wireless infrastructure trends and market share update

7/30/2019 Wireless Infrastructure Trends and Market Share Update

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Kajashi , Document ID: TECO20120111

Facts-Figures-Forecasts For :

Wireless Infrastructure Trends and

Market Share UpdatePublished Date : Jan, 2012

Report Theme:

Wireless Infrastructure TrendsWireless Infrastructure Market Share

LTE Market Share Update

Wireless Infrastructure Trends

Key FactsWireless infra spending growth accelerated from 11% to 20% year-on-year fromQ4 to Q1 driven by North America up 59%. It is now a year since spending troughed in

both absolute and year on year terms. LTE reached $0.5bn of spending in Q1 according

to Infonetics, 4% of total and equaling WiMAX for the first time. WCDMA (41%) spending

remains about twice GSM while CDMA stubbornly refuses to die and has been stable

YoY. Infonetics forecasts 10% growth this year, but it looks set to be higher (we forecast

30% growth for Ericsson networks and ALU wireless, in dollar terms).

Growth was driven regionally by the Americas and the non W. European part ofEMEA. The US accounted for about two thirds of global LTE spend, and Verizonalso continued its CDMA EV-DO Rev A upgrade. China and some other developing

markets saw strong GSM upgrade/expansion activity and also GSM network

modernization in Europe driving GSM growth higher than WCDMA globally and a net

positive for profitability. In India the 3G rollout continues after delays in 2010. Quarterly

data cannot be extrapolated reliably so we look at 12 month trailing trends.

Ericsson and ALU both benefit from their North American strength, and ALU from its

relative absence in Europe (barring Orange-France and Vodafone Italy). NSNs share

has stabilized after its mid 2009 change of strategy. Chinese vendor share has stabilized

(Huawei) or fallen (ZTE) thanks to absence from the US and weak Chinese 3G spend,

though the announcement of its first major UK win (Orange/T-Mobile JV Everything

Everywheres GSM network modernization) points to likely continued share growth for

Huawei.

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The US is a perfect-wave of high growth and high margins. Europe should be a high

margin upgrade market even in the absence of capex growth, but network modernizationis spoiling the party. The developing markets are a mix of profitable captive 2G upgrades

and low margin rollouts of more recently competed for 3G rollouts and upgrades.

Western operators tell us pricing is fiercest where Huawei and ZTE go head-to-head.

We rate Ericsson under-perform on a travel-arrive basis into an FX headwind and

peaking growth, while Alcatel-Lucent is buy rated on the back of lower exposure to

commoditizing base-stations, higher exposure to data growth through its router and

optics divisions, the self-help cost-cutting story, and optionality from its disruptive

LightRadio cloud mobile technology.

Key figureFigure 1 : Revenues Contribution Technology wise

Figure 2: Market Share by Movement by Vendor

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Figure 3: Infrastructure Market by Technology

Figure 4 : WCDMA RAN Market Share

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Figure 4: Growth by Technology

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Figure 5 : Growth & Market Share by Region

Wireless Infrastructure Market Share

Key FactsWith network technology converging on 4G LTE over the next decade, current market

share is important as incumbents will be looking to keep business with existing

customers over the transition to 4G. Infonetics admits it may be underestimating Huawei

where pricing on bundled wireless/wireline deals is difficult to split-out. Huawei and

ZTE unit share is certainly 1.3-1.5x higher than value share.

Regional capex fluctuations also affect the short term explaining China-focused

ZTEs share peak in 2009-2010, recent Ericsson and ALU gains driven by US spending.

LTE just reached $0.5bn of sales, the same as WiMAX, in Q1 so we dont have

meaningful share history. US, Japan, and Korean spending drove Q1. ALU and

Ericsson share the US, explaining their high share. Other includes the Japanese

vendors supplying in that country, and Samsung which has 6% global share thanks to

Korean LTE investment. NSN supplies KDDI in Japan amongst others.

Ericsson has done a good job to maintain share over the 2G to 3G transition. NSNs

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share loss has abated since new management started a far more aggressive policy

towards new tenders. Huawei continues a steady rise and ALU has benefited from its

near absence from weak European spending and exposure to the US. ZTE share has

fallen off as China Unicom slowed spending.CDMA spending is focuses on the US (Verizon is the biggest CDMA carrier) and China

(China Telecom is the second biggest), plus some networks in India and Latin America.

Recent quarters are driven by the US spending bubble (ALU and Ericsson) and the

slowdown in China (ZTE, Huawei, ALU) explaining the shape of CDMA market share

over the last year or so. Motorola accounts for about half of other and supplies the US

and Japan NSN should complete its $0.9bn acquisition in Q2.

The declining GSM market is seeing a resurgence capacity build this year. Quarter-on-

quarter market share remains volatile depending on which particular carrier or reqion is

spening, and does not provide much of a clue to true long-term share progress.

