage solutions — the three areas where Huawei is a key player. Revenues grew at a double-digit percentage rate last year, rising inside and outside China and across all three business units – carrier (networks), enterprise (business) and consumer (gadgets).
With TSMC’s business booming, Nikkei Asia believes that ZTE is quietly building a technological edge in the base station market for fifth-generation (5G) cellular connectivity. These base stations are used by telecommunications carriers to meet consumer demands, and the publication believes that ZTE has designed its equipment to be based on the 7-nanometer (nm) process node.
The company [ZTE] has been utilizing some of TSMC’s most advanced chip production technology — the so-called 7-nm tech — to build processors for its 5G base stations. Sources said it also uses the Taiwanese chipmaker’s advanced chip packaging technology, which uses stacking technology to arrange chips with different functions into one package.
Nikkei Asia also said that Huawei’s inability to conduct business with TSMC due to American sanctions has left the field wide open for ZTE. The company is targeting double-digit growth for its server and base station segment, and it is also interested in TSMC’s leading-edge chip node, which is the company’s 5nm process.
However, while ZTE might not be sanctioned to procure the latest chip technologies from TSMC, the company still can not sell its 5G base stations to several Western companies. This has resulted in it focusing its efforts mostly on China, as the U.S. will rely on small cell 5G Open RAN platform developed by Qualcomm Incorporated on the 4nm node.
Source: Jordi Boixareu/Alamy Live News
“ZTE has turned quite aggressive in pursuing its chip capability in the past few years. Although the volume is still small, it is showing impressive progress,” said one unnamed source.
TSMC, as well as ZTE, seems to be on a very solid growth track. On the back of another robust set of quarterly financials Q4 FY21 and a strong balance sheet, the world’s #1 chip making firm announced a massive capex budget hike to increase manufacturing capacity in “advanced process technologies,” including 2nm, 3nm, 5nm and 7nm.
TSMC also sells products built on the 4nm, which is a design extension of the company’s 5nm process families. Different process technologies marketed under the 4nm branding are expected to commence production from the second half of this year to the first half of 2023.
Dell’Oro Group just completed their 3Q21 reporting period for all the Telecommunications Infrastructure programs covered. Those include: Broadband Access, Microwave & Optical Transport, Mobile Core & Radio Access Network (RAN), SP Router & Switch.
The data contained in these reports suggest that the positive trends that characterized the broader telecom equipment market in the first half of 2021 extended into the third quarter, propelling the overall telecom equipment market to a sixth consecutive quarter of year-over-year (Y/Y) growth in revenues.
Preliminary estimates suggest the overall telecom equipment market advanced 6% Y/Y in the quarter and 9% Y/Y year-to-date (YTD). The growth in the quarter was underpinned by healthy demand for both wireless and wireline equipment.
While the majority of the suppliers were able to navigate the supply chain situation fairly well in the first half, supply chain disruptions had a greater impact in the third quarter, though clearly this was not enough to derail the positive momentum that has characterized the market over the past six quarters.
The analysis contained in these reports suggests the collective global share of the leading suppliers remained relatively stable between 2020 and 1Q21-3Q21, with the top seven vendors comprising around ~80% of the total market.
Ongoing efforts by the US government to curb the rise of Huawei is starting to show in the numbers, especially outside of China. At the same time, Huawei continued to dominate the global market, still nearly as large as Ericsson and Nokia combined.
Overall, we believe ZTE and Samsung are trending upward while Huawei is losing some ground YTD relative to 2020.
Additional key takeaways from the 3Q21 reporting period include:
- Positive market sentiment in the third quarter was driven by strong growth in RAN and Broadband Access, which was more than enough to offset weaker trends in Optical Transport.
- RAN and Broadband Access are also the strongest growth vehicles for the YTD period, fueled by surging demand for 5G, PON, and FWA CPEs.
- With the pandemic resurging and the visibility surrounding the supply chain weakening, the Dell’Oro analyst team is expecting near-term growth to decelerate – the overall telecom equipment market is now projected to advance 2% in 2022, down from 8% in 2021.
Dell’Oro Group telecommunication infrastructure research programs consist of the following: Broadband Access, Microwave Transmission & Mobile Backhaul, Mobile Core Networks, Radio Access Network, Optical Transport, and Service Provider (SP) Router & Switch.
