1Q20 network operator capex jump didn’t help everyone: Cignal AI

June 1, 2020
In fact, most system vendors cited a 5-10% reduction in sales due to COVID-19 related operational issues.

Network operators accelerated capex spending during the first quarter of 2020 to deal with COVID-19 induced bandwidth spikes. However, due to a combination of factors, that didn’t translate into revenue gains for every optical transport and packet systems vendor, states Cignal AI. In fact, most system vendors cited a 5-10% reduction in sales due to COVID-19 related operational issues, the market research firm asserts in its most recent Transport Hardware Report.

While there was in increase in demand for many of the systems Cignal AI tracks, the researchers say that fulfilling this demand proved problematic for many vendors. The systems houses faced component supply chain and equipment manufacturing disruption, as well as travel and shipping restrictions. The impacts of these factors varied by company and product type, leading to disparate performance during the quarter among the vendor community (see chart above).

Packet equipment revenues were hit particularly hard, with Juniper Networks among the suppliers that felt this effect most strongly. Supply chain issues combined with a general decline in demand for such systems in North America to deliver a pair of blows to such vendors.

On the other hand, Ciena, Cisco, Infinera, and Nokia all saw revenues for optical transport systems grow 20% or more in year over year in North America during the first three months of this year. Not surprisingly, transport equipment sales in China, where the effects of the pandemic hit first, declined in the double digits during the quarter.

Systems houses may have only a short time to get their operational issues behind them if they hope for a successful 2020, Cignal AI indicates. “Demand for equipment is solid right now, with one major operator reporting that 70% of its annual capex budget has already been spent,” said Scott Wilkinson, lead analyst at Cignal AI. “Operators are shifting demand forward to build capacity and inventory, and a decline in demand is likely to follow in the second half of the year.”

Cignal AI’s quarterly Transport Hardware Report covers optical and packet transport equipment revenue across all regions and equipment types. The analysis is based on financial results, guidance from individual equipment companies, and in-house research. Forecasts are based on expected spending trends for equipment types within each region.

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