Looking through the volatility, year on year share seems to be about stable for most

vendors. NSN is down, Huawei, Ericsson, and ALU very slightly up.Core is about

20% of RAN spend and has traditionally comprised the voice related core, and packet

data.Voice has seen Huawei take share in the move to combined voice-data gateways,

and from traditional mobile switching centres to soft-MSC.

In the packet core side traditional vendors dominate with the exception of CDMA core,

where Cisco has dominant share thanks to its Starent acquisition, and this makes up the

bulk of other. LTE evolved packet core is included in the LTE data above. There is no

voice element to EPC.

Figure 6: Market Share by Technology , Q3 2011

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LTE Market Share UpdateKey Facts

LTE is likely neutral to slightly negative for the basestation businesses of vendors

(Ericsson, Nokia-Siemens, Alcatel-Lucent, Huawei) because we do not see it changing

carrier capex/sales ratios and it likely stimulates a capex shift towards intelligence in

the core benefiting router and service provider IT spend. Basestation market share

dynamics are a bigger issue likely driven by cloud mobile initiatives than LTE itself.

LTE is a small positive for wireline capacity optics players, though mobile data traffic willremain tiny compared to fixed traffic.

4G LTE spending is tracking exactly like the ramp of 3G WCDMA a decade earlier,

and like WCDMA, will take many years to overtake the predecessor technology. 2G

revenues peaked in 2008, long after the appearance of 3G. The reasons are three-

fold. First there is a long tail of spend on existing infrastructure (Infonetics expects 2G

share of spend to increase this year on the back of capacity upgrades in China and

India). Second, for WCDMA carriers the HSPA+ upgrade path makes more sense until

more spectrum is released. LTE is no more spectrally efficient than HSPA+ at lessthan 20MHz channel width. CDMA2000 carriers (such as Verizon Wireless) do have

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an incentive to move because EV-DO Rev B does not have the spectral efficiency of

HSPA+.

Third, carriers around the world that are not yet rolling out LTE are engaging in whatthe industry calls network modernisation, meaning that the existing separate 2G

and 3G basestation boxes are combined into a multi-standard box. This has two

somewhat negative impacts on basestation vendors. What should have been a profitable

captive upgrade market for the 2G and 3G networks gets re-tendered to the market

and competitively bid for. Ericsson has noted for some quarters that this is impacting

profitability in Europe. The second negative impact is that when LTE comes, it is a card-

upgrade rather than a full new basestation sale. True, the card upgrade is likely higher

profitability but it will impact revenues.

The main benefit of LTE is that it allows larger spectrum bands to be used, which in turn

allows higher capacity (more users or more speed). It is also cheaper to run. A layer

of complexity is removed from the network (no basestation controllers, also known as

BTS or RNC) and LTE is designed to be a SON (self organising network) meaning that

adding new cellsites does not require many technical person-hours to rebalance the

network it does it automatically.

Again with maximum spectrum utilisation in mind, LTE is designed to run on both double

and single bands of spectrum (known as FD and TD discussed below), and with theCDMA operators help, it is also designed to have an upgrade path from both the GSM/

WCDMA operator camp (called 3GPP) and the CDMA camp (called 3GPP2).

The main benefit of LTE is that it allows larger spectrum bands to be used, which in turn

allows higher capacity (more users or more speed). It is also cheaper to run. A layer

of complexity is removed from the network (no basestation controllers, also known as

BTS or RNC) and LTE is designed to be a SON (self organising network) meaning that

adding new cellsites does not require many technical person-hours to rebalance thenetwork it does it automatically.

Again with maximum spectrum utilisation in mind, LTE is designed to run on both double

and single bands of spectrum (known as FD and TD discussed below), and with the

CDMA operators help, it is also designed to have an upgrade path from both the GSM/

WCDMA operator camp (called 3GPP) and the CDMA camp (called 3GPP2).

LTE Basestation Market Share

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The 2G-3G transition saw reasonably stable market share Nokia Siemens Networks

(NSN) and Alcatel Lucent (ALU) trending down, Ericsson stable, and Huawei the main

share gainer, though this was as much driven by a 2G landgrab in emerging markets

as 3G. The bubble of China spend in 2009-2010 can be seen in ALU and NSN sharetroughs and Huawei and ZTEs share peak.

In 2010, almost 70% of LTE spend came from North America driven by Verizon

Wireless and AT&Ts LTE roll out. Verizon needs LTE because of CDMAs end of-

roadmap, and AT&T needs it to compete with Verizon. Ericsson and ALU are lead

suppliers of radio equipment to both, and so are leading the market share table. Some

hope that ALUs early lead marks a possible step change in that companys market

share, but we would not assume this until ALU wins a major LTE deal with a non-

customer. Verizon and AT&T were both incumbent customers of both ALU and Ericsson(via its Nortel CDMA acquisition).

LTE EPC Market Share

EPC Supplier Market Share

Alacatel Lucent 31%

Cisco 24%

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Ericsson 17%

Nokia Siemens Network 10%

Others 16%

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wireless infrastructure trends and market share update

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