Telecom Market Sector First Quarter Results

04.22.2009 // Posted by: Ron Bishop // Posted in: Articles, Connectors

Statements of fact and or opinions expressed in MarketEye by its contributors are the responsibility of the authors alone and do not imply an opinion of the officers or the representatives of TTI, Inc.

For the telecom equipment industry, the first quarter of this year is one many would like to forget. Nortel is in bankruptcy, most of the surviving firms, with few exceptions, are reporting the worst quarterly results in years, SUPERCOMM has been postponed to late October, OSP Expo has been moved to early September.

Source: Nokia Corporation

In the cellular handset arena, weak 4Q08 holiday sales and tightening credit left retailers and distributors with excess inventories going into the first quarter. This resulted in a 13.6 percent 1Q09 vs. 1Q08 drop in handset production, or approximately 40 million units. Total unit shipments for the first quarter are estimated at 255 million units, down 16.4 percent from 4Q08. Many analysts believe that the first quarter was the bottom for handset production. With slight improvements expected in the second and third quarters, 2009 total unit shipments are expected to finish approximately 10 to 12 percent down from the 2008 total of 1.18 billion units. On the brighter side, smart phones and feature-rich models are growing at an 8 to 10 percent annual rate. Research In Motion Ltd. (RIM), for example, reported revenue for their fourth quarter ending February 28, 2009 at $3.46 billion, up 24.5% from $2.78 billion in the previous quarter and up 84% from $1.88 billion in the same quarter of last year. Nokia’s smart phone segment is also doing very well. Samsung is forecasting that full-feature handsets will soar from 170 million units this year to 500 million units by 2012.

By the end of April, the first quarter results for most of the major handset players will be available. We expect that the Korean firms Samsung and LG will post market share gains, whereas Motorola and Sony-Ericsson are expected to show market share declines. China’s domestic handset manufacturers Bird and Amoi Electronics are also experiencing reduced volumes.

In the telecom infrastructure arena, tightened credit and market uncertainties continue to impact network upgrades and new network build-outs in most regions. One exception is China where third generation wireless is driving new network infrastructure deployments. China Mobile’s TD-CDMA network is expected to cover thirty eight cities by mid-year. Plans are to expand coverage to more than two hundred cities. China Unicom is currently deploying WCDMA networks in fifty-five cities. China Telecom is aggressively growing its third generation CDMA2000 1X EVDO network. At the same time, the legacy Personal Handy-phone System (PHS) is about to be phased out. PHS subscribers are likely to move to 2G and 3G wireless services.

In North America and Europe, wireline carriers continue to invest in broadband technologies that stem their subscriber losses to cable and wireless service providers and that enable the provisioning of new services. Generally, these involve fiber extension programs (FTTx), DSL and carrier Ethernet. Overall, however, wireline carrier CAPEX is down 30 to 35 percent in 1Q09 vs. 1Q08.

Enterprise network equipment manufacturers are also experiencing significant declines in sales. Due to uncertainties regarding future economic conditions, enterprises have cut back on capital expenditures and new hiring, regardless of how well the enterprise may be performing. Comparative first quarter sales performance for enterprise equipment makers ranges from negative 7.5 to negative 30 percent. Bishop & Associates estimate that 1Q capital spending for enterprise network equipment is off an estimated 39 percent compared to 4Q08. Total spending for 2009 is expected to be off 25 to 30 percent.

Bishop & Associates’ Comments

Bishop and Associates, Inc. estimate the value of connector factory shipments to the telecommunications sector at $5.7 billion in 2009, down 19.2 percent from the previous year. The year-over-year 1Q results are estimated to be in the range of negative 36 to 40 percent.

Source: Bishop & Associates, Inc.($ in millions)

The largest segment is the Wireless Subscriber/Mobile Device segment valued at $2.4 billion in 2008. This segment is poised for negative 11 percent growth in 2009. The second largest segment is Wireless Infrastructure valued at $1.3 billion in connector factory shipments in 2008. This segment is expected to close 2009 at 11 percent below the previous year, or $1.2 billion. The next largest segment is enterprise network equipment valued at $1.3 billion in 2008 and forecast to close 2009 at $943 million representing a decline of 28 percent.

The wireline carrier network segment is valued at $640 million in 2008 connector factory shipments. This segment is expected to post 36 percent decline in 2009. Cable/MSO and Other telecom segments are expected to decline 24.5 and 21.3 respectively in 2009.

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