Telecom network infrastructure (NI) vendors had a 5.1% year-over-year (YoY) increase in revenue during the second quarter 2021, reflecting a significant pullback from a 10% gain in the previous quarter, according to MTN Consulting.
The market share leaders in the global telco NI market remain Huawei, Ericsson, Nokia, and ZTE, who are also the top providers of 5G infrastructure. After these top four, China Comservice took the fifth spot in 2Q21 due to services sales with domestic telcos. Cisco and Intel followed in the sixth and seventh spots, leveraging strength in the router market, and data centers and virtualization, respectively. CommScope, NEC, and Fiberhome round out the top 10.
- CommScope is a key provider in the connectivity market, both fixed and mobile, and for broadband CPE.
- NEC is becoming an important player in the emerging open RAN market.
- Fiberhome has a significant market share for network equipment in the Chinese telco market, across optical transport and mobile networks.
- Samsung, ranked 11 in 2Q21, is also a notable player in telco NI, as it is rising in the US due to success at Verizon, and has strong potential in Europe.
MTN Consulting’s telco network infrastructure market share study includes a wide range of vendor types and cuts across hardware, software, and services. That’s in contrast to other market research firms that only count telecom equipment vendors.
If one considers only hardware and software revenues from network equipment providers (NEPs), total revenues were $121.6 billion for the 2Q2021 annualized. The top ten providers for this market are Huawei, Nokia, Ericsson, ZTE, Intel, NEC, Cisco, Fiberhome, Samsung, and Fujitsu. The top four of these suppliers account for 64% of market revenues. This category (NEP hardware & software) most directly maps into what is sometimes reported as the “telecom equipment” market.
Vendors collectively received $110.4 billion in revenue during the first half of 2021, up 7.4% from the first half of 2020. Some of that growth can be attributed to a weak first half of 2020 when the initial spread of COVID-19 clobbered network infrastructure spending plans, Matt Walker, chief analyst at MTN Consulting, explained.
“Labor costs are a big part of telco opex (and rising), and automation is a key area of investment in 2021 for nearly all major telcos,” Walker wrote. “Numerous telcos are reporting that network operations are taking up a larger portion of the opex pie. This is important because vendors are increasingly selling into opex budgets within their telco customers, not just capex budgets. That’s especially true on the services and software sides.”
Total telco capex for the first half of 2021 jumped 9.8% year over year to $151.1 billion, he said, noting that the analyst firm added Airspan, Google Cloud, Amazon Web Services (AWS), and Microsoft Azure to its telco market coverage at the beginning of 2021. Telco capex grew 15% year over year in the second quarter of 2021 while telco opex climbed 14% during the same period.
The biggest YoY Telco NI sales jumps in 1H21 were easily recorded by Ericsson and Nokia, up $1.46 and $1.01B respectively. Cisco, Samsung, and Dell Technologies (VMWare) also saw sizable growth in the telco vertical, as did several vendors riding China’s 5G boom: China Comservice, ZTE, and Fiberhome. On the downside, Huawei’s $1.48B YoY decline in Telco NI sales in 1H2021 was far worse than any other supplier (due to being banned by the U.S. and other countries for political reasons).
Huawei market share decreased the most YoY, when comparing its annualized share in 2Q2021 with that of 2Q2020. As predicted, the company’s share of telco NI has now fallen below 20% (19.01% in 2Q2021, annualized).
For other NI vendors, most changes are due to one of three factors: M&A, telco spending cycles, and technology dislocations.
- Recent M&A deals of note include Capgemini-Altran, CommScope-ARRIS, ECI-Ribbon, Hengtong-Huawei Marine, Casa-Netcomm, and Amdocs-Openet.
- A number of vendors have been impacted by telcos’ 5G infrastructure push, including the recent shift towards core network spending.
- Several large countries are seeing growth in fiber access deployment spending.
- Telcos’ increased adoption of the cloud in a variety of forms cuts across a large number of the changes seen in the below charts. AWS, Azure and GCP have all seen dramatic growth in their telco vertical revenues in the last few quarters, as has Dell Technologies (VMWare) and Arista.
Regarding declines in NI market share, Samsung’s annualized share change reflects a dropoff in Korean 5G spend as it still awaits a pickup in the US, India and/or Europe.
Nokia’s share has stabilized, after falling due to a perception of falling behind in mobile RAN radio technology, as well as its backing away from China. Huawei’s share decline is due to political and supply chain obstacles.
