Decline in North America kit revenue steeper than expected

Spending on telecoms equipment in North America declined faster than expected in the first half of the year, according to new data published this week.

Worldwide telecoms equipment revenues were flat year-on-year in the second quarter of 2023 and grew by 2% in the first half of the year, according to Dell’Oro. The analyst firm’s data shows growth in all regions – albeit at lower levels than last year in some cases – aside from North America, where equipment revenues took a nosedive in the first six months of 2023 (see chart).

Dell’Oro did not share figures, but its chart shows a potential double-digit decline in equipment revenues in North America, which has naturally dragged down the figure for the world as a whole. Excluding North America the market “remains robust,” Dell’Oro noted, with global telecom equipment revenues growing by 7% in the first half. The Asia-Pacific, excluding China, was particularly strong, while the analyst firm describes all other regions as stable.

We saw the slump in North America coming, but perhaps not to this extent.

“After five years of expansion, during which the North America region advanced by around 50%, the pendulum swung toward the negative in the first half,” Dell’Oro said, in a blog post. “The decline in North America was anticipated, but the pace of the contraction was slightly faster than expected.”

There are a number of reasons for it. A slowing in 5G spending is a big one, as we expected: US mobile operators Verizon and T-Mobile US made it clear they were past the peak of 5G capex at the start of the year, although AT&T is not quite there yet. Dell’Oro also pointed to inventory corrections affecting some technology segments in North America, in addition to the fact that spending on broadband access equipment in the region dropped to its lowest level in almost two years in Q2.

We can also point the finger at North America when it comes to changes in the technology mix making up overall equipment revenues. As Dell’Oro indicated last month, global RAN revenues are tanking; Q2 saw sales drop at their fastest pace in nearly seven years. But other market segments are still growing, and wireline is now outperforming wireless.

The service provider routers and switches, optical transport, and broadband access segments together saw revenue rise by 7% in Q2. There were also positive trends in mobile core networks and microwave transmission, so altogether the above was “more than enough to offset the more challenging conditions in RAN,” Dell’Oro said.

The firm also looked at vendor market shares, which haven’t changed much over the years, but there are a couple of points of interest in there.

Huawei still leads by some margin, despite efforts in the US to limit its market and its access to silicon. Outside of North America, the Chinese vendor accounted for somewhere between 35% and 40% of global revenues in the first half.

Nokia’s number two position solidified, with third-placed Ericsson dropping further behind this year, in part due to the change in technology mix between wireless and wireline, Dell’Oro said. And Ciena overtook Samsung to claim sixth place.

Dell’Oro is not expecting any major market changes going forward. On a worldwide level equipment revenues will remain flat this year, it predicts. That sounds pretty dull…but experience tells us that the global telecoms industry is anything but, and changes can and will happen.

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