The global telecom equipment market is shrinking, and Huawei is firmly in the top spot

Reporter Tan Lun reports from Beijing

After five consecutive years of growth, the global telecom equipment market is starting to show signs of weakness.

A few days ago, Stefan Pongratz, vice president and analyst of market research company Dell'Oro Group, wrote an article revealing that the global telecommunications equipment market will turn negative growth from the second half of 2023. Preliminary survey results completed by Dell'Oro Group show that the global telecom equipment market revenue, which includes projects in multiple telecom segments, fell short of expectations by 5% year-on-year for the full year of 2023.

However, this decline is not a general trend and is caused by sharp localized declines. According to data from the Dell'Oro Group, the North American market is shrinking faster than expected compared to the rest of the world, with the total telecom equipment market falling by about 20%. Excluding the North American market, the overall revenue of the global telecom equipment market will actually increase in 2023, with the strongest momentum in the Asia-Pacific region, followed by the European market, which is slowing down.

It is worth noting that in terms of enterprise rankings, Huawei still maintains its position as the leader in the global telecom equipment market. According to the statistical chart of Dell'Oro Group, in 2023, Huawei will continue to hold the top spot in the global telecommunications equipment market with a 30% share, followed by Nokia, Ericsson, and ZTE (000063. SZ), Cisco, Ciena and Samsung, with a share of 15%, 13%, 11%, 6%, 4% and 2%, the seven major manufacturers together account for 80% of the total market share.

Stefan Pongratz predicts that 2024 will still be a challenging year, and the global telecom equipment market may still decline, but perhaps not as much as in 2023. According to the joint forecast of Dell'Oro Group's analyst team, the global telecom equipment market revenue shrinkage will be about 5% in 2024.

The periodic law is back

For the overall contraction of the market, the decline rate of nearly one-fifth of the North American telecommunications equipment market has become the biggest driving factor. Stefan Pongratz cites the weakness of the radio access network and broadband access services as the main reason. He noted that preliminary data from the first quarter to the third quarter of 2023 showed that the North American radio access network market was declining much faster than expected.

Among them, Stefan Pongratz said that the decline in capital expenditure in the US market is in line with the change in communication spending by operators, but the ratio of radio access networks/capital expenditures in the North American market is expected to reach the range of less than 15%. "This highlights that the disconnect is not in the decline in capital expenditure, but in the proportion allocated to the radio access network. He wrote.

Light Reading, a telecom research agency, pointed out in a research report that 2023 will be a difficult year for 5G equipment suppliers, especially in the U.S. market. As U.S. wireless network operators cut spending much more than expected, many suppliers have been prompted to warn of declining performance, cut expenses or lay off employees.

Dell'Oro Group further pointed out that due to the impact of digesting inventory and the appreciation of the US dollar, US operators led by AT&T and Verizon have significantly reduced their investment in 5G networks in 2023, causing 5G wireless equipment revenue in the North American market to plummet by 47% year-on-year.

Yang Guang, senior chief analyst of Omdia telecom strategy, told China Business News that from the perspective of the deployment cycle of 5G, the decline in the global telecom equipment market is also expected. "It has been four years since it was commercialized, and from the perspective of the rhythm of network construction, the deployment of 5G networks in the North American market has definitely passed the peak of investment, which can also be seen in the domestic market. Yang Guang said.

According to the financial report data, the 5G network investment of the three major operators in mainland China will peak in 2022, and then gradually begin to adjust downward. At the recently concluded 2023 performance briefing, China Mobile officially announced that the capital expenditure for 5G networks in 2024 will be reduced from 88 billion yuan in 2023 to 69 billion yuan, a reduction of about 20%.

Regional market turmoil and the cyclical nature of network deployments have led to a cooling of the global telecom equipment market. According to Dell'Oro Group statistics, the global wireless access equipment market revenue will be $37.8 billion in 2023, down 9% from $41.4 billion in 2022.

Yang Guang said that with the improvement of the built network, before the new generation of network is deployed again, the investment in the global wireless equipment market should be in a long period of trough, but including equipment manufacturers in the cloud, computing power and other new growth points, may improve its financial situation, but the overall trend, the circular law of the telecommunications market will dominate.

Chinese manufacturers lead the way

Although the overall market pace has slowed down, Chinese equipment manufacturers have continued their strong performance in the global market. With a total share of more than 40%, Huawei and ZTE have boosted the overall performance of global telecom equipment manufacturers, among which Huawei continues to lead the global telecom equipment market with a share of nearly 30%.

