The global telecommunications equipment market grew by close to 5% in 2008, a rate of growth that involved a shift in the contribution made by handset components and infrastructure hardware, according to IDATE.
From a geographical standpoint, Asia was the prime source of growth – specifically China and India – which accounts for two-thirds of the increase in sales worldwide, while representing only just over 40% of the total market (and China and India combined accounting for less than 20%).
Indian operators' investments have increased by close to 50% a year since 2003, on average, or by seven times in five years. From a broader perspective, the Asia-Pacific region's contribution to global spending on telecom networks increased by four points during that time, while Western Europe and North America lost six and five points, respectively.
IDATE said that in mature markets, operators are tightening their belts further still to be able to maintain their margins, and are being particularly cautious about their investments. For equipment manufacturers, this means added pressure on sales, especially since the handset market, of which mobiles represent 90%, is also suffering a downturn after three to four years of double-digit growth. IDATE described these markets as having " lifeless services markets – worsened in recent times by the prospect of a looming economic crisis."
In the infrastructure equipment segment, it is Chinese companies that are enjoying the strongest growth momentum by far and which no doubt have the best prospects when it comes to exports, as much to emerging markets as to mature ones. Huawei's revenue increased six times between 2003 and 2008, during which time ZTE's quadrupled. Among Western companies, IDATE says that Cisco and Ericsson have fared particularly well, thanks to growth in IP routing hardware sales for Cisco – helping the company multiply its sales by a factor of 2.5 in five years – and to the success of infrastructure-based services for Ericsson, whose sales nevertheless dipped in 2008.
The big mergers, on the other hand, have translated into mediocre performances for their protagonists: Nokia Siemens and Alcatel Lucent reported sales in 2008 that were only just equal to 2003 levels. These results, and particularly the downwards slide since 2005-2006, can be seen to be due to the sluggish momentum in Europe and North America in particular. Meanwhile, the lack of critical mass has increased the pressure on smaller players such as Motorola and Nortel, in an environment where price wars are heating up – claiming Nortel as their first victim.
Handset market also feeling the squeeze
The economic slowdown is also likely to increase its impact on mobile phone sales. IDATE remains ‘quite optimistic' over the outlook for 2009, and states that the mobile phone market has progressed by 5% in 2008 reaching 1,200 units sold over the year. Mature markets where sales are driven by replacement should feel the greatest impact, with the possibility of negative sales in North America, Western Europe and Japan. For 2009 perspective, market warnings by major handset manufacturers and chipset suppliers, indicated that this year will remain extremely tough for every players of the mobile value chain. Sales should therefore be on the downturn reaching 1130 to 1140 units, a 5 to 6% decrease in volume.
Opportunities for 2009
At a time of economic crisis across the globe, combined with structural difficulties in the telecom equipment market, IDATE nevertheless asserts that there are still a number of opportunities to sustain equipment makers willing to rise to the challenge:
– large scale 3G mobile network rollouts in China and India;
– the drive to continue to reduce the digital divide in other emerging countries, with extensions of wireless networks;
– investments in ultra-fast broadband networks, particularly by governments;
– increasing ubiquity of managed services, especially outsourced networks.
The telecom equipment market is nonetheless likely to suffer a downturn in 2009, with its growth rate slipping to around 1% compared to the year before.