Communications

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Communications companies in our sample had a slow Q1 2017 reporting a decline of 5% year on year and 12.9% sequentially. The year-on-year decrease was led by LM Ericsson and Nokia with revenue declines of 15.8% and 5.5%, respectively. Decline in sequential revenue was led by Motorola Solutions with a 32% decline and LM Ericsson with a 27.9% decline. Cisco Systems managed to increase revenue 3.1% sequentially. Year over year net income also dropped sharply by 56.2% led by LM Ericsson but offset by positive results from Motorola Solutions.

Total spending on IT infrastructure products (server, enterprise storage, and Ethernet switches) for deployment in cloud environments is expected to increase 15.3% year over year in 2017 to US$41.7 billion. Public cloud datacenters are expected to account for the majority of this spending, 60.5%, while off-premises private cloud environments will represent 14.9% of spending. On-premise private clouds are expected to account for 62.3% of spending on private cloud IT infrastructure and are expected to grow 13.1% year over year in 2017. Investments in cloud IT infrastructure is predicted to increase across all regions while the majority of regions expect to see a reduction in spending on non-cloud deployments across all three technology segment. Overall, worldwide spending on traditional, non-cloud, IT infrastructure is expected to decline 5.3% in 2017. However, it will still account for the largest share, 57.9%, of end user spending.

In cloud environments, Ethernet switches are expected to be the fastest growing technology segment at 21.8% year over year growth in 2017, while spending on servers and enterprise storage will grow 17.9% and 10.7%, respectively. 1

The growth of cloud and industrialized services and the decline of traditional data center outsourcing (DCO) indicate a massive shift toward hybrid infrastructure services. It is expected that by 2020, 90% of organizations are expected to adopt hybrid infrastructure management capabilities. The traditional DCO market is shrinking, worldwide traditional DCO spending is expected to decline from US$55.1 billion in 2016 to US$45.2 billion in 2020. Spending on co-location and hosting is also expected to increase, from US$53.9 billion in 2016 to US$74.5 billion in 2020. In addition, infrastructure utility services (IUS) are predicted to grow from US$21.3 billion in 2016 to US$37 billion in 2020.2

In Q1 2017, Cisco completed its acquisition of AppDynamics which provides cloud application and business monitoring platforms that are designed to enable companies to improve application and business performance. Cisco also announced its intent to acquire Viptela, Inc., a privately held software-defined wide area network company. The Viptela acquisition is expected to close in the second half of calendar 2017. During the first quarter Cisco also completed its acquisition of MindMeld, an artificial intelligence company. Cisco reported Q1 2017 revenue of US$11.9 billion and net income of US$2.5 billion. Year-on-year revenue declined slightly by 0.5%, but sequentially there was marginal growth of 3.1%. Cisco has shown growth of 5.3% in EPS year over year. 

Motorola Solutions’ sales increased by 7%, and 3%, excluding Airwave. The increase reflected growth in EMEA and the Americas. Product segment sales were up US$1 million. The Services segment grew 18%, including US$58 million of incremental Airwave revenue. Excluding Airwave, Services grew 7%. Operating margin was 13.7% of sales, compared with 8.4% in the year-ago quarter. The improvement reflects higher sales and gross margin. The company has also  announced the planned acquisition of Kodiak Networks, a provider of broadband push-to-talk for commercial customers which adds a carrier integrated, cellular push-to-talk solution for mobile operators around the world. It has already acquired Interexport, a provider of managed services for communications systems for public safety and commercial customers in Chile.

 

1.IDC, April 2017
2. Gartner, April 2017