Dell’Oro Vice President and Analyst Stefan Pongratz states in a recent note that the global telecom equipment market – which includes broadband access, microwave and optical transport, mobile core and radio access network (RAN), and service provider router and Carrier Ethernet switch gear – shrank 4% year-over-year in the first three months of 2020. The slide follows two years of year-on-year growth and tracked below Dell’Oro’s original forecast of 2% growth for all of 2020.
Pongratz cited the effects of the COVID-19 pandemic as a key factor. While mobile core and RAN related spending was relatively strong thanks to 5G roll outs, sales of fixed network gear – including optical transport – bogged down during this year’s opening quarter. Pandemic-induced supply chain disruptions and macroeconomic uncertainty combined to slow fixed network equipment spending, he said. Dell’Oro separately reported that spending on optical transport systems for data center interconnect bucked this negative trend, jumping 13% year-on-year (see “1Q20 optical systems sales for data center interconnect jump 13% y-o-y: Dell'Oro”). However, this niche appears to have been an exception rather than the rule for optical transport as well as other network categories. Aggregate revenues for broadband access, microwave transport, and routers and Carrier Ethernet switches shriveled at double-digit rate versus the year-ago quarter, accounting for about a third of the overall market.
“In contrast to previous recessions, the COVID-19 slowdown is shifting and transforming the way we use the network. But a shift in how users are consuming data doesn’t necessarily result in a corresponding increase in spending on new infrastructure to support that traffic growth,” Pongratz wrote. “Some suppliers and service providers indicated that network capacity upgrades were required to accommodate data traffic growth; however, traffic surges did not lead to significant demand for network capacity upgrades across all the telecom equipment segments.”
Pongratz states his colleagues within the Dell’Oro analyst team still expect market conditions and supply chain risk levels to be more favorable in the second half of 2020. Nevertheless, they have reduced their growth forecast for the year to 1%.
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