Ericsson still owns top spot in global network infrastructure market

MELBOURNE, AUSTRALIA: Ericsson retains a lock on top spot in global network infrastructure market, despite second-place Huawei’s impressive 30 percent revenue growth in 2010. ALU, Cisco and NSN round out the top 5, all with share more than 10 percent.

Commenting on the Chinese vendor’s $27.3B in reported 2010 revenues, Ovum Principal Analyst Matt Walker said that Huawei’s multi-year investments in geographic expansion, overseas sales operations, and R&D continue to pay off.

Breaking down Huawei’s growth, Walker estimates the US$5.5 billion in incremental revenues in 2010 are roughly allocated as follows:

* Roughly $1 billion is incremental revenue from fixed broadband, both DSL and FTTx. A large portion of the FTTx growth is in China, but DSL is distributed globally.

* Another $1 billion is from increased Services revenues. Like Ericsson before it, Huawei is trying to move beyond traditional network rollout and maintenance-related services, to more sophisticated, higher margin services. As with other vendors, it will take time for Huawei to do this.

* Another ~$900 million is from increased device revenues, both handsets and dongles. Most of this is likely sales through carriers that are also customers of its Networks division.

* Most of the remaining $2.6 billion in incremental revenues can be attributed to mobile infrastructure, where Huawei has performed well over the last few years in some of the more advanced, demanding customer accounts, across various technology standards – from 2G GSM to HSPA+ to, most recently, LTE. Its commercial contracts for LTE network rollouts include the following: Belgacom Mobile / Proximus, WIND (Italy), Safaricom (Kenya), Bite Latvia, Telenor Norway, Net4Mobility (Sweden), MTS Uzbekistan, and three in Poland: Aero2, CenterNET Mobile, and Mobyland.

In the broader market, telecom spending was restrained in 2010, with carrier capex down 3 percent globally from 2009, but capex will rebound by up to 10 percent in 2011. In 2011 and beyond, though, Walker noted that the competitive landscape facing vendors continues to shift, and that affects vendors’ outlooks as much – if not more – than the overall market trendline.

“Many vendors continue to ‘do deals’ to improve their competitive position. That can include M&A, such as NSN buying Motorola’s wireless infra assets. It can also include strategic partnerships, such as the recent deal between Nokia and Microsoft. In addition, it can include reorganizations, aimed at better focusing on core strengths (high margins, high market share) and achievable growth markets, and/or lowering the cost base. In early April 2011, Cisco announced such a reorganization, the most notable feature of which was to close down part of its consumer business, the Flip video camera operation,” said Walker.

Another way is mostly defensive: resort to the courts. Disputes over IP are the norm in the tech industry, and there have been quite a few in telecom lately. One involves Huawei suing to block Nokia’s purchase of Motorola’s assets. While this was ultimately resolved in mid-April 2011, the case delayed Nokia’s closure of its Motorola purchase by at least four months.

“Some people will view this as a big commercial achievement by Huawei, unfortunately”, added Walker. “Whether Huawei’s case had merits or not – and that is impossible to know as an outsider - the end result was to derail a rival’s business plan by 1/3 of a year.”