As carriers cut back their spending on capital expenditures this year, financial and industry analysts expect network infrastructure vendors, including mid-sized companies such as Alcatel-Lucent (NASDAQ:ALU) and Nokia Siemens Networks, to take a hit.
Although it like will become clearer later this month when carriers detail their spending plans for 2012, most analysts expect the overall network infrastructure market to grow by only around 3 to 4 percent this year as operators pull back. European carriers are likely to become skittish because of the possibility of a recession and even U.S. operators may scale back after moving at a frenetic pace the past few years.
"Wireless is very weak and will be for the first half," Earl Lum, chief of research firm EJL Wireless, told Reuters. Investment bank Nomura predicts operator spending on mobile networks could shrink 1 percent in 2012, down from growth of 7 percent in 2011, while Credit Suisse analysts predicted that wireless network investments will grow only 1 percent in 2012, down from 10 percent growth last year.
"Although we retain our view that capacity utilization on mobile networks continues to remain high, which will drive long-term revenue growth, any potential recovery is unlikely before 2013," Credit Suisse analysts wrote in a research note, according to Reuters.
Analysts think Chinese vendors Huawei and ZTE could once again put pricing pressure on Ericsson (NASDAQ:ERIC), Alcatel-Lucent and Nokia Siemens, which could hurt margins. Industry leader Ericsson is the best positioned to weather the storm, but both Alcatel-Lucent and NSN are undergoing restructuring operations. NSN plans to cut 17,000 workers by 2013, for a total cost savings of around €1 billion, or $1.3 billion, as it seeks to focus on mobile broadband. Alcatel-Lucent CEO Ben Verwaayen has ruled out the possibility of steep job cuts, but the company will embark on a $691 million program of additional cost cuts in 2012, affecting both sales spending and project costs.
Smaller vendors have said they are feeling the pressure. Earlier this week Juniper Networks cut its fourth-quarter forecast on weaker spending by service providers, especially those in the United States, and namely Verizon (NYSE:VZ) and AT&T (NYSE:T). Juniper's warning came after a similar one from Acme Packet.
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