From 2000–5, Japanese service provider capex was regularly about 10% of the global total, and NEC had a commanding share of most market segments domestically. Since then, Japan has slowly declined in global importance, and foreign vendors (even ZTE and Huawei) have improved their luck in Japanese markets.
Relatedly, NEC announced a long-term growth strategy in February 2010, aimed at revamping the competitiveness and profitability of its Carrier Network division. Recently, NEC updated analysts on its progress: so far, so good.
It is focusing on business areas best primed for global expansion: wireless broadband access, mobile backhaul, submarine systems, and services/software. However, attaining its goal of a roughly 2.5x increase in overseas carrier infrastructure revenues, between FY10 (ended March 2011) and FY12, comes with many challenges. A significant one: like Huawei, NEC should expect little from the US market.
Japan’s insular telecom supply market is changing, slowly
Even today, most service provider capex in Japan is directed at the largest four local vendors: NEC, Fujitsu, Oki, and Hitachi (“NFOH”). Products often are customized for local applications. This complicates Japanese vendors’ efforts to go global, especially as Japan has shrunk relative to growth markets such as China and India.
Another challenge to NFOH: foreign suppliers are making progress. Examples:
- Devices: Carriers used to work primarily with Japanese manufacturers on highly customized devices. But Apple’s iPhone has altered this. Softbank has offered the iPhone for over two years, and both Softbank and KDDI now sell the iPhone 4S. By one measurement, the iPhone accounted for 38% of Japan’s smartphone market in FY2010–11, with 3.23 million units shipped locally.
- Chinese vendors: Huawei and ZTE have made some breakthroughs. Huawei is selling its PTN backhaul series to KDDI; ZTE is selling WiMax base stations to UQ Communications. But the biggest breakthrough came this month, when Huawei and ZTE shared Softbank’s TD-LTE–compatible RAN buildout. Ericsson is providing the mobile core.
Local vendors still have a firm lock on domestic capex. But this may start to dwindle as Chinese vendors, along with other international infrastructure vendors such as Ericsson, NSN, and Samsung put pressure on the market.