VCs disinterested in telecom, keen on cloud

Matt Walker/Ovum
07 Dec 2010

VC spending on just the vendors was down 47% to $192 million. Innovation from hardware start-ups is central to telecom’s progress, so this trend is disconcerting.

The third quarter data shows that VCs are eagerly funding services and software-centric ventures in areas closely related to telecom.

Hot areas include the cloud – such as online storage, file transfer, smart computing, data virtualization, WAN optimization – and mobile applications. Nonetheless, telecom hardware-centric start-ups need more support.

The recent decline in VC spending on telecom has coincided with the financial downturn, but the GFC can’t be blamed entirely: investment in other tech segments hasn’t fallen as badly, and some sectors have even seen growth. There is no lack of exits for successful vendors: the IPO market has improved, and vendor M&A activity is ongoing.

The decline in telecom hardware investment has come at the same time, though, as the big Chinese vendors Huawei and ZTE have really made a splash on the world stage. Since these vendors were once positioned as ”me-too’’ suppliers of cheap hardware, their rise to the top of global rankings has increased fears of commoditization.

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