Webscalers/Cloud Service Providers Penetrate Telco Market:
Nearly a decade ago, as cloud services began gaining popularity, many telcos hoped to be direct beneficiaries on the revenue side. The cloud market went a much different direction, though, with large internet-based providers (aka webscalers) proving to have the global scale and deep pockets able to develop the market effectively. From 2011-2020 webscale operators invested over $700 billion in capex, a big portion of it devoted to building out their cloud infrastructure.
The cloud sector has geared its offerings to businesses of all stripes and sizes. Serving telecom operators was not an initial focus for many reasons. Telcos have unique network requirements and stringent reliability criteria, and tend to make purchasing decisions slowly. Many telcos also viewed cloud providers with trepidation, as potential competitors on the enterprise side. Yet the telecom market is also one of the biggest around, viewed as a prize worth fighting for. Nearly $300 billion in annual capex and $1.2 trillion in opex (excluding depreciation) are figures that are hard to ignore. Amazon Web Services (AWS) made the earliest strides in telecom, in 2015 (with Verizon), but Azure and GCP were serious about the market by 2017. Last year, Microsoft bolstered its 5G and cloud-based telecoms offerings with the big-ticket acquisitions of Affirmed Networks and Metaswitch Networks.
This telco-webscale collaboration activity has picked up in the last 12-18 months. Webscale operators help telcos with service and application development, shifting of workloads, and developing, enabling and marketing cloud-based services. Collaborations can involve delivery of a portfolio of 5G edge computing solutions that leverage the telco’s 5G network and the webscale operator’s global cloud coverage, as well as its expertise in areas like Kubernetes, AI/ML, and data analytics. Managing costs is a central purpose of telcos’ willingness to partner with webscale providers. Increasingly, the webscale operators who deliver cloud services are competing alongside traditional telco-facing vendors like Amdocs, Citrix, CSG and Nokia.
For the four quarters ended 2Q2021, MTN Consulting estimates that AWS, Azure and GCP had aggregate revenues to the telco sector of $1.92 billion, up 78% from the 1Q2020 annualized period. These cloud providers will sometimes be valuable partners for telco-focused vendors, but in many cases they will be competitors, and are important to track.
Telco spending outlook for remainder of 2021:
Telco industry capex is likely to come in around $300B for 2021, only slightly up from $295B in 2019. Telco opex budgets are a bit more appealing for vendors. Opex (excluding depreciation & amortization) is roughly 4x capex, and the network operations-related (“netops”) piece of opex is growing for many telcos. For 2021, MTN Consulting projects netops opex of about $297B, from $282B in 2020, and telco outsourcing of netops tasks are widespread and growing. Cloud providers are taking advantage of some of this growth, but a large number of traditional Telco NI vendors sell into telco opex budgets.
In a related report, MTN says that telco revenues surged to 12.2% (for the first time in at least a decade on a YoY basis) coming in at $478.4 billion (B). But this unusually high growth is due to a weak base in 2Q20, when revenues totaled $426.5B, the lowest ever during the 1Q2011-2Q2021 period. Also, as witnessed in 1Q2021, the trend of currency appreciation against the US dollar in several key markets continued to play out in the latest quarter.
Annualized telco revenues also grew for the second straight quarter, posting $1.88 trillion with a YoY growth rate of 5.5% in 2Q21. At the network operator level, five of the top 20 best performing telcos by topline in 2Q21 posted double-digit growth on an annualized basis. These include Deutsche Telekom (30.6% YoY vs. annualized 2Q20), China Telecom (17.6%), China Mobile (17.3%), and China Unicom (14.1%). By the same criteria, the worst telco growth came from Softbank (-13.9%) during the same period. America Movil and Telefonica were only the two other operators among the top 20 to post a decline in revenues. While the big swings at Deutsche Telekom and Softbank are due to the former closing its acquisition of Sprint from Softbank in April 2020, growth witnessed by other operators was mostly an outcome of low base effect. Another factor for some operators is non-service revenues, as these have grown with 5G device sales in many markets.
