Service provider revenues from mobile operations in our sample grew just 3.4% in 1Q09, several percentage points lower than the pre-recession growth rates, which ranged from 9.4% to 11.8% (1Q07 through 4Q07, since the recession began in December 2007). North American results are heavily skewed by Sprint, whose revenues fell 12%. With Sprint’s results removed, mobile revenues grew 8.7%, which is closer to our expectation for other regions and the global average growth in 1Q09.
Service provider revenues from fixed operations declined 3.2% in 1Q09 compared to 1Q08. In comparison, pre-recession quarterly growth in 2007 ranged from -1.8% to +0.5%. Level 3 posted the largest decline (10.3%) and Time Warner Cable the best showing, with revenue growth of 4.9%. Time Warner’s growth was driven by a 23% increase in voice revenues and an 11% increase in high speed access subscriptions, highlighting consumers’ growing acceptance of voice over IP and the stickiness of broadband services.
Our conclusion is that mobile and fixed service provider revenues are down a few percentage points compared to pre-recession rates. Given the double-digit declines seen in many other industries, we take this as good news. These results are also generally in line with our forecasts, which assume that telecom services are somewhat recession resistant and the impact felt will be relatively mild.
CAPEX reductions hurting telecoms suppliers
While service providers’ revenues in our sample fell only a few percentage points in 1Q09, the results so far show operators are making widespread and deep cuts in capital spending. Among fixed operators in our sample, CAPEX fell 16%. Among mobile operators it fell 27% (the latter heavily skewed by Sprint). Even companies with above average revenue growth made cuts: Verizon Wireless grew revenues by 9% and cut CAPEX by 7.4%/ Time Warner Cable grew revenues nearly 5% and cut CAPEX by 9%.
The CAPEX reductions have clearly hurt suppliers. Among equipment vendors in our sample, revenues declined 15% on average, with Alcatel-Lucent down 6.9%, Nokia Siemens Networks down 12.1%, and Cisco down 21.5% (with exchange rate effects factored out for Alcatel-Lucent and NSN). Not surprisingly, operating margins were down across the board, with some, including Alcatel-Lucent and NSN, reporting losses.
Further down the supply chain, component revenues were down almost 20% in our sample, and contract manufacturing revenues were down nearly 28%, once again proving that the ‘bullwhip effect’ is alive and well.
A couple of bright spots are also starting to appear. Wireless backhaul leader Ceragon reported a revenue decline of only 7%, and software vendor VMware’s revenues actually grew by 7%, driven by a 48% increase in services revenues.
All in all, the results appear to be falling in line with our expectations and previous opinions. More complete analysis of the 1Q09 results will be forthcoming at the conclusion of the period reporting cycle.