During the first half of this year, the worldwide aggregate telecom equipment market grew by just 3%, as growth slowed from the 7% increase displayed during the first half of 2022, according to market research firm Dell’Oro Group.
For the full year of 2022, the research firm expects the market to increase about 4%, as segments that still have room to grow–particularly broadband access equipment, but also 5G–will continue to make up for sluggishness in other sectors.
Issues such as component shortages, the strengthening of the U.S. dollar against other currencies, suppliers exiting the Russian market, uncertainty in the 5G market, and slower wireless activity in Japan and India combined to limit growth opportunities in the first half.
“While the deceleration was expected going into 2022, the slowdown in the second quarter was a bit steeper than expected as surging demand for broadband equipment was barely enough to offset tepid Y/Y developments in RAN, optical transport, and routers,” said Stefan Pongratz, vice president at Dell’Oro Group, in a statement.
Meanwhile, supply constraints and rising inflation have not had a negative effect on the size of orders network operators are placing with their vendors, according to Jeff Heynen, vice president of broadband access and home networking at Dell'Oro.
"We are not seeing order sizes decrease and, in some cases, orders have been increased so that operators can be assured of having equipment once lead times finally shrink," Heynen commented via email. "I am seeing this in the case of FTTH equipment, particularly ONTs, as well as residential gateways with Wi-Fi 6 and 6E. If operators are in the process of building out fiber infrastructure now, they certainly don’t want to be in the position of telling customers who sign up for service that they can’t be connected due to a lack of ONTs."
Taking a closer look at the broadband access segment, Heynen said spending on cable, DSL, Fixed Wireless CPE, and PON was $8.5 billion in the first half of 2022, and the market has yet to see the bulk of spending that could be driven by government funding programs.
"At this point, the bulk of the subsidies through RDOF, BEAD, and other national initiatives haven’t flown through to the equipment vendors yet," Heynen said. "That money will really start to make an impact beginning next year through 2026. However, the pending distribution of subsidies is forcing other ISPs, including cable operators, to accelerate their network upgrade plans to stay ahead of any expansion projects. So right now, there is more of an indirect acceleration of demand rather than direct increase due specifically to funding."
On a regional basis, the total market was stronger in North America, where equipment revenue increased at a double-digit rate in the first half of 2022 compared to last year, and in China, which showed a high single-digit increase. Europe, after two straight years of health growth in telecom equipment revenues, witnessed a decline, with the drive downward helped by the exits of players such as Nokia and Ericsson from Russia, as well as the stronger U.S. dollar, Pongratz stated.
Absent of a market surge, there has not been much movement in market share worldwide among the top seven vendors between 2021 and the first half of 2022, according to Dell’Oro. Huawei retained the top position by a wide margin, with Nokia just ahead of Ericsson as companies continued in a fight for second place that has remained very tight since 2020. They were followed in order by ZTE, Cisco, Samsung and Ciena, with the latter two continuing their own neck-and-neck race for sixth place.
Despite the long list of market-limiting factors and the specter of inflation and higher energy costs, the Dell’Oro analyst team has collectively not made any major adjustments to the short-term outlook, Pongratz noted.