The biggest capex spender in 2Q21 on a single quarter and annualized basis was China Mobile. This was despite the company’s YoY drops of 6.4% and 15.3% in the single quarter and annualized 2Q21 periods, respectively, enabled by CM’s network partnership with CBN. Nine out of the top 20 operators by annualized capex spend posted double-digit growth rates in the period ended 2Q21. Some of these include: Deutsche Telekom (52.1% YoY vs. annualized 2Q20), Vodafone (24.2%), Orange (17.6%), and BT (25.6%). On an annualized capital intensity basis, Rakuten beats all other telcos handily with a roughly 183% capex/revenue ratio for the quarter; its greenfield network rollout is reaching its peak. Other capital intensity standouts include: Globe Telecom (49.9%), PLDT (43.1%), Oi (41%), Telecom Egypt (34.1%), CK Hutchison (32.7%), True Corp (31.3%), and Digi Communications (31.2%).
To improve operational efficiency, telcos are resorting to several initiatives specifically aimed at digitizing the sales and marketing function. Amid the pandemic last year, telcos were forced to operate with minimal human intervention, and automation efforts have only accelerated since then. As telco execs aim for more automated networks to sustain and grow profitability, automation will be a key selling point for vendor solutions.
Telco industry headcount continues to decline, falling to 4.838 million in 2Q21, down from 4.944 million a year ago. Telco spending on digital transformation, software-defined networks (SDN) and AI tools have facilitated a smaller workforce. MTN Consulting expects headcount reductions to continue via attrition and voluntary retirement schemes, heading towards 4.5 million by 2025. However, we also expect telcos to invest heavily in their workforce: retraining existing employees on digital platforms, and hiring highly skilled software savvy employees. The average telco employee salary will rise as a result, an outlook consistent with 2Q21 results – annualized labor costs per employee increased to $61.5K in 2Q21 from $57.8K in 2Q20.
All four major geographical regions experienced double-digit growth in revenues from 2Q2020. But in capex terms, Europe was a standout as it managed to grow by 29.9% on a YoY basis in 2Q2021. The region also recorded not just an uptick but also the highest annualized capital intensity of 18.4% in 2Q2021, while all other regions witnessed a fall when compared to the same period last year. Europe’s capex growth story is courtesy of a late start to 5G spending due to delayed spectrum auctions, coupled with increased efforts in FTTH deployments and government-supported rural rollouts.
Dell’Oro Group has completed its 1H2021 reports on “Telecommunications Infrastructure programs” including Broadband Access, Microwave & Optical Transport, Mobile Core & Radio Access Network (RAN), Service Provider Router & Switch markets. The data contained in these reports suggest that the positive trends that characterized the broader telecom equipment market extended into the second quarter, even if the pace of the growth slowed somewhat between the first and the second quarter.
Preliminary estimates suggest the overall telecom equipment market advanced 10% year-over-year (Y/Y) during 1H21 and 5% Y/Y in the quarter, down from 16% Y/Y in the first quarter. The growth in the first half was primarily driven by strong demand for both wireless and wireline equipment, lighter comparisons, and the weaker US Dollar (USD). Helping to explain the Y/Y growth deceleration between 1Q and 2Q is slower growth in China.
The analysis contained in these reports suggests the collective global share of the leading suppliers remained relatively stable between 2020 and 1H21, with the top seven vendors comprising around ~81% of the total market.
Huawei is still the overall market leader by some margin, despite its sales and marketing challenges in many other parts of the world. Huawei’s market share slid below 30%, though that still almost double the share of its nearest rivals Ericsson and Nokia. Within the mix, Dell-Oro estimates Huawei and Nokia lost some ground between 2020 and 1H21 while Cisco, Ericson, Samsung, and ZTE recorded minor share gains over the same period.
Additional key takeaways from the 1H2021 reporting period include:
- Following the Y/Y decline in 1Q20, our analysis suggests the overall telecom equipment market recorded a fifth consecutive quarter of growth in the second quarter.
- The improved market sentiment in the first half was relatively broad-based, underpinned by single-digit growth in SP Routers and double-digit advancements in Broadband Access, Microwave Transport, Mobile Core Networks, and RAN.
- Aggregate 2Q21 revenues were in line with expectations, however, within the programs both Broadband Access and Microwave Transport were surprised on the upside while Optical Transport and SP Routers came in below expectations.
- From a regional perspective, China underperformed in the quarter, impacting the demand for both wireless and wireline-related infrastructure.
- Ongoing efforts by the US government to curb the rise of Huawei are starting to show in the numbers outside of China, not just for RAN but in other areas as well.