According to the latest 2023 financial report, Huawei achieved a total revenue of 704.2 billion yuan in 2023, a year-on-year increase of 9.6%. net profit was 87 billion yuan, a year-on-year increase of 144%. Among them, the ICT infrastructure business, which accounted for more than 50% of the revenue, achieved sales revenue of 362 billion yuan, a year-on-year increase of 2.3%.

ZTE's performance is also impressive. According to the financial report, the company's revenue in 2023 will be 124.2509 billion yuan, a year-on-year increase of 1.05%, and its net profit will be 9.326 billion yuan, a year-on-year increase of 15.41%. Among them, the operator's network revenue was 82.759 billion yuan, a year-on-year increase of 3.40%. ZTE said that the operating income of wireless products and wired products contributed to the main growth of the business.

In this regard, Yang Guang believes that in the overall market downturn, the continuous upgrading of China's communication network has provided sufficient growth support for Huawei and ZTE, and the current deployment of China's industrial chain in the field of 5G Advanced (referred to as 5G-A) will continue to ensure that relevant companies still have enough confidence in wireless equipment.

As a preparatory stage for the development of 6G, 5G-A has become the latest increment of China's telecom equipment market with higher speed, larger connection and lower latency compared with 5G networks.

On March 28, China Mobile launched the first global 5G-A commercial deployment in Hangzhou, announced the list of the first batch of 100 5G-A network commercial cities, and announced that it plans to expand to more than 300 cities across the country within the year to build the world's largest 5G-A commercial network.

"Compared with Europe and the United States, China's 5G construction is more complete, so it is more motivated to promote the upgrade of 5G-A. Yang Guang said that this is a unique advantage of China's telecom network market, which is difficult to replicate in Europe and the United States. This will also continue to inject vitality into the domestic telecommunications equipment market before moving towards 6G, and continue to maintain a leading position in the global market in the future.

According to the latest official data, as of March this year, about 2.34 million 5G base stations have been built and opened in mainland China, realizing 5G in counties and counties, and 600,000 new 5G base stations are planned to be added this year. There are more than 575 million 5G mobile phone users in mainland China. In this regard, the Global Mobile Communications Association (GSMA) recently predicted that by the end of 2024, more than half of China's mobile connections will use 5G, and by 2030, China's 5G connections will exceed 1.6 billion, accounting for nearly one-third of the global total. By then, China's 5G adoption rate will be close to 90%.

After the inflection point of scale

Although China's communications industry is actively driving, the industry still has conservative expectations for the overall trend of the global telecommunications equipment market in the coming period.

On the one hand, it is clear that the decline in the North American market has not yet bottomed out. According to a team of analysts at Dell'Oro Group in February, total U.S. wireless carrier capital spending will also decline 10% year-over-year in 2024, from an estimated total of $56.2 billion in 2023 to an estimated total of $50.5 billion in 2024.

On the other hand, unlike the Chinese market, although more and more overseas operators hope to use Open RAN (Open Radio Access Network) technology to attract more equipment vendors to enter the 5G wireless equipment market, after a strong performance in 2022, the revenue growth of Open RAN and vRAN (virtualized radio access network) will slow down in 2023.

In this regard, Yang Guang said that the global network equipment market is a highly cyclical market, and at the beginning of each generation of telecom networks, telecom equipment will usher in a round of substantial growth, and then gradually decline, until it enters the next-generation network deployment cycle. However, with the emergence of technologies such as cloud, computing power, and AI, new opportunities still exist.

Taking the cloud business as an example, Yang Guang pointed out that this is the fastest-growing business area in Huawei's latest financial report. Its revenue was 55.3 billion yuan, a year-on-year increase of 21.9%. The deployment of global operators in the cloud field will also make their financial performance positive.

At the same time, the current global 5G network deployment stage is uneven. Taking the Asia-Pacific market as an example, it will grow by 64% year-on-year in 2023, mainly driven by Indian operators' investment in 5G networks, and its annual revenue from 5G wireless equipment is about US$4 billion. Yang Guang believes that this will correct the impact of the North American market to a certain extent.

In addition, at the recent Global Communications Conference, the reporter saw that major equipment manufacturers in Europe and the United States, including Ericsson and Nokia, have announced that they will increase their investment in Open RAN. Dell'Oro Group expects Open RAN to account for 7% to 10% of the overall RAN market by 2024, which will also be a new opportunity for telecom equipment vendors in the future.

"Overall, the ups and downs of the global telecom equipment market are expected, and when a business enters a trough, new businesses will emerge. As a result, alternating processes are played out all the time. Yang Guang said that as AI innovation enters the telecom market, the overall development of the latter is still worth looking at positively.