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Market analysis

The Communications sector posted below par performance with most companies showing declines in revenue and a sharp drop in net income. Nokia was the exception with positive year-over-year revenue growth of 68% to US$6.1 billion, owing to the Alcatel-Lucent acquisition.

The combined consumer and enterprise worldwide wireless local area network (WLAN) market segments increased 4.5% year over year in Q1 2016, while they declined 10.7% on a sequential basis. The enterprise segment grew 8.6% year over year in this quarter, its highest in more than a year. The rise in demand is due to refresh cycles, the easing of economic concerns, the greater availability of Wave 2 802.11ac products, and continued fulfillment of e-rate contracts in the education vertical in the United States. The 802.11ac standard continues to have quick adoption and now accounts for 59.6% of dependent access point unit shipments and 75.6% of dependent access point revenues. Meanwhile, consumer WLAN market revenue was flat on a year-over-year basis in Q1 2016. The adoption of the 802.11ac standard in the consumer market has been significantly slower than in the enterprise segment. Many new network refreshes came during the quarter, leading to improved WLAN spending.

The strongest growth rate for the WLAN market was once again in Asia/Pacific (excluding Japan), which saw 19.7% year-over-year growth this quarter. North America grew by 14.0% year over year. The Middle East & Africa (MEA) region recorded 4.5% year-over-year growth followed by Western Europe, which increased by 2.7% in the same period. Central and Eastern Europe (CEE) and Japan continue to experience softness, declining 8.8% and 9.2%, respectively, in Q1 2016.1

Videoconferencing equipment experienced mixed results in Q1 2016, with overall revenue decreasing 21.1% quarter over quarter, but increasing 2.3% year over year. Total worldwide enterprise video equipment revenue in Q1 2016 was over US$495 million, down from about US$628 million in Q4 2015. The number of videoconferencing units sold in Q1 2016 (101,391) decreased 8.0% quarter over quarter, but increased 9.9% compared to Q1 15.

The worldwide enterprise videoconferencing equipment market was mostly negative quarter over quarter, but had some positive year over year numbers, including overall revenue and unit shipments growing 2.3% and 9.9% year over year, respectively. The quarterly declines are mainly due to the normal seasonality, with the first quarter which is always the weakest of the year, and the fourth quarter usually the strongest.1

Results for Nokia in the first quarter reflect the completed Alcatel-Lucent merger. Revenue in Q1 2016 was €5.6 billion, a 9% decline compared to the year earlier of €6.1 billion on a pro-forma basis. The decline was attributed to the network business segment. Though revenue was off, Nokia’s gross profit margin increased 250 basis points to 39.4% compared to 36.9% last year.

Motorola Solutions delivered quarterly sales of US$1.2 billion, down 2% year over year. Sales were negatively impacted by an unfavorable foreign currency impact but a favorable impact of US$61 million from the Airwave acquisition.

Ericsson and Cisco reported significant progress in all areas of their next-generation strategic partnership. Both companies have engaged with their customers across the world on business deals spanning networking, mobility and cloud technologies, IP transformation and managed services agreements, resulting in new and expanded business opportunities. The partnership was developed to drive growth, accelerate innovation and speed up digital transformation. In the three months since the partnership was announced, close to 200 customer engagements have resulted in multiple customer wins. Cisco has also announced a collaboration with Ericsson and Intel to develop a next-generation 5G router for business and residential services. Together they will begin to develop and test what is expected to be the industry's first 5G router. As members of the Verizon 5G Technology Forum, Cisco, Ericsson and Intel are partnering with Verizon within an ecosystem to accelerate the pace of critical 5G innovations.2

1., June 2016
2.        Ericsson press release, May 2016; Seeking Alpha May 2016