Every industry goes through cycles of innovation and consolidation. We're starting to sense a change coming in the wireless infrastructure market. For twenty years, there have been a handful of major OEMs which have been slowly consolidating the mobile market. Ericsson sits on a stable foundation of base stations in the field, with stable financial results. Huawei has grown up, and no longer needs bargain-basement pricing to draw customers in. Everyone else struggles with economy of scale.
R&D investment is getting more expensive as networks get more sophisticated, so over the past twenty years there has been some painful attrition for the top mobile infrastructure OEMs. Motorola could not survive in the commercial market, so they backed out. Nortel imploded, unable to keep up with the R&D cost of the 3G to 4G transition. Lucent and Alcatel found each other, but even after paddling the lifeboat together they are struggling to stay above water. Nokia and Siemens tried to work together, but could not hold enough market share to keep the joint owners happy. Many smaller hardware companies have simply disappeared.
The mobile data tsunami represents a major disruptive event in the industry, which gives each player an opportunity to advance (or to die). Samsung is moving up in the infrastructure world, with new contracts at Sprint for world-class deployment. Nokia's recent financial announcement shows great discipline, but also signals future problems for the Finns.
I don't have all the answers, but I ask good questions.
Here are some of the dramas that will be played out over the next two years:
Can Ericsson penetrate the enterprise market? The Dot product is promising but may need new business models for success.
Can Huawei neutralize political opposition? Here's a company that has done an incredible job, growing from nowhere to a strong, stable market share. Future growth will depend on penetrating some closed markets.
Can Nokia recover revenue growth? After cutting back deeply in R&D, NSN posted a big loss of revenue in the fourth quarter of 2013. They have done well to focus on a few key things, achieving decent profitability for now. The question is whether they can recover some revenue growth before the profits of their current focus areas (China and Sprint) run dry.
Can Alcatel-Lucent sell metrocells to new customers? To survive, ALU needs to expand their limited customer base. To do this, they are betting that they can solve the interoperability issues of small cells in a multivendor macro environment. Some operators are skeptical about this, but a few others are more optimistic.
The cycle of innovation seems to speed up when people see trouble. A few companies have to make big technical bets (such as Alcatel-Lucent with small cells), and we are now reaching a point where field trials and initial deployments can tell us how well their ideas really work. New companies are entering the game (such as Cisco in the small cell market). Over the next two years, we will see some of these bets pay off, and others will go bust. There will be some interesting consolidation when that happens, probably with interesting new combinations of Small Cells, Wi-Fi and macrocell product lines.
Joe Madden is Principal Analyst at Mobile Experts LLC. Mobile Experts is a network of market and technology experts that provide market analysis on the mobile infrastructure and mobile handset markets. He provides market forecasts for handset, DAS, small cell, and base station markets, with in-depth research down to the nitty gritty details of frequency bands and power levels. Mr. Madden graduated, cum laude, from UCLA in 1989 and is a Silicon Valley veteran. He has survived IPOs, LBOs, divestitures, acquistions, and mergers during his 24 years in mobile communications.