Last week, Google announced it would buy Motorola Mobility. Will there be more big deals between troubled telecom vendors and deep-pocketed players in adjacent sectors? Probably. The ever-growing strength of Chinese vendors and weak macroeconomy have raised all sorts of M&A speculation.
Telecom vendors’ 2Q11 results, though, suggest that, at the very least, the sky is not falling. Mobile device revenue growth was very strong – up well over 40% from the year-ago quarter. Network infrastructure revenues also grew, up 7% for the quarter and up 10% for the first half. That’s consistent with Ovum’s projection for 2011 capex. But M&A is in the tech sector’s DNA and will continue to change the industry. Like evolution, it is unpredictable, messy, and lumpy, but it often produces sensible results in the long term.
The road to 2020 will be a hard one for many telecom vendors. In late 2009, Ovum published a series of reports mapping out a vision of telecom’s likely evolution through 2020. One of those reports focused on the supply side: “Telecoms in 2020: Network Infrastructure”.
Currently, for non-Chinese vendors, we are in the first stage on the road to 2020: full-service vendors are focused on cost efficiency and continue to downsize, outsource, and integrate operations. The pressure is high on middle-tier vendors such as Tellabs and Juniper, but there is plenty of room for specialized vendors (e.g. Tekelec, ADVA, Arris, Acme Packet), even if a weak venture capital market temporarily limits the flow of new players.
The competitive landscape faced by vendors is being shaped by many forces, including: the financial crisis and need for cutbacks; the further rise of the Chinese vendors; the increased reliance on chips and components for competitive, timely offerings; the urge to enter new markets and acquire intellectual property through M&A and VC investments; and the introduction of new technology and standards simultaneous with improvements in the last generation (e.g. LTE vs. HSPA+, FTTH PON vs. VDSL).
In short, it’s not an easy time to be a vendor. Growth and profits are difficult to achieve.