Infrastructure vendors have rough Q4

Matt Walker/Ovum
23 Mar 2012

Our preliminary analysis indicates that telecom vendors’ infrastructure revenues dropped 5% year over year (YoY) in 4Q11. This followed seven straight growth quarters after the 2009 recession.

All three infrastructure segments were weaker than earlier in 2011: wireline equipment, mobile infrastructure, and services. The latter was strongest: telecom infra vendors’ services revenues increased 3% in 4Q11, as service providers (SPs) continue to outsource operations. The two segments tied more closely to capex, wireline and mobile, declined by 3% and 9% respectively. That’s in line with preliminary capex results showing that 4Q11 global capex was down around 6% YoY.

Since year-end 2011, the economic outlook has improved, but vendors’ guidance for near-term results is mixed. Many vendors are in transition to new business models. Layoffs, spin-offs/asset sales, reorganizations, and repositioning are happening across the industry. Vendors must navigate this chaos amidst rapid changes in end-user behavior and technology, all while constrained by their customers’ tight budgets.

The fourth quarter is sometimes a period of budget flushes for service providers. Fourth-quarter capex averaged 31% of the full-year global total in 2009 and 2010, for instance. But 2011 was different: Preliminary data suggests 4Q11 telco capex was weaker, though, at roughly 28% of 2011′s total. That’s similar to the 27% actual figure for the same carriers in 4Q08. Vendors’ services revenues, which track opex more than capex, also were hit in 4Q11. Services revenue growth moderated for infra vendors to 3% YoY, down from 17% the previous quarter. Carriers are still outsourcing, and vendors are still optimistic about professional services, but 4Q11′s caution hit all budget holders.

Ovum publishes a quarterly report on telecom vendors’ financial results, the most recent of which is Telecom Vendors’ Earnings and Strategy – 3Q11 (January 2012). Our 4Q11 update will follow publication of annual results from Huawei and ZTE, likely to come in late March or early April. The figures in this Opinion include estimates for Huawei and ZTE and actual reported figures for 27 additional vendors.

In 4Q11, telecom infrastructure vendor revenues (including services, excluding devices) amounted to $42.2 billion, down 5% from 4Q10. For full-year 2011, vendor revenues were $163.5 billion, up 8% from 2010. Service provider capex for 2011, based on preliminary results, also grew at an 8% annual rate. Ovum’s published prediction for SP capex growth in 2011 is higher, up 12%, so it’s possible the weak 4Q caused 2011 to underperform. We’ll know when final capex figures are available in two to three weeks.

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