Analysts at Dell’Oro Group expect a decoupling of telecom spending and capex trends worldwide in 2023. While capex is expected to decline, as part of a general downward trend of negative 2% to 3% CAGR over the next three years, spending on wireline and wireless telecom equipment will manage a 1% growth rate year-on-year in 2023, the market research firm states in its latest three-year Telecom Capex Report.
Dell’Oro notes that capex for 2022 didn’t quite meet the 3% growth it had originally forecasted, due in part to the strength of the U.S. dollar. Even with forecasts adjusted for currency fluctuations, however, the analysts believe that weakness in North America (see chart above), will offset growth in areas such as India to bring capex spending into negative territory over the next three years.
That said, such a downward trend doesn’t signal doom for equipment spending – at least this year, according to Dell’Oro analysts. “The relation between service provider capex and telecom equipment is not perfect, partly because the equipment makes up roughly one-third of the capex,” explained Stefan Pongratz, vice president and analyst with Dell’Oro Group. “Even with the inherent wiggle room, aggregate R-squared for capex and equipment is in the 0.8+ range over the past seven years, so it is obviously an important metric to consider for short-term projections. At the same time, it is not the only input, and with the equipment market expected to grow 1% in 2023 and telco capex projected to decline, it can be inferred that the Dell’Oro analyst team is modeling some minor decoupling over the short-term.”
Dell’Oro also believes capital intensity ratios will improve and approach 16% by 2025. However, this forecast rests on an assumption that carrier revenues will remain flat and outperform capex, the analysts note.
Dell’Oro’s Telecom Capex Report covers more than 50 telecom operators, highlighting carrier revenue, capital expenditure, and capital intensity trends. The report provides actual and three-year forecast details by carrier, by region by country (United States, Canada, China, India, Japan, and South Korea), and by technology (wireless/wireline).
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