COVID-19 will deepen consolidation among vendors: report

The coronavirus pandemic will lead to accelerated consolidation in the telco vendor sector, according to MTN Consulting. (Pixabay)

MTN Consulting already predicted a bumpy road ahead for vendors this year, but the coronavirus could lead to even more consolidation going forward, especially among vendors that primarily sell into the telco market.

While it's hard to predict the eventual outcome of COVID-19, MTN Consulting said in a report that both telecom operators and vendors will see demand erosion, which could be severe over the next 6-to-12 months.

"Many companies in telecom will struggle to survive during this period, even with government stimulus," according to the report that was written by MTN Consulting Chief Analyst Matt Walker. "It’s hard to know how bad it will get."

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Walker did predict that telco capex would be down by a minimum of 5% this year, and that the major telcos will lay off thousands of employees over the coming months. With a drop in consumer spending, telco revenues are expected to fall in most countries.

While 2020 was supposed to be the year for broad deployments of 5G, Walker said mobile operators will stretch their 4G networks while hitting the breaks on 5G. While some governments, including the U.S., Canada, and most of Europe, will consider massive stimulus projects in areas like physical infrastructure – in particular fiber construction – that support will likely take one to two years to materialize, according to the report.

RELATED: Earnings rewind: Telco spending is tepid and 5G isn't a cure-all

On the other hand, Walker said China's government will be able to double down on state support for its tech sector, which includes Huawei and ZTE.

Based on all of the above factors, there most likely will be severe pressure on many of the vendors that primarily do business in the telco market, which in turn could lead to vendor consolidation.

"Looking ahead to 2020, a number of vendors will be hit hard by the inevitable downturn facing the telecom market, according to the report. "Those vendors most at risk are the ones highly leveraged to the telco market, as telco spending may take a deep cut in 2020. Other signs of vulnerability include relatively low operating margins, limited cash reserve, and/or high debt loads."

All of which could be made worse by the coronavirus pandemic, according to the report.

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