- Though Huawei is not able to procure custom ASICs for its telecom products, the supplier is assuring the analyst community its current inventory levels is not a concern over the near term for its infrastructure business.
- The majority of the vendors have through proactive measures been able to navigate the ongoing supply chain shortages and minimize the infrastructure impact. At the same time, the supply constraints appear more pronounced with higher volume residential and enterprise products including CPE and WLAN endpoints.
- Even with the unusual uncertainty surrounding the economy, the supply chains, and the pandemic, the Dell’Oro analyst team remains optimistic about the second half – the overall telecom equipment market is projected to advance 5% to 10% for the full-year 2021, unchanged from last quarter.
Two of the key telecom revenue drivers will be the RAN and Broadband Access markets, both of which have been growing at a strong pace this year so far: The RAN market is set to grow at between 10% and 15% this year, which means it could be worth as much as $40 billion, while the increasing number and size of investments in fibre broadband access networks around the world is driving growth in the Broadband Access market, which Dell’Oro reports was worth $3.6 billion during the second quarter alone.
Dell’Oro Group telecommunication infrastructure research programs consist of the following: Broadband Access, Microwave Transmission & Mobile Backhaul, Mobile Core Networks, Mobile Radio Access Network, Optical Transport, and Service Provider (SP) Router & Switch.
Worldwide 5G network infrastructure revenue is on pace to grow 39% to total $19.1 billion in 2021, up from $13.7 billion in 2020, according to the latest forecast by Gartner, Inc.
Communications service providers (CSPs) in mature markets accelerated 5G development in 2020 and 2021 with 5G representing 39% of total wireless infrastructure revenue this year.
“The COVID-19 pandemic spiked demand for optimized and ultrafast broadband connectivity to support work-from-home and bandwidth-hungry applications, such as streaming video, online gaming and social media applications,” said Michael Porowski, senior principal research analyst at Gartner.
5G is the fastest growing segment in the wireless network infrastructure market (see Table 1). Of the segments that comprise wireless infrastructure in this forecast, the only significant opportunity for investment growth is in 5G. Investment in legacy wireless generations is rapidly deteriorating across all regions and spending on non-5G small cells is poised to decline as CSPs move to 5G small cells.
Table 1: Wireless Network Infrastructure Revenue Forecast, Worldwide (Millions of U.S. Dollars)
|Segment||2020 Revenue||2021 Revenue||2022 Revenue|
|LTE and 4G||17,127.8||14,569.1||12,114.0|
|3G and 2G||3,159.6||1,948.2||1,095.2|
|Small Cells Non-5G||6,588.5||7,117.9||7,113.9|
Source: Gartner (August 2021)
Regionally, CSPs in North America are set to grow 5G revenue from $2.9 billion in 2020 to $4.3 billion in 2021, due, in part, to increased adoption of dynamic spectrum sharing and millimeter wave base stations. In Western Europe, CSPs will prioritize on licensing spectrum, modernizing mobile core infrastructure and navigating regulatory processes with 5G revenue expected to increase from $794 million in 2020 to $1.6 billion in 2021.
Greater China is expected to maintain the No.1 global position in global 5G revenue reaching $9.1 billion in 2021, up from $7.4 billion in 2020. With China’s government funding 5G development for the three state owned carriers, that’s no surprise.
The big beneficiaries of China’s 5G infrastructure spending will be its domestic equipment makers, Huawei, ZTE, and (state owned) Datang Telecom. Despite clamoring for Sweden to permit Huawei 5G equipment to be deployed, Ericsson only received 3% of a joint 5G radio contracts from China Telecom, China Unicom and 2% from China Mobile, according to Reuters. Nokia, which was expected to take away Ericsson’s market share in China, did not receive any share, according to a tender document published by the Chinese companies.
In a way that’s a win for the Swedish vendor – and a brief share price hike backs up that statement – which won just 2% of an earlier deal from China Mobile. But if they want to secure their share of the multiple billions of dollars of global 5G infrastructure revenues forecast by Gartner, the likes of Ericsson and Nokia will need to keep winning contracts in their home markets.
5G Coverage in Tier-1 Cities Will Reach 60% in 2024:
While 10% of CSPs in 2020 provided commercialized 5G services, which could achieve multiregional availability, Gartner predicts that this number will increase to 60% by 2024, which is a similar rate of adoption for 4G- LTE in the past.
