Telecoms equipment sector strong outside of Japan so far in 2007

Weak Japanese telco spending offset by modest upswing in China and a growth surge elsewhere. Telco profits also on the rise outside Japan.

For immediate release, 18 December 2007. Ovum RHK today has concluded its analysis of telecoms equipment spending for the first three quarters of 2007 (YTD07). YTD07 telco capex for the region was $47.1 billion, up 6.0% from the first three quarters of 2006. Outside of Japan, though, capex rose at a much stronger 19.5% clip to $31.8 billion.

Wireless infrastructure is a clear beneficiary of emerging market growth, but wireline optical network (ON), DSL, and packet transport (PT) segments all enjoyed increased sales. Again, based on year-to-date figures, DSL was up 24% to $0.8 billion, PT up 15% to $1.8 billion and ON up 4% to $2.5 billion. Optical spending for the AP region excluding Japan rose at a faster 11% clip, and a similar disparity is evident for other equipment segments.

"NTT's long anticipated next-generation network buildout is largely still on hold, so vendors heavily reliant on this market are struggling," noted Matt Walker, Ovum RHK's Senior Analyst for Network Infrastructure. AP's big emerging markets, though, are another story as carriers race to extend mobile coverage and introduce new services. India is the biggest single contributor to growth in these markets, where the capex focus is rapid construction of low-cost mobile networks. Along with India, a number of other markets in South and Southeast Asia have good growth prospects over the next several years as penetration rises.

Even China, whose equipment sector had quieted down a bit in previous quarters, has seen carrier capex intensity (capex divided by revenues) increase in the first nine months of the year, from 23.7% to 24.8%. Capacity expansions to support broadband growth and scaling new broadband value-added services are factors in China, as is wireless spending aimed at improving quality of service, supporting rural expansion, and lifting ARPU of urban subscribers. Much of the growth in AP's emerging markets outside Japan and China has similar sources, but network transformation is also becoming a driver in some markets such as Australia and Korea.

1Q-3Q07 financial highlights for AP carriers:

• Revenues up 10.5% to $240.7 billion
• Net income up 20.7% to $30.6 billion
• Average net margin - net income divided by revenues - rose from 11.6% to 12.7%
• Capex up 6.0% to $47.6 billion

1Q-3Q07 vendor rankings in key segments:

• Optical networks: Huawei (28.2% of nine-month ON spending); Alcatel-Lucent (14.5%); NEC (9.3%); ECI, Ericsson, Nortel, and ZTE (four-way tie with 6.0% each); Fiberhome (5.3%), and Fujitsu (4.3%).
• Packet transport: Cisco (39.9%), Huawei (14.6%), Juniper (13.3%), Alcatel-Lucent (9.6%), NEC (5.3%), Alaxala (3.7%), and NSN (3.1%)
• DSL network equipment: Huawei (31.5%), ZTE (21.0%), Alcatel-Lucent (15.4%), UTStarcom (8.2%), NEC (8.1%), NSN (4.8%), and Sumitomo (2.8%).

Some of the changes in AP since the first three quarters of 2006:

• Optical switch sales rose 38% to $175 million
• Multi-reach WDM sales rose 26% to $251 million
• Edge IP/MPLS sales rose 32% to $923 million
• Huawei has moved to a #2 ranking in PT, from five, for the four quarters ending 3Q06. It has maintained its top ranking in ON and DSL.
• Alcatel-Lucent has solidified its #2 rank in ON and held steady in PT and DSL.
• Capex in India and Indonesia increased at rates of 18% and 27%, respectively.
• Strong carrier interest across AP in deploying video-based services (e.g. IPTV over DSL/FTTx) and enterprise Ethernet services.

For more information

For more information, or to speak with Matt Walker about this research, please contact tanisha.kuckreja@ovum.com, +613 9601 6723, or a member of our global PR team listed below.

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