The "sweet spot" for equipment manufacturers continues.
On March 29, with the official release of Huawei's 2023 annual report, it marks that the communication equipment industry giants led by Huawei, Ericsson, Nokia and ZTE have all handed over their 2023 "report cards". This report card not only reflects the operating and financial status of each company, but also reflects the hot spots, changes and directions of the global information and communication market.
Judging from the financial reports of the four major equipment manufacturers, Huawei still maintains a strong growth momentum, with steady development of various business segments, and a significant pattern of dominance; ZTE's overall business continues to rise, maintaining double growth in revenue and profit; Ericsson Nokia is also caught in the embarrassing moment of "double decline" in revenue and profit, and the revenue of ZTE, Ericsson and Nokia is also gradually approaching.
As the fastest-growing mobile communication technology in history, 5G technology not only brings huge business opportunities to communication equipment manufacturers, but also brings a broader development space for communication equipment manufacturers. Nowadays, under the new cycle of rapid iteration of computing power, artificial intelligence and other technologies, the "sweet period" of equipment manufacturers is still continuing.
"Soaking" the 5G bonus period
Since the commercialization of 5G, the global user scale has exceeded 1.6 billion, and there have been more than 18,000 digital applications in the industry.
According to the "Mobile Economy 2024" report released by the Global System for Mobile Communications Association think tank, as of January 2024, 261 operators in 101 countries and regions have launched commercial 5G services. By 2030, 5G connectivity is expected to account for 56% of global mobile connectivity, making 5G the dominant connectivity technology. Data shows that there are currently 10.7 billion IoT connections in the enterprise space (10.5 billion in the consumer space), and this momentum is expected to continue. By 2030, the number of enterprise connections will increase to 38.5 billion.
Among them, as of the end of February, the total number of 5G base stations in the mainland reached 3.509 million, from smart mines to smart factories and smart logistics, digital technology is accelerating the application to various fields of industrial production, China's 5G industry applications have been integrated into 71 major categories of the national economy, the number of application cases exceeds 94,000, and the 5G industry virtual private network exceeds 29,000.
In 2023, Huawei's global sales revenue will reach 704.2 billion yuan, up 9.64% year-on-year, and its net profit will be 87 billion yuan, up 144.38% year-on-year. In terms of business segments, in 2023, Huawei's ICT infrastructure business achieved sales revenue of 362 billion yuan, a year-on-year increase of 2.3%, and a single segment accounted for 51.4% of the total business.
According to Dell'Oro, an authoritative consulting firm in the industry, Huawei will firmly rank first in the global telecom equipment market with a market share of 30% in 2023. Now, in 2024, the first year of 5G-A commercialization, Huawei's GigaGreen series of product solutions will enable a tenfold increase in network capabilities with three innovations: native 10 Gigabit, native green, and native intelligence, optimizing the spectrum efficiency, energy efficiency, and O&M efficiency of the entire network, helping global operators move to 5G-A efficiently and smoothly.
In 2023, ZTE achieved operating income of 124.2509 billion yuan, a year-on-year increase of 1.05%, and net profit attributable to the parent company of 9.326 billion yuan, a year-on-year increase of 15.41%. Among them, the operating income of the operator's network, which is the core of ZTE's operation revenue and technology, was 82.759 billion yuan, a year-on-year increase of 3.40%, accounting for 66.61% of the overall revenue structure.
In terms of the first curve business based on "connection", ZTE keeps up with the pace of operator business transformation and changes in investment structure, ranking second in the world in terms of shipments of 5G base stations and 5G core networks for four consecutive years, RAN and 5G core network products have been rated as industry leaders, and optical access products have ranked second in the world in the market share of 10G PON. As innovative technologies and solutions such as new 5G applications continue to evolve, ZTE and operators have carried out commercial verification and deployment in multiple scenarios, such as 10 Gigabit experience, industrial field network, integrated synaesthesia computing, and RedCap.
