It is earnings season for cellular infrastructure providers over the next few weeks, and things appear rocky across the sector. This week, Ericsson posted numbers for its second fiscal quarter of 2023; Nokia will do the same on July 19th. Overall, equity markets are not treating either company favorably, and forecasts for the radio access network (RAN) market may be a significant part of the problem.
The RAN market forecast looks murky
News broke this week in a RAN market forecast report that prompted concerns about a softening in RAN infrastructure sales. The RAN market has been red-hot since the kickoff of 5G network deployments globally in 2017. This specific niche of the telecom sector has posted year-over-year growth of 40% to 50% until last year, when sales were flat. Given the typical build-out cycle for next-generation mobile networks, that trend might have been expected. In other words, there might not be any macroeconomic factor standing in the way of RAN growth; it might simply be that that the suppliers in the sector picked much of its low-hanging fruit in terms of customer demand between 2017 and 2021.
What may also be adding fuel to the fire of fear, uncertainty and doubt—the infamous “FUD” factor—is the growing momentum of alternative RAN solutions in the form of Open RAN (ORAN) and virtualized RAN. Many operators continue to trial these disaggregated solutions. Still, there hasn’t been much widescale deployment of them beyond greenfield network buildouts from Rakuten Mobile in Japan and Reliance Jio in India. In particular, Dish Networks continues to struggle in the U.S. market with its highly disaggregated, cloud-native 5G network deployment. All of these factors may be contributing to a broader sense of alarm.
Is there cause for alarm?
Should investors hit the panic button? To be clear, I am a technology analyst, not a financial analyst or advisor, so I never give investment advice. That said, from an industry perspective both Ericsson and Nokia benefit from solid product roadmaps and highly diversified go-to-market strategies. With its Cradlepoint division, Ericsson is making significant inroads in the private networking space with a bifurcated private networking strategy that could net it a considerable piece of market share. Meanwhile, Nokia has recast its efforts to focus on the enterprise market, and I like the possibilities created by its June announcement with Charter launching 5G mobile network offload for cable operators that are entering the mobility space. On the latter point, I will post an article that dives deeper into the Nokia-Charter partnership in the coming weeks, so stay tuned.
At a high level, I see no cause for alarm tied to either of these companies. Ericsson and Nokia have built solid and deep portfolios with robust diversification in their offerings. Beyond that, both companies have strong leadership teams to help them weather any short-term RAN storms
Although there is undoubtedly some concern about future revenue growth across the RAN market, this isn’t Ericsson’s or Nokia’s first rodeo, as we often say here in Texas. The nature of cellular infrastructure sales is cyclical, but other profit pools and markets can be tapped, such as the cable operator space.Indeed, I believe that the forecasted decline for RAN infrastructure sales over the next few years could represent a silver lining, one that gives Ericsson, Nokia, Samsung Networks and Huawei the impetus to invest in other parts of their businesses to foster innovation and incremental revenue growth in logical adjacent markets for enterprise solution sales.