“Business and customer demand is an influencing factor in this growth. As consumers return to the office, they will continue to upgrade or switch to gigabit fiber to the home (FTTH) service as connectivity has become an essential remote work service,” said Porowski. “Users will also increasingly scrutinize CSPs for both office and remote work needs.”
This rapid shift in customer behavior is driving growth in the global passive optical network (PON) market as a preferred technology. The 10-Gigabit-capable symmetric-PON (XGS-PON) is not a new technology and with the price difference with other technologies narrowing, CSPs are willing to invest in XGS-PON to differentiate themselves in customer experience and network quality. Gartner estimates that by 2025, 60% of Tier-1 CSPs will adopt XGS-PON technology at large-scale to deliver ultrafast broadband services to residential and business users, up from less than 30% in 2020.
Gartner clients can learn more in the reports “Forecast Analysis: Communications Service Provider Operational Technology, Worldwide” and “Forecast: Communications Service Provider Operational Technology, Worldwide, 2019-2025, 2Q21 Update.”
While Gartner did not split out small cells’ contribution to the overall 5G infrastructure segment, evidence thus far suggests the market is progressing more slowly than many had once believed.
Last month, Crown Castle increased its guidance for the second time this year due to a strong cell towers market, but halved the number of small cells it expects to deploy in 2021 to 5,000. The company noted that wireless network operators have focused on tower-based 5G rollouts at the expense of small cells.
Preliminary estimates from Dell’Oro Group suggests the overall telecom equipment market – Broadband Access, Microwave & Optical Transport, Mobile Core & Radio Access Network, SP Router & Switch – started the year on a high note, advancing 15% year-over-year (Y/Y) in the 1st quarter of 2021, reflecting positive activity in multiple segments and regions, lighter comparisons, and a weaker US Dollar (USD).
The analysis contained in these reports suggests the collective global share of the leading suppliers remained relatively stable between 2020 and 1Q2021, with the top seven vendors comprising around ~80% of the total market. Not surprisingly, Huawei maintained its leading position. However, the gap between Nokia and Ericsson, which was around 5 percentage points back in 2015, continued to shrink and was essentially eliminated in the quarter. In addition, Samsung passed Ciena in the quarter to become the #6 supplier.
Excluding North America, we estimate Huawei’s revenue share was about 36% in the quarter, nearly the same as the combined share of Nokia, Ericsson, and ZTE.
Additional key takeaways from the 1Q2021 reporting period include:
- Following three consecutive years of growth between 2018 and 2020, preliminary readings suggest the positive momentum that characterized the overall telco market in much of 2020 extended into the first quarter, underpinned by double-digit growth on a Y/Y basis in both wireless and wireline technologies including Broadband Access, Microwave Transport, Mobile Core Network, RAN, and SP Router & Switch.
- In addition to easier comparisons due to poor market conditions in 1Q20 as a result of supply chain disruptions impacting some segments, positive developments in the North America and Asia Pacific regions, both of which recorded growth in excess of 15% Y/Y during the first quarter, helped to explain the output acceleration in the first quarter.
- Aggregate gains in the North America region were driven by double-digit expansion in Broadband Access, RAN, and SP Routers & Switch.
- The results in the quarter surprised on the upside by about 2%, underpinned by stronger than expected activity in multiple technology domains including Broadband Access, Microwave Transport, RAN, and SP Routers & Switch.
- The shift from 4G to 5G continued to accelerate at a torrid pace, impacting not just RAN investments but is also spurring operators to upgrade their core and transport networks.
- At a high level, the suppliers did not report any material impact from the ongoing supply chain shortages in the first quarter. At the same time, multiple vendors did indicate that the visibility going into the second half is more limited.
- Overall, the Dell’Oro analyst team is adjusting the aggregate forecast upward and now project the total telecom equipment market to advance 5% to 10% in 2021, up from 3% to 5% with the previous forecast.
- Cisco was the top-ranked vendor for market share, followed by Huawei, Nokia, and Juniper.
- The SP Router and Switch market is forecasted to grow at a mid-single-digit rate in 2021.
- The adoption of 400 Gbps technologies is expected to drive double-digit growth for the SP Core Router market in 2021.
