Services more critical than hardware to equipment vendor profits

Telco services market topped $65 billion in 2007

For immediate release, 25 March 2008. Ovum today published its 2007 service business results for network infrastructure vendors. The telco services market hit $65 billion in 2007, including product, network, and IT-related service spending. Network equipment providers accounted for approximately 60% of that total.

"The importance of services to telecom equipment vendors is hard to overstate," said John Lively, Vice President, Network Infrastructure, at Ovum. "The telco services market is larger, and growing faster than optical networking, switching and routing, and broadband access equipment combined, and it's generating profits. Simply put, services are key to infrastructure vendors' financial success."

Key findings of the study include:

• Worldwide telco services revenues were $65 billion in 2007, up 17% versus 2006"
• Services revenues were more than 20% of total company revenues for top tier network infrastructure vendors as a group
• Average operating margin on services was 13%, versus 5% for hardware

Lively says the capacity glut of the past several years, combined with the rise of Chinese vendors, with their lower labor costs and relationships with well-funded development banks, have made it difficult for large incumbent NEPs to make money on products. "Meanwhile, service providers are increasingly pulling NEPs into network-related services."

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For further information:

The research has been published in a report titled, 'Services business is key to infrastructure vendor profits' in Ovum's Network Infrastructure practice. For further details, please contact Sara Kaufman, Ovum Public Relations at 617-722-4602 or sara.kaufman@ovum.com, or contact a member of our global PR team listed below. Ovum's Telecom and Networks practice provides analysis and forecasts of service provider spending, network infrastructure and software, and vendor strategy.

About Ovum RHK:

Ovum RHK provides market research advisory services to telecom equipment and component vendors and service providers alike. Ovum RHK is a part of Ovum, advising on the commercial impact of technology and market changes in telecoms, with offices in London, Paris, Cologne, Boston, Melbourne, Seoul and San Jose.

About Ovum:

Ovum's primary activity is providing value-added advisory services and consulting to retained and project clients. The company acts as a well-respected and trusted source of industry data, knowledge and expertise on the commercial impact of technology, regulatory and market changes. Ovum engages in continuous research and industry analysis to determine market dynamics in its specialist sectors.

Ovum has developed long-standing relationships with many of its corporate clients, which include major international blue-chip companies such as Alcatel-Lucent, AT&T, BT, Cable & Wireless, Cisco Systems, Deutsche Telekom, Fujitsu, HP, IBM, Microsoft, Telstra and Vodafone.

Ovum is part of the Datamonitor Group.

Ovum's PR contacts:

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Sara Kaufman
Tel: +1 617-722-4602
Email: sara.kaufman@ovum.com

EMEA:
Maria Di Martino
Tel: +44 (0) 20 7551 9238
Email: maria.dimartino@ovum.com

Asia-Pacific:
Tanisha Kuckreja
Tel: +61 3 9601 6723
Email: tanisha.kuckreja@ovum.com