In 2023, Ericsson's operating income will be 179.449 billion yuan, a year-on-year decrease of 7.55%, and its net profit will be -18.02 billion yuan, a year-on-year decrease of 234.64%. In response, Ericsson noted in its earnings report that sales fell by 10% due to the 15% decline in the network business, but it is worth noting that Ericsson said it expects to get a boost from its $14 billion deal with AT&T in the second half of 2024, which involves building a telecommunications network using new Open-RAN technology.
In 2023, Nokia's net sales will be 174.067 billion yuan, down 11% year-on-year, and its operating profit will be 5.165 billion yuan, down 27% year-on-year. Driven by the macroeconomic environment, high interest rates and the digestion of customer inventories in 2023, Nokia also ushered in a double decline in revenue and profit, but in terms of network infrastructure, Nokia made important progress in many areas in the fourth quarter. The IP routing business has received more network-scale orders, which will support Nokia's expectation of significant network size growth in 2024. In the fourth quarter, the U.S. government made good progress on fixed network initiatives, and Nokia continues to expect these plans to increasingly favor the scale of its network.
It can be seen that although the global telecom equipment market will show a weak trend in 2023 after five consecutive years of growth, it cannot be ignored that under the iterative construction cycle of global 5G, the 5G dividend belonging to the four major equipment manufacturers is still continuing.
Diversified layout to build a "second curve" of growth
Nowadays, digitalization and intelligence are forming a trend in various industries, and digital and intelligent infrastructure is becoming a key engine for activating new quality productivity, and gradually becoming an important support for the transformation and upgrading of traditional industries. In order to maintain sustainable growth and stabilize market position, equipment manufacturers have sought to diversify their layout to build a "second curve" of growth. Through diversification, equipment manufacturers can break through the limitations of traditional business areas, enter new market areas, and tap more growth potential.
Since 2022, Huawei split its business segments from carrier, consumer, and government and enterprise services into five segments: ICT infrastructure, devices, cloud computing, digital energy, and intelligent vehicle solutions.
In 2023, Huawei's device business achieved sales revenue of 251.5 billion yuan, a year-on-year increase of 17.3%, cloud computing business achieved sales revenue of 55.3 billion yuan, a year-on-year increase of 21.9%, digital energy business achieved sales revenue of 52.6 billion yuan, a year-on-year increase of 3.5%, and intelligent vehicle solutions business achieved sales revenue of 4.7 billion yuan, a year-on-year increase of 128.1%.
Among them, Huawei's device business and intelligent vehicle solution business performed quite well. According to data released by market research agency Canalys, in the fourth quarter of 2023, the decline in the mobile phone market in Chinese mainland will further narrow, with overall shipments of 73.9 million units, down 1% year-on-year, and Huawei mobile phones will ship 10.4 million units in the domestic market, a year-on-year increase of 47%, and rank fourth with a share of 14%.
In terms of car BU, in the smart car mode, Huawei Wenjie delivered 21,142 new cars in February, winning the monthly sales champion of China's new power brands. Among them, the monthly delivery volume of the new M7 exceeded 18,479 units, and the cumulative delivery of more than 100,000 units in 170 days on the market has set a new record for the delivery speed of China's luxury SUV.
In the cloud computing market, as of the end of December last year, HUAWEI CLOUD covered 30 geographical regions and 84 availability zones around the world, serving customers in more than 170 countries and regions. According to Canalys data, in the third quarter of 2023, HUAWEI CLOUD has a market share of 19% in the cloud computing market in Chinese mainland, making it the second largest cloud vendor.
ZTE, which has the same business layout, ushered in a business decline on the consumer business side and the government and enterprise side. Among them, the operating income of ZTE's consumer business in 2023 will be 27.909 billion yuan, a year-on-year decrease of 1.33%, which the company explained is mainly due to the decrease in the operating income of international home terminals and international mobile phone products. On the other hand, on the government and enterprise side, ZTE's revenue in 2023 will be 13.583 billion yuan, a year-on-year decrease of 7.14%.
In 2022, ZTE will divide its business into the first and second curves. The first curve is the CT (communication technology) business represented by wireless and wired products, and the second curve is the emerging business represented by IT (IT infrastructure such as servers and storage, 5G industry applications, automotive electronics, etc.), digital energy, and terminals.