Huawei has increased its lead as the#1 global telecoms network equipment vendor, boosting its revenue share by a three percentage points last year, according to Dell’Oro Group. Nokia lost one percentage point of revenue share year-on-year, as did Cisco, the latter falling to 6%. Ericsson gained one percentage point to match Nokia at 15% of the market and ZTE also saw a 1% uptick to 10% of the global telecom market. (Please refer to chart below).
Dell’Oro Group’s preliminary estimates suggest the overall telecom equipment market – Broadband Access, Microwave & Optical Transport, Mobile Core & Radio Access Network, SP Router & Carrier Ethernet Switch (CES) – advanced 7% year-over-year (Y/Y) for the full year 2020, growing at the fastest pace since 2011.
The telecom and networking market research firm suggests revenue rankings remained stable between 2019 and 2020, with Huawei, Nokia, Ericsson, ZTE, Cisco, Ciena, and Samsung ranked as the top seven suppliers, accounting for 80% to 85% of the total market. At the same time, revenue shares continued to be impacted by the state of the 5G rollouts in highly concentrated markets. While both Ericsson and Nokia improved their RAN positions outside of China, initial estimates suggest Huawei’s global telecom equipment market share, including China, improved by two to three percentage points for the full year 2020.
Dell’Oro now estimates the following revenue shares for the top seven suppliers:
|Top 7 Suppliers||Year 2019||Year 2020|
Additional key takeaways from the 4Q2020 reporting period:
- Preliminary estimates suggest that the positive momentum that has characterized the overall telecom market since 1Q-2020 extended into the fourth quarter, underpinned by strong growth in multiple wireless segments, including RAN and Mobile Core Networks, and modest growth in Broadband Access and CES.
- Helping to drive this output acceleration for the full year 2020 is faster growth in Mobile Core Networks and RAN, both of which increased above expectations.
- Covid-19 related supply chain disruptions that impacted some of the telco segments in the early part of the year had for the most part been alleviated towards the end of the year.
- Not surprisingly, network traffic surges resulting from shifting usage patterns impacted the telecom equipment market differently, resulting in strong demand for capacity upgrades with some technologies/regions while the pandemic did not lead to significant incremental capacity in other cases.
- With investments in China outpacing the overall market, we estimate Huawei and ZTE collectively gained around 3 to 4 percentage points of revenue share between 2019 and 2020, together comprising more than 40% of the global telecom equipment market.
- Even with the higher baseline, the Dell’Oro analyst team remains optimistic about 2021 and projects the overall telecom equipment market to advance 3% to 5%.
Dell’Oro Group telecommunication infrastructure research programs consist of the following: Broadband Access, Microwave Transmission & Mobile Backhaul, Mobile Core Networks, Mobile Radio Access Network, Optical Transport, and Service Provider (SP) Router & Carrier Ethernet Switch.
Last week, Dell’Oro Group reported that the optical transport equipment revenue increased 1% in 2020 reaching $16 billion. In this period, all regions grew with the exception of North America and Latin America.
“Between concerns on starting new optical builds during the start of the pandemic and aggressive plans on 5G deployments that required a larger share of a service provider’s capital budget, the spending on optical transport dramatically slowed by the end of 2020,” said Jimmy Yu, Vice President at Dell’Oro Group.
“It was a really dramatic drop in optical equipment purchases in the fourth quarter. While we anticipated a slowdown near the end of the year due to concerns around COVID-19, we were surprised by a 29 percent year-over-year decline in WDM purchases in North America as well as a 12 percent decline in China. That said, there was good growth in the other parts of the world, especially Japan,” continued Yu.
|Optical Transport Equipment Market|
|Regions||Growth Rate in 2020|
|Europe, Middle East and Africa||2%|
|Asia Pacific excluding China||13%|
|Caribbean and Latin America||-14%|
The Dell’Oro Group Optical Transport Quarterly Report offers complete, in-depth coverage of the market with tables covering manufacturers’ revenue, average selling prices, unit shipments (by speed including 100 Gbps, 200 Gbps, 400 Gbps, and 800 Gbps). The report tracks DWDM long haul, WDM metro, multiservice multiplexers (SONET/SDH), optical switch, optical packet platforms, data center interconnect (metro and long haul), and disaggregated WDM. To purchase this report, please email [email protected].
