Telecom’s biggest vendors: 1Q19 edition

Telecom’s biggest vendors: 1Q19 edition
Telco spending climate tightens in 1Q19; Huawei's 23.2% annualized share leads market but dislocation is underway
By Matt Walker

Description

This report was prepared as part of MTN Consulting’s GNI tracker. Our Network Infrastructure trackers cover network operators and their technology supply chains. Each provides detail on network infrastructure spending & technology evolution, for telecommunications, webscale, and carrier-neutral network operators. The goal is to help vendors understand and plan for the needs of their customers, and help network operators deploy their technology budgets wisely.

Scope

-Timeframe covered: 1Q13-1Q19 (January 2013 – March 2019)
-Vendor coverage: Network equipment providers (NEPs), IT services providers (ITSPs), and Cabling & connectivity vendors (CCVs).
-Sales tracked: revenues to the TNO vertical, including equipment, software and services. As reported, or MTN Consulting estimates.

Process

We have compiled a database of 110 vendors selling equipment, software and/or services to telecommunications network operators. For each company, we have estimated sales to telcos, by quarter. Estimates are based on the data sources above, as well as analyst expertise on the company’s business model & vertical market penetration rates. The database has been adjusted for account for M&A, and new entry/exit of vendors from the TNO vertical. The result is an apples-to-apples time series of vendor sales to telcos. This 25 quarter time series allows for analysis of telco spending patterns on technology vendors, as well as the relative market power of these vendors within the vertical. More details are available in the “sample file,” above

Abstract

Telecommunications network operators (TNOs, or telcos) spend over $600B per year on publicly reported capital expenditures (capex) and network operating expenses (opex). This spending supports a supply chain of hundreds of vendors across the globe. These companies provide a range of network infrastructure (NI), including equipment, software, services, and connectivity products such as fiber cable.

We formally launched quarterly coverage of “Telco NI” vendor market share in April 2018 with a 4Q18 review. This report is our second market share study and extends coverage through 1Q19 (March 2019). The report covers 110 vendors during the 25-quarter period from 1Q13-1Q19.

Market growth trending downwards, Huawei still dominates

Annualized NI sales to telcos for the four quarters ended 1Q19 totaled $194.8B, slightly down from $195.0B in the previous quarter. That’s due to a fall in YoY growth rates. In 1Q19, total NI revenues across vendor segments declined 0.5% YoY, pulled down by decline in fiber sales (impacting the CCV segment) and continued weakness in mobile infrastructure – 5G revenues are taking a while to grow.

By vendor, Huawei’s annualized market share was 23.2%, still more than its two closest rivals combined: Nokia and Ericsson finished 1Q19 with 11.8% and 9.7% of telco NI, respectively. These three vendors plus Cisco and ZTE accounted for 55% of total market revenues. Comparing 1Q19 with 1Q18, the biggest share improvements were recorded by Samsung, Hengtong, Fiberhome, and Accenture, while the biggest declines came from ZTE, ARRIS, Cisco, and Juniper. Some other big share changes relate to M&A transactions, including Infinera-Coriant and Prysmian-General Cable.

Vendor views on 2019 vary, M&A likely to pick up

Vendor views on 2H19 are muted. In earnings calls, some vendors exposed to growth segments were optimistic, including Samsung and Corning. Nokia, Ericsson, and ZTE pointed to a large number of 5G contracts which are likely to help 2H19 revenues. Cisco, whose telco revenues dropped 13% YoY in 1Q19, said orders will continue to be lumpy “until we get into a real network build out relative to 5G”.

NEC and Prysmian both point to submarine as a weakness in 2019; with Huawei likely selling Huawei Marine that could further slow the market. ARRIS and CommScope have a merger to integrate and supply chain adjustments to cope with due to the China tariffs. IT services provider Amdocs expects 2-4% revenue growth this year, while ITSPs Accenture and Tech Mahindra both point to slightly faster growth in the telco vertical.

