This report provides an analysis of vendor sales of network infrastructure (NI) products and services to the telco sector for the quarter ended March 2020 (1Q20).
This market, termed Telco NI, amounted to $49.5 billion in vendor revenues for 1Q20, down 4.3% year-over-year (YoY) from 1Q19.
This decline is similar to the 4.7% decline recorded in 4Q19. The Telco NI analysis tracks 124 vendors in total, from 1Q13 through 1Q20.
In 1Q20, many vendors reported increases in 5G-related revenues but also began to feel the direct effects of COVID-19-related disruptions.
The rapid global shift to working from home (WFH) benefited many vendors, and network construction’s frequent classification as an essential service allowed many projects to continue apace.
However, many vendors also began to face supply chain constraints due to slowdowns in manufacturing activity, and the onset of a steep global economic downturn caused many telcos to reevaluate spending priorities.
The second quarter of 2020 will likely be substantially worse, based upon economic trends and public statements from Nokia, Ericsson, Samsung, and others.
While several Asian and European countries have begun to recover from the worst of the early COVID-19 spread, this recovery is only coming with big changes in society – from the workplace to schools, to how people get around.
Some of these changes require increased network investment in new areas, such as residential broadband backhaul, but they restrain spending elsewhere – such as small cells in central business districts.
Moreover, the effect of high unemployment and a recession are far more significant to telecom in Asia and Europe, and net negative. And then there is America.
The world’s largest economy continues to address the pandemic erratically and without responsible leadership.
Many US states are already seeing signs of a second wave. A prolonged recession and ongoing impacts to telco spending seem a likelihood at this point.
Of all the vendor types tracked, those classified as cabling & connectivity vendors (CCVs) reported the worst performance in 1Q20.
These companies suffered from both constraints in manufacturing capacity – due in part to the concentration of fiber production facilities in China – and the labour-intensive nature of fiber installation. CCV revenues dropped nearly 21% on a YoY basis in 1Q20. Wuhan-based Fiberhome was hit the hardest.
By contrast, vendors in the network software provider (NSP) segment recorded a 7% YoY increase in revenues in 1Q20.
This modest surge is due to both the nature of NSP sales, which can largely be done remotely without a need for social distancing, and the ongoing telco shift towards software-centric networks.
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