Preliminary estimates by the Dell’Oro Group suggest the overall telecom equipment market advanced 9% Year-Over-Year (Y/Y) during 3Q20 and 5% Y/Y for the 1Q20-3Q20 period. That market includes: Broadband Access, Microwave & Optical Transport, Mobile Core & Radio Access Network, SP Router & Carrier Ethernet Switch (CES).
The analysis contained in these reports suggests revenue rankings remained stable between 2019 and 1Q20-3Q20, with Huawei, Nokia, Ericsson, ZTE, Cisco, Ciena, and Samsung ranked as the top seven suppliers, accounting for more than 80% of the total market. At the same time, revenue shares continued to be impacted by the state of the 5G rollouts in highly concentrated markets.
Huawei and ZTE are both on course to gain two percentage points of market share each this year, at the expense of Nokia, Cisco and Samsung. With investments in China outpacing the overall market, we estimate Huawei and ZTE collectively gained about 3 percentage points of revenue share,” wrote Dell’Oro Analyst Stefan Pongratz in his blog on the matter, implying they actually grabbed around 1.5 percentage points each.
Dell’ Oro estimates the following revenue shares for 2019 and the 1Q20-3Q20 period for the top seven suppliers:
- Following the 4% Y/Y decline during 1Q20, the positive trends that characterized the second quarter extended into the third quarter, underpinned by strong growth in Optical Transport and multiple wireless segments including 5G RAN, 5G Core, and Microwave Mobile Backhaul. Technology segments that were impacted more materially by COVID-19 and the lockdowns during 1Q20 continued to stabilize in the quarter.
- Preliminary estimates indicate increasing Mobile Infrastructure and Optical Transport revenues offset declining investments in Microwave Transport and SP Routers & CES for the 1Q20-3Q20 period.
- The overall telecom equipment market continued to appear disconnected from the underlying economy. While the on-going transition from 4G to 5G is helping to offset reduced capex in slower-to-adopt mobile broadband markets, we also attribute the disconnect to the growing importance of connectivity and the nature of this recession being different than in other downturns improving the visibility for the operators.
- With investments in China outpacing the overall market, we estimate Huawei and ZTE collectively gained about 3 percentage points of revenue share between 2019 and 1Q20-3Q20, together comprising more than 40% of the global telecom equipment market.
- The Dell’Oro analyst team has not made any material changes to the overall outlook and projects the total telecom equipment market to advance 5% to 6% in 2020 and 3% to 4% in 2021. Total telecom equipment revenues are projected to approach $90 B to $95 B in 2021.
Judging from a report by China Daily “China to build 1 million new 5G stations in 2021.” it appears Huawei and ZTE will continue to increase their telecom equipment market share. Reporter Ma Si of China Daily spoke to Wu Hequan, an academician at the Chinese Academy of Engineering, who reckons China will build over a billion 5G base stations next year, taking the grand total to 1.7 million by the end of the year.
China workers working at the construction site of a 5G base station at Chongqing Hi-tech Zone in Chongqing, Southwest China. [Photo/Xinhua]
“As the construction of 5G networks accelerates, the cost of building each 5G base station will go down,” said Wu. “Even if Chinese telecom carriers earmark the same amount of 5G investments in 2022 as they have done this year, they can build far more 5G base stations next year than this year. I believe Chinese telecom carriers will build more than one million 5G base stations next year, though the specific construction targets will have to wait for the telecom carriers’ official announcements.”
China Mobile, China Telecom and China Unicom did not immediately respond to requests for comment from China Daily.
Wu’s remarks are in line with China’s top industry regulators’ predictions the nation will “moderately” push ahead 5G construction in the next few years. The Ministry of Industry and Information Technology said in October as the country is set to enter a lead-in period in the next three years, China will continue to build 5G networks in a rhythm that is moderately ahead of schedule, so the wider coverage of 5G can help promote its use in more industrial and consumer scenarios.
That lead-in period, according to some industry insiders, means new products, new formats and new models of 5G application are constantly emerging and such applications are shifting from single application to large-scale and systemic scenarios.
China seems to be all the more determined to ensure its domestic telecoms industry goes from strength to strength. In response to the threat to the U.S. from China, John Ratcliffe wrote in the Wall Street Journal (on-line subscription required for access): “Beijing is preparing for an open-ended period of confrontation with the U.S. Washington should also be prepared. Leaders must work across partisan divides to understand the threat, speak about it openly, and take action to address it.”