Having spent the last several months updating Ovum's RAN forecasts and market share estimates, one thing is very clear: the base station business is a very tough business to be in no matter where each vendor falls within the market share ranking.
The overall market was around $36 billion in 2012. This is a decline versus 2011, but thanks to LTE and HSPA, the market should see some slight single-digit growth this year and in 2014. Beyond 2014 the market's revenues will be essentially flat. Sure there will be some regions and air interfaces (LTE in particular) that will have growth. But the decline in investments in older technologies and the uneven rate of LTE deployments among different regions of the world will offset areas of growth. This balance between growth and decline will essentially balance each other out, keeping the market flat.
So with little revenue growth in the overall market, growth at the vendor level becomes almost a zero sum game. For every one dollar a vendor gains, another vendor must lose. This ultra competitive market also puts downward pressure on vendor margins as each company fights to gain that next dollar. As margins compress, vendors need to focus on scale to remain profitable. Those good folks in R&D don't work for free, and that goes double for sales.
Looking at scale, some vendors clearly are doing a better job than others. Over the last three years Ovum estimates three base station suppliers--Ericsson, Huawei, and Nokia Solutions and Networks--have a combined market share of 70 percent or more. This leaves the rest of the market, most notably Alcatel-Lucent, Samsung, and ZTE, to make do with less than 30 percent of the market. This is not a good position for those companies to be in, but even the companies in the top half of the market are not without their challenges.
- Ericsson can't let its size stop it from being quick. More than any other vendor in the base station market, scale is a central tenet of Ericsson's strategy. This need for scale can keep it from moving quickly into emerging areas out of concern that those areas don't have the proper growth potential. While Ericsson has a good track record at picking winners (LTE) and losers (WiMAX, femto cells), no company can always be right. Moving slowly into new areas risks Ericsson looking like a market follower and not a leader, which ultimately could negatively impact its traditional spot in the number-one market share position.
- Huawei's success still can't overcome the company's opaqueness. The company's lack of transparency brings its proclaimed successes into question. 2012 was very good for Huawei in terms of growing its RAN business, and so far the vendor has done very well in 2013. But as the company is privately owned, those proclamations of success aren't seen as legitimate as those coming from vendors who must pass their numbers through the scrutiny of public stock exchanges. Meanwhile, there are nagging China government and product security questions that Huawei can't shake. Without delving into this too much, it is evident that real or not, those concerns limit where Huawei can do business.
- The newly minted Nokia Solutions and Networks needs a few more quarters of success before the company can fully claim a turnaround. Since the later half of 2012 NSN can make the argument that its radical restructuring and complete focus on mobile broadband has made it a stronger and more stable competitor. But operators have long memories, and NSN needs to string together several more quarters to show that its upswing is an ongoing trend and not the aberration of a few fortuitous quarters.
- Alcatel-Lucent's strategy "Shift" has a long way to go before the company's fortunes improve. Like NSN, Alcatel-Lucent has had financial struggles that raise serious questions about the company's stability. Unlike NSN, Alcatel-Lucent has been slower to react. This year however it did announce its Shift strategy, which included de-emphasizing 2G and 3G macro investments, primarily targeting LTE where it will be deployed as an overlay network, and continuing with its focus on small cells. While these decisions do follow certain logic, this logic will be challenging. The company may be a small cell leader, but the small cells space is crowded and decisions around the metro cell selection process seem very aligned to the incumbent macro vendor. As Alcatel-Lucent tends not to be the macro cell vendor for most operators, success with this new approach could be tough to realize. The company's decision to focus on LTE overlays is risky and eliminates a significant portion of the market, such as all those operators looking to refarm their existing 1800Mhz for LTE.
- ZTE's goal of being a top three base station vendor remains much more aspirational than realistic. The awkwardness of this goal in some way summarizes ZTE's problems. Despite having a strong RAN portfolio and a history of continuing to introduce new innovations in this area such as its recent announcement around a new LTE TDD radio unit that supports 100Mhz of capacity, the vendor just can't seem to put everything together. Its messaging still remains more products focused than solutions focused. Where it does talk solutions, too often those solutions seem to merely mimic that of its bigger competitors. So, while ZTE has strived to be more an international player, it still heavily relies on its domestic market for a significant percent of its revenues. ZTE needs a bigger presence with Tier 1 operators in developed economies if it is ever to reach its "top 3" goals.
- Samsung remains a question in the RAN market. The company has shown strong growth, but it is still just a small player overall with market share approximately half that of ZTE's. The company doesn't have much of a 3G-installed base, so it is taking the same route as ALU, selling LTE as an overlay network. A big challenge for the vendor is to get operators to think of it as an infrastructure company. It is well known for devices, but not nearly as much for its gear. Ovum estimates in 2012 that less than 1 percent of total company revenues came from sales of its RAN gear. The company has had some success, such as winning the LTE deployment for mobile operator 3 in UK and Ireland, along with all three mobile operators in S Korea, KDDI in Japan, and Sprint in the US. Given the tight competitive nature of the base station market, Samsung has done well to achieve what it has so far. But it has a long way to go before it can be considered on par with its larger competitors.
One conclusion that can be taken from looking at the state of the base station market is that there are still too many vendors. It still would not surprise me if we see one or two on this list essentially back away from the market. This could take the form of selling off their mobile business, giving up their global ambitions and just concentrating on a few markets, or even drastically paring down their mobile portfolio in favor of becoming a specialist in just one or two areas. Either way I think change will come to the makeup of the market.
Daryl Schoolar is Principal Analyst of Wireless Infrastructure for Ovum. Daryl's research includes not only what infrastructure vendors are developing in those areas, but how mobile operators are deploying and using those wireless networking solutions. Contact him at [email protected] and follow him at @DHSchoolar.