ZTE has set goals internally, and while the pattern and share of the first curve have steadily increased, the second curve has achieved rapid growth of more than 40%. In order to promote the expansion of government and enterprise business, ZTE has set up a number of "special teams" for industry scenarios, such as metallurgical steel, automotive electronics, mining, smart home, and eastern and western computing, focusing on industry digital business. In the second curve business represented by "computing power", ZTE has increased investment in computing infrastructure, software platforms, large models and applications, and launched products such as servers and storage, data center switches, data centers, and Nebula series large models, accelerating the deepening and expansion from connection to computing power. However, affected by the pace of industry investment and key customer construction, ZTE said that in 2024, in the face of the complex and changeable external environment and the accelerated iterative development of new digital technologies, it will accelerate the expansion to "connection + computing power" and build a new development pattern.
Although Ericsson suffered a double decline in revenue and profit in 2023 in terms of overall performance, the company delivered a satisfactory answer in the cloud software and services business. Not only did it achieve its EBITA target of at least breakeven in 2023, but it also recorded an EBITA of SEK 2 billion in the fourth quarter and SEK 1.7 billion for the full year. It is worth mentioning that Ericsson's enterprise business has also seen significant growth, mainly driven by enterprise wireless solutions. During the reporting period, the sales of the enterprise business increased by 7% year-on-year, and despite the negative impact of the write-off of the inventory of enterprise wireless solutions, Ericsson's EBITA remained stable, which shows that the development and steady growth of diversified businesses not only brought new profit growth points for Ericsson, but also laid a solid foundation for Ericsson's sustainable development in the future.
Similarly, while Nokia's net network sales performance continues to be challenging, Nokia's cloud and network services business has performed strongly this year. Net sales for the full year were slightly lower, but profitability improved, gross margin was basically stable, and operating margin improved. In 2023, Nokia led the industry trend in programmable networking with the launch of its Network-as-Code Platform, which now has nine commercial agreements and also enabled the first 5G core-as-a-service commercial deal for CSPs.
At the same time, Nokia has not stopped in technological innovation in 5G, self-developed chips and other areas that have always been advantageous. At present, Nokia has a full range of mature products, which can fully support the large-scale commercial use of 5G in China and the testing and deployment of key technologies such as mmWave, RedCap, 5G-Danced ultra-wideband and XR.
It is worth mentioning that at the moment of 5G iteration and rapid deployment of AI, Nokia has cooperated with NVIDIA to expand the ecosystem of CloudRAN, and combined with AI technology to promote the evolution of mobile networks; at the same time, Nokia has also cooperated with Qualcomm to achieve the industry's first interoperable AI solution for wireless air interfaces, facing the terminal market, in 2023, Nokia signed important long-term agreements with Apple and Samsung, and signed multi-year agreements with Honor and OPPO at the end of the year. Nokia is in the final stages of its smartphone license renewal cycle, with only one other major agreement that has recently expired yet to be completed, providing long-term stability for Nokia's technology business, which will continue to focus on increasing license runs in new growth areas such as automotive, consumer electronics, IoT and multimedia.
Landing commercial value: "fork in the road" and "same way"
According to the deployment plan of 3GPP, R18 is expected to complete the agreement and feature freeze in the first quarter of 2024, which is also the first 5G-A standard freeze. From a macro point of view, with the large-scale development of 5G networks, the focus of operators in 2023 has shifted significantly, and it has become an indisputable fact that global telecom operators have reduced their investment in 5G.
According to a recent report released by the Dell'Oro Group, telecom operators are currently scaling back their investments in 5G. Preliminary findings show that global telecom capex (the sum of wireless and cable/other telecom operator investments) declined in US dollar terms in 2023, the first contraction since 2017.
Taking the three major domestic operators as an example, the three major operators will complete a total of 353 billion yuan of capital expenditure in 2023, and the total capital expenditure budget for 2024 will be about 334 billion yuan, a year-on-year decrease of 5.4%, and the first year-on-year decline in capital expenditure since 2018. Specifically, China Mobile's connection expenditure is planned to be 87.4 billion yuan, down 19.8% from 2023, accounting for 50.5% of the total capital expenditure budget, of which 5G-related investment is about 69 billion yuan, down 21.6% from 2023, and China Telecom Mobile Network plans to invest 29.5 billion yuan, down 15.3% year-on-year, accounting for 30.7% of the total capital expenditure. Although China Unicom did not disclose the specific amount, it is bound to reduce the capital expenditure of 5G network construction in 2024 with China Telecom around the co-construction and sharing of 5G.
