Telecom Manufacturing & Equipment
Date July 2020
- Work-from-home mandates that went into effect at the onset of the COVID-19 crisis drove a huge surge in network traffic over wired connections.
- Values for telecommunications equipment serving the broadband/wireless segment have remained stable; however, values for equipment serving campus and venue segments are weaker as a result of the pandemic.
- The transition to 5G is expected to generate a windfall for network, infrastructure and equipment vendors with worldwide 5G network infrastructure revenues of $4.2 billion in 2020, amounting to year-over-year growth of 89 percent.
Approximate net recovery on cost
Demand for Data Driving Growth in Subscriber Connections: Demand for mobile data services grew at a strong pace from 2014 to 2019. The industry’s major players capitalized on this trend, as the number of wireless subscriber connections grew from 223.5 million in 2014 to an approximately 365.6 million in 2019, representing an increase of over 63 percent in just five years, according to the Cellular Telecommunications and Internet Association.
Wireless providers have struggled to keep up with demand, devoting a significant level of resources to expanding network capacity. The battle for wireless spectrum has been a large source of competition, and the struggle for new subscribers in this saturated market has been challenging. Carriers’ appetite for more spectrum and for more subscribers has played out in a series of competitive auctions and merger and acquisition attempts. The industry has shown consistent signs of consolidation in recent years, with the four largest operators controlling almost 70 percent of the market as of 2020. Most recently, T-Mobile US Inc. and Sprint Corp. signed a merger agreement for $26.5 billion, which was approved in October 2019 despite significant opposition, including a lawsuit led by New York with support from 18 state attorneys general. The complaint stated that the merger would severely undermine competition in the telecommunications sector, which would negatively impact consumers by driving up prices, limiting coverage and diminishing quality.
In terms of current value trends for equipment, work-from-home mandates that went into effect at the onset of the COVID-19 crisis drove a huge surge in network traffic over wired connections; however, the demand was not consistent across all formats. The values for telecommunications equipment serving the broadband/wireless segment have remained stable, while values for equipment serving campus and venue segments is weaker as a result of the pandemic.
Optical Transport Equipment Market Growing: Driven by wavelength-division multiplexing system sales, the optical equipment market was strong in 2019, with growth of 6 percent over 2018. “Considering the Optical Transport market hasn’t posted a revenue growth rate greater than 4 percent in the past seven years, this was really a welcome surprise, brought on by continued demand for WDM (wavelength-division multiplexing) systems across all regions,” noted Jimmy Yu, Vice President at the industry’s leading independent market analysis and research firm Dell’Oro Group. The largest revenue contributions derived from Europe, the Middle East, Africa and the Asia Pacific region.
Optical transceiver revenue is forecast to increase at a compound annual growth rate of 15 percent, doubling from $7.7 billion in 2019 to approximately $17.7 billion by 2025, according to market research and advisory firm Yole Développement. “This growth will be driven by high-volume adoption of expensive high data rates including 400G and 800G modules by big cloud service operators,” said Martin Vallo a technology and market analyst for the company. Describing additional factors around the trend, he added, “Therefore, such players invest more and more in new data centers and, on top of that, telecom operators have also increased their investments into the 5G networks that use wireless optical transceivers”.
5G Technology Grows significantly: After years of hype about gigabit speeds that will let users download full-length movies in seconds, 5G is now a reality. The transition to 5G is expected to generate a windfall for network, infrastructure and equipment vendors with worldwide 5G network infrastructure revenues of $4.2 billion in 2020, amounting to year-over-year growth of 89 percent.
Concentrated Marketplace in Domestic Wireless Industry: The U.S. wireless industry exhibits a medium to high level of concentration. Currently, the top four major players in the industry - Verizon Communications Inc., AT&T Inc., T-Mobile, and Sprint - account for approximately 70 percent of industry revenue, per data from research firm IBISWorld. This higher concentration is consistent with the high level of merger and acquisition activity that took place in the space over the past decade. Given the level of concentration, and an increasingly homogeneous supply of products and services, operators are now scrambling to build subscriber bases. A large subscriber base is critical to competitiveness, as it delivers considerable economies of scale and enables carriers to offer lower prices and attain higher margins.
Refurbished Smartphone Demand Is Decreasing: The market for refurbished smartphones used to be one of stable revenue growth; however, the market recently decreased for the first time since 2016. The market not only offered premium used smartphones at heavily discounted prices, but also catered to the needs of those who preferred affordable smartphones over expensive ones. There has been a recent downslide in that market, as industry analysts reported that the global refurbished smartphone market decreased by 137 million units, or 1 percent in 2019. The decrease is attributed to a major decline in smartphone sales in the United States, China and Europe.
Market participants also believe that a contributing factor to the revenue decrease is the increased supply of affordable new smartphones in the market. The increase in range, variety and prices of new smartphones has reduced demand for refurbished phones.
Note: This publication is provided for informational marketing purposes only. The material contained herein should not be regarded as advice, nor relied upon to make financial, operational or other decisions; nor should it be used as a substitute for an asset appraisal. Actual recovery values may vary from transaction to transaction and the recovery values referenced herein are for representative transactions without regard to specific key factors. This material may be redistributed only in its entirety, including notice of copyright. All rights reserved. ©2020 Gordon Brothers, LLC.
Reference sources: semiconductor-today, ibisworld, IT Web, lightreading, cnet, pr newswire, lightwave online