Ciena reported good results, with sales to telcos in 1Q19 up by about 20% YoY. Ciena also made an interesting comment about vendor size, saying “subscale vendors struggle financially and with innovation…[while] larger competitors face competing investment priorities.” This point is valid, and will be reflected in the M&A activity in quarters ahead. The urge to merge will increase as smaller vendors race to somehow profit from Huawei’s current situation.

Huawei chaos to define rest of 2019

Huawei’s 1Q19 revenues were up 8% on a USD basis, according to its public statements. There is no publicly available verification of this figure, but it seems reasonable given Huawei’s resources and ability to accelerate projects through vendor financing when necessary. From this 8% base, Huawei’s outlook for 2019 back in April was fairly strong and defiant, but executives now seem to be guiding down expectations.

Already facing multiple lawsuits from the US government, Huawei and its subsidiaries are now facing severe restrictions in their access to US technology as inputs into their products. That has implications across the company’s product portfolio.

Even if the supply chain ban was quickly reversed, or Huawei ramped up its self-development efforts overnight, some damage has been done. Telcos have to take a second look at their exposure to Huawei. Some of the engineers may think things are fine, but the corporate lawyers and insurance carriers may have different views.

Full-year spending outlook

We expect the telco NI spending climate in 2019 to remain challenged. There is upside from increased 5G spending, but recession warnings are growing. Recessions tend to his telco revenues hard. A slowdown in telco revenues would result in both additional layoffs and a slower growth rate in 5G spending. Huawei’s latest troubles will also slow down the procurement process for many telcos as they reevaluate priorities and assess risks.

  • Table Of Contents
  • Figure & Charts
  • Coverage
  • Visuals

Table Of Contents

  1. Abstract
  2. Market trends
  3. Top 20 vendors: Printable tearsheets
  4. Dynamic share charts
  5. About

Figure & Charts

  1. Segment breakouts: NEPs, ITSPs, and CCVs
  2. Revenues by HQ country (2018)
  3. Vendor sales to telcos vs. telco capex, annualized
  4. Top Network Infrastructure Vendors – Telco (2018)
  5. Network infrastructure sales to telcos, annual ($M)
  6. All vendors, YoY % growth
  7. All vendors, YoY % growth in single quarter sales
  8. Vendor sales to telcos by company type ($B)
  9. YoY % growth in sales to telcos by vendor category
  10. Network infrastructure sales to telcos, annual ($M) – NEPs
  11. Top Network Infrastructure Vendors – Telco (2018)
  12. 2018 share: Top vendors to telecom network operators
  13. Biggest share changes in 2018
  14. Annualized market share in the telco vertical (last five years)
  15. Growth in sales to the telco vertical (YoY % change in 1Q19)
  16. Vendor revenues in telco vertical, annualized ($B)
  17. Annualized market share in the telco vertical
  18. Vendor revenues in telco vertical, annualized ($B)

Coverage

Company Segment
A10 Networks NEP
Accenture plc ITSP
Accton Technology NEP
ADTRAN NEP
ADVA Optical Networking NEP
Alcatel-Lucent NEP
Allied Telesis NEP
Allot Communications ITSP
Amdocs ITSP
Anritsu CCV
Arista Networks NEP
ARRIS International NEP
Asia Pacific Wire & Cable CCV
Atos Origin ITSP
Avaya NEP
Aviat Networks NEP
Beijing Xinwei NEP
Broadcom Limited NEP
BroadSoft, Inc. ITSP
Brocade Communications Systems, Inc. NEP
CA Technologies ITSP
Calix NEP
Capgemini ITSP
Casa Systems NEP
Ceragon Networks NEP
Check Point Software ITSP
Ciena Corporation NEP
Cisco Systems NEP
Citrix Systems ITSP
Clearfield CCV
Comba Telecom NEP
CommScope Holding CCV
Commvault Systems ITSP
Comptel ITSP
Comtech Telecommunications Corp. NEP
Convergys ITSP
Coriant NEP
Corning CCV
CSG ITSP
Cyan NEP

Contact us for a complete list.

Visuals

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