Therefore, in the face of the upcoming 5G-A era, realizing the value of network connectivity has become a core issue for global operators, which is not only a response to technological progress, but also a natural result of market demand. Because of this, the four major equipment manufacturers have focused on combining scenarios with technological innovation.
Among them, FWA (fixed wireless access) technology is increasingly widely used in overseas 5G networks, thanks to its efficient and flexible characteristics. As a useful supplement to fiber broadband, FWA provides high-speed network services while reducing deployment costs, bringing new growth opportunities to operators.
With more than 150 networks, 5G FWA has become the mainstream service of more than half of 5G operators, and has achieved rapid growth in various markets around the world. For 5G-A, high-performance CPEs that support 3CC and millimeter wave are also on the market. The industry already has the foundation to support the accelerated global development of FWA.
In FWA's leading markets, such as the Middle East, 8K video, cloud gaming, etc., lead the demand for home broadband services to become high-speed and diversified. Consumers' demands for overall bandwidth, video speed, and game latency are constantly increasing. Multi-carrier aggregation and user and service experience assurance can support FWA number packages up to 500 Mbps, reaching or exceeding the rate of optical fiber, and ensuring the experience of HD video and game services.
During the MWC2024 in Barcelona, Huawei signed a memorandum of understanding (MOU) with du, a leading telecom operator in the United Arab Emirates, to build a 5G-A Country project to set a benchmark for 5G-Advanced commercial networks in the Middle East and around the world, and accelerate the incubation of commercial applications such as XR, FWA, holographic conferencing, and enhanced 5G private networks.
At the same time, the field of the Internet of Things has also ushered in great development. Among them, the initial maturity of the 5G RedCap industry chain is particularly important. As a lightweight 5G technology, RedCap can meet certain performance requirements while reducing equipment costs and power consumption, enabling more devices and scenarios to access 5G networks. Carriers expect to expand more consumer and industry applications through RedCap technology to achieve broader market coverage.
China Unicom Hebei and ZTE successfully completed the verification of Hebei's first 5G full-band RedCap continuous networking technology in Tangshan, effectively accelerating the commercial use of 5G RedCap.
For industry users, the application cases based on 5G slicing are constantly enriched. 5G slicing technology can provide customized network services according to the needs of different services to meet the high requirements of industry users for security, reliability, and performance. The greater connectivity capabilities of 5G compared to 4G enable these applications and provide more revenue opportunities.
Ericsson, together with OPPO and Qualcomm, has successfully brought the world's leading 5G enterprise slicing commercial solution, which means that it can provide an extremely stable, low-latency and high-security network by cutting the physical network into multiple virtual end-to-end networks, "allocating" customized independent network resources on demand, and realizing a 5G network to meet diverse network connection needs.
It can be seen that for the 5G-A layout, equipment vendors no longer only focus on the deployment and promotion of technology, but also consider how to help operators and enterprises accelerate the practical application of wireless network services, so that wireless communication technology can truly generate social and commercial value. After all, the ultimate purpose of technology is to serve society and the economy, and if technology cannot be transformed into practical applications and commercial value, then no matter how advanced technology is, it is just a castle in the air.
Overall, in today's fierce competition in the communication equipment industry, the four major equipment manufacturers have shown some unique strategic choices like a "fork in the road" when exploring their own development paths, but although each company has different business strategies, they all clearly understand the key to digital transformation, and the four equipment manufacturers have also mentioned in their financial reports to strengthen the combination with emerging technologies to improve the competitiveness of products and services. It can be seen that in addition to the "fork in the road", the four major equipment vendors are also coincidentally parallel to the "same road" of digital transformation, and continue to draw vivid animation for the communication equipment industry.
Written by: Party blog post
Chart: Dawn
Editing and proofreading: blog posts
Guidance: Xin Wen
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