Three of the largest, oldest vendors of telco network infrastructure (Telco NI) benefited the most from an improved spending climate in the first six months of this year (1H21).
For the vendor market as a whole, Telco NI revenues were $110.3 billion in 1H21, up 7.3% from 1H20. Ericsson, Nokia and Cisco (ranked 2, 3 and 6 globally) all outpaced the market with 1H21 growth rates of 14%, 11%, and 12%, respectively. All have benefited from ongoing telco deployment of 5G networks, and the growing shift in emphasis to the core and stand-alone (SA) architectures.
They have picked up market share from Huawei, which continues to struggle to win big deals overseas. Huawei’s 1H21 sales to the telco segment dropped 7% year-over-year, with Chinese 5G spending providing some cushion to its global decline. Huawei easily retains its crown as the largest supplier in the Telco NI segment, though, accounting for roughly 19.2% of the 1H21 market (1H20: 22.0%). ZTE’s share was up a bit, as it has bypassed the worst of the U.S. restrictions.
Optical, IP, cloud and automation are hotspots after initial 5G builds
While Ericsson and Nokia have benefited from Huawei’s troubles, this displacement has not yet helped smaller vendors that are focused on areas like optical transmission and IP infrastructure. There is strong demand in these categories to support upgraded 5G radio and fiber access connectivity, but in 1H21 that mainly helped larger players who sell optics and IP infrastructure as part of larger deals.
For instance, Nokia’s second quarter 2021 optical sales to telcos were up 18% year-over-year to $403 million, while Ciena and Infinera saw a 2% bump and 4% decline in Telco NI, respectively. As telco spending picks up in core networks, smaller vendors aim to pick off more of Huawei’s business in the next one to two years. Infinera notes an “acceleration in the pace of Huawei replacement opportunities.” Ciena, ADVA/Adtran, Ribbon/ECI and Arista should also benefit.
Another important spending trend was discussed in my last column. Cloud providers from the webscale world, AWS, Azure and Google Cloud, are seeing hockey stick-like growth in the telco vertical. This growth is enhanced by telcos’ shift in 5G spending emphasis from the RAN to the core, as many telcos are expanding collaboration with the webscale sector as they roll out their 5G cores. Notably, AT&T recently agreed to sell the “Network Cloud” platform underlying its 5G core network to Microsoft, and rely on Microsoft for the core going forward. Figure 1 illustrates cloud providers’ share of the Telco NI market.
Automation is another major investment theme in the telco market, cutting across many product segments. Orange, for instance, positions the automation of network management and maintenance as a central part of its “Scale-Up” operational efficiency program. Vendors highlighting automation in 2Q21 include Ciena, Cisco, DZS, F5, EXFO, Infinera, Juniper, Oracle, and many others. One illustrative win in 2Q21 comes from Amdocs at T-Mobile: its “zero-touch service operations were recently selected for a program to implement next-generation automation, leveraging machine learning and AI tools.” This kind of win is important for Amdocs as it is one of many telco-focused vendors that face creeping competition from the cloud world.
Biggest winners and losers in the first half
The biggest year-over-year Telco NI sales jumps in 1H21 were easily recorded by Ericsson and Nokia, up $1.46 billion and $1.01 billion 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 $1.48 billion year-over-year decline in Telco NI sales in 1H21 was far worse than any other supplier.
On a share change basis, Huawei again comes out at the bottom of the heap, and a large number of vendors have seen upside from this slippage (figure, below).
As shown, Huawei’s drop overshadows all else in the market. Intel and CommScope both took steps back, due in part to strategic shifts at both companies. Ciena dipped but is positioned well for optical upgrades and automation projects in the next two years. All other vendors in the above chart saw 1H21 sales growth above the market average. A few highlights:
- Samsung: results impacted by big 2020 5G win at Verizon, plus a number of smaller wins in Canada, New Zealand, and elsewhere;
- Dell/VMWare: VMWare’s Telco Cloud offering continues to get traction and parent company Dell is prepping a spinoff. Dell/VMWare’s sales in Telco NI have grown from ~$276 million in 1H15 to $1.28 billion in 1H21;
- Fujitsu: success in Japan’s early 5G RAN market is beginning to spread overseas;
- AWS: earliest cloud provider to make a push for the telco vertical, its wins are spread across all key regions; Swisscom was an important 2Q21 win;
- Prysmian: European fiber supplier had a weak 1H20 due to the spread of Covid, but it bounced back in 1H21 due largely to European FTTH builds;
- Sterlite: this India-based fiber vendor has been gradually spreading its wings into more segments (e.g. system integration, network software) and geographies (e.g. UK, Taiwan), and nearly doubled sales to the telco vertical in 1H21.
Telco spending outlook for the remainder of 2021
Telco industry capex is likely to come in around $300 billion for 2021, only slightly up from $295 billion 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 $297 billion, up from $282 billion 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.
Matt Walker is the founder and Chief Analyst of MTN Consulting, LLC, an independent market research firm. He has over 20 years of experience in telecom industry analysis, consulting and research program management. Walker currently lives in the Bangkok Metropolitan Area. He can be reached by email at [email protected]. Follow him @mattwtelecom, or LinkedIn
Industry Voices are opinion columns written by outside contributors—often industry experts or analysts—who are invited to the conversation by Fierce staff. They do not represent the opinions of Fierce.