Huawei’s strong growth in 2018 was driven for a second year by its consumer business, diverting attention from the first annual decline in its once dominant carrier division.
The question is how significant is the 1.3 per cent dip in revenue of the Carrier Business, which slipped behind the Consumer Group as the company’s largest earner? Let’s not forget the revenue for the infrastructure unit increased just 2.5 per cent year-on-year in 2017 to CNY297.8 billion ($44.4 billion).
With bans on its network gear in a number of markets, including Australia and Japan’s operators opting not to use its equipment, and the US continuing to push allies to follow suit, it would make sense to conclude the pressure is starting to bite.
But data on the state of the overall telecoms infrastructure market suggests something else. The global mobile network market (covering 2G, 3G and 4G hardware and software) contracted 4 per cent year-on-year in 2018 to $51.6 billion, figures from IHS Markit showed.
The RAN segment performed better than expected, but revenue was still relatively flat year-on-year. Huawei finished 2018 with a 31 per cent market share in the global mobile infrastructure market, which includes 2G, 3G and 4G hardware macro-cell networks.
Looking specifically at operator spending in Huawei’s home market is telling. China typically accounts for more than a third of worldwide spend in mobile network equipment.
China Telecom in 2018 cut capex 15.5 per cent year-on-year, while market leader China Mobile trimmed its network spend by nearly 6 per cent. China Unicom was the only mobile player to increase capex, which rose slightly to CNY44.9 billion as it invested to match rivals’ 4G coverage to expand LTE penetration.
The country’s 4G network coverage reached more than 90 per cent of the population at the beginning of 2018, so the pullback was not a surprise.
China’s three mobile operators ended 2018 with a total of 4.79 million 4G base stations, based on figures from their respective 2018 earnings reports. The upside for 4G network spending is clearly limited in the country (though VoLTE spend will rise sharply), where 5G networks aren’t likely to go commercial until 2020.
The market leader is forecast to shed CNY17 billion from capex this year, reducing the amount to CNY150 billion, but that doesn’t include an undisclosed allocation for 5G testing. It plans to boost the percentage of capex allocated to mobile infrastructure from 41 per cent in 2018 to 45.5 per cent this year, a bit of good news for RAN suppliers.
With a projected CNY9 billion investment in 5G this year, China Telecom expects to spend CNY3.1 billion more on capex, taking the figure to CNY78 billion. Meanwhile, China Unicom is looking at expanding capex by CNY13.7 billion, increasing the total to CNY58.5 billion, which it said includes conducting 5G trials.
The outlook from China in 2019 is certainly much brighter for network vendors.
Marc Einstein, chief analyst at ITR, told Mobile World Live he believes Huawei has weathered the storm better than the other big players as LTE coverage is fairly ubiquitous, and 5G spending is still with the test and measurement and network construction vendors.
“I think it is a bit too early to say that the ban is having any impact or not as there have been only a few cases that I have seen of small regional US carriers replacing equipment. But I think this will show up next year to some extent…after moves by SoftBank and carriers in Australia and New Zealand,” he said.
With Q1 earnings reports not far off, we could soon see early indicators of the health of global network spending, and more specifically if Huawei’s decline in carrier revenue was driven by stagnant global demand or if it is the first sign of pain stemming from government bans on the use of its 5G equipment.
The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.