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Telecoms growth forecast for 2022 may be optimistic
Analyst view: 4Q21 drop plus strains from war mean component shortages drag on
The telecoms kit market had a good 2021 with revenues close to $100bn, up more than 20 percent since 2017, but growth is now slowing, according to analyst Dell'Oro Group. Huawei is also starting to feel the effect of sanctions, but still leads the global market by a fair margin.
However, the Dell'Oro Group's prediction of slightly less growth for 2022 may turn out to be optimistic amid warnings that the Ukraine war is already having an impact on the fragile supply chain recovery.
Dell'Oro's analysis is based on the telecoms market sectors it monitors, including Broadband Access, Microwave & Optical Transport, Mobile Core Network (MCN), Radio Access Network (RAN), and Service Provider Router & Switch.
It claims that the overall telecoms equipment market expanded by 7 percent in 2021, which would represent a fourth consecutive year of growth. However, revenue growth slowed in calendar Q4 to just 2 percent, which was not enough to derail the overall trend for the full year, but does point to a period of lower overall growth for 2022.
Dell'Oro attributed the 2021 results to strong growth in wireless revenues and increased demand for wired line equipment driven by double-digit growth both in the RAN and Broadband Access segments. However, the slowing of growth in the fourth quarter is largely attributed to external factors including COVID-19 restrictions and supply chain disruptions.
Overall Dell'Oro said it has revised growth rates upward for 2022 to reflect new supply chain and capex data. Despite this, it still expects to see global growth for the entire telecoms equipment market slow from 7 percent in 2021 to 4 percent in 2022.
This appears to be down to a drop in growth rates for the Broadband Access and RAN segments, the same factors that drove the increase earlier in 2021, according to Dell'Oro vice president Stefan Pongratz, author of the report.
"The projected output deceleration is primarily driven by slower growth in both RAN and Broadband Access," he told us.
Supply chain pain
The Dell'Oro report notes that in addition to the direct and indirect impact of the war in Ukraine and the wider implications across the world, the telecoms industry is still contending with COVID-19 restrictions and supply chain disruptions.
This would seem to be something of an understatement, since analyst firm Canalys warned just last week that the conflict in Ukraine is already disrupting the tentative supply chain recovery that we had been witnessing, and that a forecast easing of semiconductor shortages in 2022 is now unlikely to happen.
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Some telecoms firms such as Cisco had already been warning that they could not say when supply chain issues would ease off enough for it to fulfill orders for network kit for which some customers have been waiting months.
Others such as Arista had earlier said that they were facing lead times for some key components of up to 80 weeks.
We asked Dell'Oro about this, and Pongratz told us that supply chain visibility remains mixed.
"While there are signs of stabilization in some areas, component shortages and supply chain disruptions are expected to continue impacting the overall telecom market in 2022," he said.
Meanwhile, Dell'Oro claimed that the global share of the market accounted for by the leading telecoms suppliers remained fairly stable between 2020 and 2021, with the top seven vendors making up around 80 percent of the total market.
Despite the ongoing US sanctions against Huawei, the Chinese outfit continued to lead the global market with a share close to 30 percent, largely thanks to its dominance at home.
Outside of China, which accounts for about 26 percent of the global market, there is a different picture, according to Dell'Oro.
Here, Ericsson and Nokia made up about 20 percent of the market each, with Huawei accounting for around 18 percent. We asked Huawei if this seemed to be a fair and accurate appraisal of its market position, but the firm declined to comment. ®