Dell’Oro concurs, suggesting the RAN market will decline again in 2024
Ericsson said it expects further decline in 5G gear demand from mobile operators this year including in its key growth market of India, despite beating fourth-quarter operating profit expectations – helped by software sales. Sales in for FY23 fell three percent to 263.3 billion kronor – lower than expected by analysts – amid a “very weak” mobile networks market, the company said in its earnings statement. Ericsson’s fourth-quarter net sales fell 16% to 71.9 billion kronor ($6.89 billion), missing estimates of 76.64 billion kronor.
“We expect the current market uncertainties to prevail into 2024 with a further decline of the RAN market outside China as our customers remain cautious and the investment pace is normalising in India,” said Ericsson chief executive Borje Ekholm. “In this environment, we remain laser focused on managing elements within our control, including operational efficiency and tight cost management.”
After a few years of high demand for 5G equipment, buying by telecom providers slowed last year, prompting firms such as Ericsson and Nokia to lay off thousands of employees to save costs. Ericsson could look at further cost cuts this year and that could potentially include layoffs, chief financial officer Carl Mellander told CNBC. He added the company has not yet identified a specific number of headcount or billions set to be taken out.
Ericsson’s operating profit (EBIT) excluding restructuring charges fell to 7.37 billion kronor from 8.08 billion a year earlier but topped the 6.92 billion expected by analysts in an LSEG poll, while net sales fell 16% in the quarter and missed estimates, according to Reuters.
For now, Ekholm expects an operator capex rebound but he is not sure when. “Looking historically, large declines in the mobile network market are followed by a rebound,” he said, adding that telcos can sweat the assets up to a point but eventually they will need to invest to manage the data traffic growth, cost, energy usage and network quality.
Declining RAN market
Analyst firms are seeing the choppy waters. Led by the US market, the radio access network (RAN) market is on course for its fifth steepest decline since analysts Dell’Oro began tracking it. Following the greater-than-40 percent climb between 2017 and 2021, RAN revenues stabilised in 2022, but are on target to decline sharply in 2023 as the various vendors ready their Q4 results.
Now, says Dell’Oro, worldwide RAN revenues are projected to decline at a 1 percent CAGR over the next five years. Market conditions are expected to remain challenging in 2024 as the Indian RAN market pulls back, though the pace of the global decline this year and for the remainder of the forecast period should be more moderate.
Telecoms equipment suppliers are expecting a challenging 2024 as 5G equipment sales – a key source of revenue – are slowing in North America, while India, a high growth market, is also set for a slowdown.
“MBB-based investments are now slowing and the upside with new growth areas including FWA and private wireless is still too small to change the trajectory,” said Dell’Oro Group VP Stefan Pongratz. “Also weighing on the MBB market is the fact that the upper mid-band capacity boost is rather significant relative to current data traffic growth rates in some markets, which could impact the timing for capacity upgrades.”
The Asia Pacific region is expected to lead the decline, while easier comparisons following steep contractions in 2023 will improve the growth prospects in the North America region. So-called 5G-Advanced is expected to play an important role in the broader 5G journey, however, it is not expected to fuel another major capex growth cycle. Dell’Oro said the RAN segments that are expected to grow over the next five years include: 5G NR, FWA, mmWave, Massive MIMO, Open RAN, private wireless, small cells, and virtualised RAN.
“Looking back to what we said a year ago, the global market is underperforming compared to our initial outlook. Preliminary findings from 1Q23-3Q23 data reveal that the North America RAN market is declining at a much steeper rate than anticipated,” he said. “Meanwhile, RAN excluding North America is actually coming in stronger than what we outlined going into 2023, in part because of the incredible 5G ascent in India. Putting things together, it appears that the surprise on the downside in the US is more than enough to offset the stronger-than expected showing in the Asia Pacific region.
Dell’Oro expects the regional dynamics to change as the pendulum swings towards the negative in India. Wireless capex in the US is still on track to decline. Yet the analysts are forecasting the North America RAN market to grow, implying a greater portion of the capex will be allocated towards the RAN segment in 2024.