Globally the telecommunications industry is expected to be about a US$5.4 trillion sector in 2014, up from US$5.0 trillion in 2013. (This figure includes equipment and related services, as well as subscriber revenues and other business revenues.) The US market will be about US$1.3 trillion in 2014, up from US$1.2 trillion in the previous year.1
Several factors are creating major changes in the telecommunications sector: a) a shift in business and commercial telephones to VOIP (Voice Over Internet Protocol) services, that is, telephone via the Internet; b) a shift in residential and personal telephone use from wired services to wireless; c) intense competition between cable and wired services providers; d) soaring growth in the amount of data and video accessed via the Internet and over wireless devices for information and entertainment purposes; and e) the continuing evolution of advanced wireless technologies, including wider availability of 3G and 4G services.1
As the telecom ecosystem expands to meet the unending need for broadband access to content and speed, new business models are emerging among both traditional and new players. Three in particular show near-term promise. First, mobile payments technology is at a tipping point, and is anticipated to gain traction in 2014. Second, the spread of communication services into vertical markets is gaining momentum. Finally, a broad concept to watch is “connected world, connected things.” Almost everything has a connectivity element to it and there is vast opportunity to connect almost everything at both the consumer and enterprise levels.2
Demand for affordable connected devices, mostly from emerging markets, is continuing to drive strong sales of white-box smartphones and tablets in 2014. The white-box smartphone market is expected to grow 50%, while the white-box tablet market will experience growth of 16%. A typical white-box device is created by a vendor using a turnkey solution based on application processors and reference designs. The device is targeted at affordable price points in segments across the mobile phone and tablet market. Established Chinese and emerging vendors are expected to lead the growth of white-box smartphones and tablets as they refocus to meet the demand for reasonably priced devices. In addition, the move to 4G in China and beyond will create new opportunities for Chinese smartphone vendors starting in late 2014. Selling smartphones is no longer a privilege limited to global original equipment manufacturers (OEMs). The maturity of the white-box smartphone ecosystem allows other OEMs to launch an Android smartphone from scratch within a four-week period, making China among one of the fastest-growing smartphone markets.3
Growing user interest in large-size smartphones, or phablets, will impact white-box tablets, especially at the 7-inch size. It is expected that white-box vendors will have to alter their portfolio to adopt to this market trend, launching tablets at 8-inch screen sizes and larger, or to integrate cellular functions at 7 inches to compete with phablets at 7 inches and smaller.3
Motorola’s sales declined 7% to US$1.4bn reflecting lower sales in North America as well as in Asia Pacific & the Middle East. Europe & Africa and Latin America sales grew at double-digit rates. Product sales declined 10% driven primarily by lower subscriber and systems revenues, while Services declined 1%. These results include US$49mn in lower operating expenses compared with the second quarter of 2013 due to ongoing cost-reduction initiatives. In the second quarter, the company achieved US$75mn in cost reductions. Having reaped US$3.5bn from the sale of its enterprise hardware unit to Zebra Technologies, Motorola Solutions has added US$5.0bn to its buyback authorization, raising its available funds to US$5.6bn. US$650mn was spent on buybacks in Q3.
Ericsson’s sales increased by 9% year over year and sales for comparable units, adjusted for currency, grew by 3% with stable operating income. The US dollar had strengthened against many currencies, including the SEK, which impacted sales positively in the quarter. Growth was driven by stronger sales in the Middle East, China, India and Russia. This was partly offset by lower sales in North America. The Support Solutions and Networks segments showed good growth year over year. Sales for Global Services grew slightly, especially in Professional Services while Network Rollout continued to decline. Intellectual property revenues (IPR) grew year over year following the Samsung license agreement which was reached in January 2014. Ericsson plans fresh job cuts as part of its ongoing restructuring, and hopes to achieve cost savings of SEK9.0bn/year. The mobile infrastructure giant expects another SEK3.0-4.0bn in restructuring charges through 2017. The network equipment market is expected to see a 2%-4% CAGR, the telecom services market a 4%-6% CAGR, and the support solutions market a 7%-9% CAGR through 2017.