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Market analysis

The devices segment (including PCs, ultra-mobiles, mobile phones, tablets and printers) of worldwide IT spending at $US3.88 trillion in 2015 is expected to account for 19.1% OR US$732bn, a 5.1% increase from 2014. In terms of percentage increases, the devices segment is behind only enterprise software (5.5%), with data center systems, IT services and telecom services expected to grow at 1.8%, 2.5% and 0.7%, respectively.1

The global wireless equipment market grew at a slow to moderate pace in 2014 due to LTE and LTE-Advanced roll-outs. Most operators worldwide have been earning significant portions of their revenue through 3G infrastructure while LTE is generating half of wireless infrastructure revenue globally. LTE revenue share is expected to grow to 80% by 2018. LTE growth will cannibalize 3G business resulting in flat to minimal sales growth.1

The 2015 outlook for the global communications equipment industry is positive. Continued rapid consumption of network capacity, aided by the proliferation of smartphones and, to a lesser degree, tablets, is a solid long-term growth driver for the industry. Telecom equipment purchases will begin to pick up in 2015 as carriers and enterprises shift from legacy networks to modern architectures. The industry is expected to see positive demand trends in cloud computing, wireless, visualization and data center transformation.2

In the service provider segment, near-term equipment sales, particularly for optical components, are beginning to improve. Carrier spending is expected to increase in 2015 as new technologies such as Long Term Evolution (LTE) in the wireless space, DOCSIS3.0 in the cable space and 40G and 100G in the optical space gain commercial traction. Moreover, accelerated wireless equipment funding is expected due to the increasing demand for wireless connectivity in both enterprise and household applications driven by IoT . In 2015, spending priorities are shifting to the early stages of the fifth generation for wireless applications coming from a rapid rise in mobile broadband and increased use of smartphones and tablets.2

As mobile data usage is increases, Communications Service Providers (CSPs) need to focus on creating new pricing with a focus on data access. They will also need to create a more immersive and personalized experience. For instance, through next-generation hotspot technology, Wi-Fi users’ location, dwell time and other context-based information can be captured in real time, allowing providers to better understand what customers want at that moment.3

Motorola’s sales remained flat in Q4’14 at US$1.8bn which included a US$27mn unfavorable foreign currency impact. Sales were impacted by respective declines of 5% and 8% in the Europe & Africa and Asia Pac Middle East regions. The company also reported a Q4’14 net loss of US$926mn as compared to a net profit of US$343mn in Q4’13. This was due to a 95.8% increase in operating expenses owing to a US$1.9bn non-recurring charge resulting from a US$4.2bn US pension de-risking transaction aimed at improving its risk profile and cash flows. Motorola's Real-Time Crime Center (RTCC) solution holds good potential in the long term, with a US$350mn-US$450mn opportunity in the US alone, as police and public safety agencies redeploy funds and resources for technologies other than communication systems, including body worn cameras used for analyzing video feeds in real time.

Ericsson’s Q4’14 sales grew 1% year over year to SEK68bn. Sales were driven by growth in the Middle East, Asia and Europe due to mobile broadband coverage projects, higher software sales and intellectual property rights revenues. Sluggish performance in North America, owing to lower operator investments due to a focus on cash flow optimization to finance major acquisitions and spectrum auctions, weighed on otherwise positive growth. The company’s Networks and Support Solutions segments posted respective year-over-year declines of 2% and 21%, whereas the Global Services segment grew by 10%. The company also shut down its declining modem business which it took over from STMicroelectronics in August 2013. The decision to close came amid falling prices and high competition in modems, accelerating technological innovation requiring significant R&D investments and a shrinking market as more smartphone makers buy integrated modems and processors, which Ericsson does not produce.

  1. Gartner, Jan 2015
  2. Factiva, Feb 2015
  3. Gartner, Feb 2015

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