With Ericsson (NASDAQ: ERIC) reporting a 13% drop in network sales, and Nokia (NYSE: NOK) cutting its full-year earnings predictions, thanks to its mobile networks business, the rest of the year does not look too cheery for some network vendors.
Ericsson detailed the network droop last Friday in its second quarter earnings report. The 13% network sales drop resulted in a 9% fall year-on-year in organic sales, even the 20% rise in enterprise sales couldn’t offset the network drop.
The Swedish telco titan blamed the North American market for its falling sales, which cast a pall over its “strong sales development in India.”
Similarly, Finnish vendor Nokia blamed North American sales for lowering its full-year sales forecast. The company vendor lowered its full-year 2023 net sales outlook from a growth of 2% to 8% to a revised outlook of sales growth of -4% to 2%.
So what’s going on?
There are multiple reasons behind the existing weak demand outlook, said Don Alusha, senior analyst at ABI Research. Noting that the “global economy remains weak”, with concerns about a recession and inflation still prevalent in the United States, as well as the ongoing war in Ukraine, he said that “there remain many unknown unknowns across the board.”
This means that:
Growth stagnation on a macro level is bound to have a causal effect on the demand side, i.e, those that buy from network equipment vendors.
In the short term, the industry may have no choice but to drive simpler, lower-cost, lower-risk technology solutions.
There will be strategic uncertainty and delay in trials and testing for new technology adoption.
“As we navigate the current global economic uncertainties, in the long term, telecoms leaders acknowledge that they need to leverage e-business capabilities and create new innovations in manufacturing, engineering, cellular infrastructure, and supply chain to achieve resource productivity, and organization efficiency and speed that globalization demands,” Alusha said.
Does cloud native offer a, er, silver lining?
Talking specifically about 5G and core networks, Dave Bolan, research director at Dell’Oro Group noted that the 5G core had 35% revenue share in 2023 and increasing to 60% in 2027. This contrasts with the 4G evolved packet core, which will fall to around 10% of the market by 2027, from 35% today.
“We believe all 5G [standalone enhanced mobile broadband] networks have a cloud-native 5G Core,” Bolan noted. “And some Evolved Packet Cores in 4G LTE networks have been upgraded to cloud-naive,” he added.
“There is continued interest in... cloud native networks in a bid to lower costs,” ABI’s Alusha said. “A tough economy is accelerating that trend markedly.” He noted that Nokia’s growing software-as-a-service portfolio portfolio is attempting to give service providers flexibility in how they consume technology.
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