Networks infrastructure and equipment market remained flat in 2016 at +0.1% year-over-year. Outlook for 2017 is more optimistic (+1.2% year-over-year), followed by a similar trend until 2019 (+1.7% per year). North America and Asia Pacific are generating 77% of USD +6.6 bn increment until 2019, driving the growth across all regions except Europe.
SHIFT IN SUPPLY CHAIN REQUIREMENTS AS TELECOM PROVIDERS PRIORITIZE NETWORK CAPACITY OVER COVERAGE
Consumers worldwide are eagerly expecting the arrival of 5G in order to enjoy superfast downloads of movies on the go, human-machine interaction, driverless cars or fully automated warehouses, among others. Once 5G gains momentum, South Korea, Japan, US and China are expected to lead the deployment. And while regulatory bodies are already increasingly re-farming current 4G/LTE spectrums to 5G, significant commercial deployment of 5G is not expected before 2020. Until then, maintaining and enhancing current networks tops the agenda of Telecom providers. Though 4G/LTE still represents the segment with the largest growth in spending until 2019, demand is easing and upgrades to next-generation 5G equipment still need some time. Focus on network capacity enhancements is shifting supply chain requirements to more short-term, incremental project needs.
As a result, Backbone architecture (Service Providers Routers and Switches (SPRS) and Optical transport) generates roughly 2/3 of overall market increment, growing on +4.4% CAGR until 2019. Demand for capacity, lower latency and scalability underpins metro area networks and Data Center Interconnect (DCI) as main drivers of growth in Backbone infrastructure. Telecom providers’ equipment (CSP OT) is generating 90% of overall Networks incremental spending by 2019, demanding end-to-end supply chain solutions for network infrastructure including light assembly, local staging and spare parts management.
INCREASED COMPETITION FROM CHINESE VENDORS IN THE FLAT ENTERPRISE NETWORK EQUIPMENT MARKET
Worldwide spending in Enterprise Network Equipment (ENE) is set for positive growth in 2017(+2.5% YoY), second year in a row. Wave of recent ransom-ware and data sabotage attacks among others are driving demand for network security infrastructure (+7.6% CAGR) to address fast-evolving threats. However, firewall hardware spending growth will slow down, as sandboxing and advanced threat detection solutions gain traction. While most IoT projects are still in early phase, adoption has begun in several vertical markets, speeding up WLAN increase. Spending on WLAN upgrades will show accelerated growth (+6.3% CAGR by 2019) in order to support mobility initiatives.
From 2017 market starts contracting, with low negative growth rates until 2019. Data center Ethernet switches showed strong short-term growth due to transition to greater speeds. From 2017 onwards, moderate decline (-0.7% CAGR) in Ethernet switches is expected as a result of preference for cloud-style pay-as-you-go models of network consumption and ongoing price declines across all segments. Largest decrement among all countries comes from UK (USD -0.2 bn), fifth largest country market in ENE spending. Due to Brexit-related uncertainty, investment paralysis and currency weakness will result in pushing out of buying cycles for major network segments in UK by an additional half a year, further weakening network equipment demand. In world’s second largest ENE market – China, new cyber-security law will contribute to further displacement of network security products manufactured abroad with local Chinese vendors. That will lead to international vendors seeking to build partnerships with local Chinese vendors.
Though market for Networks Equipment and Infrastructure remained flat in 2016, business momentum is expected to accelerate. Internet of Things is gaining traction and next-generation 5G connectivity is on a horizon. While competing to be on the leading edge when it comes to technologies of the future, Network vendors have to be agile, proactively respond to changes and be ready to embrace opportunities new technologies deployment will bring.
Published: November 2017