Recession: 2009 Q1 was bad for manufacturers, but an increase in capital expenditure by operators is expected in the second half

[Marketwire] Market research firm Infonetics Research recently released its Service Provider Capex, Opex, ARPU, and Subscribers report, which features analysis on how the current economic recession is impacting telecom markets by region, as well as which telecom equipment segments are most and least affected.

Highlights from the market research report follow, and clients are invited to participate in a live call with Q&A time led by principal analyst Stéphane Téral this week (see https://infonetics.webex.com for multi region-friendly times).

"As we anticipated, the first quarter of 2009 was ugly for equipment vendors because service providers were very cautious, pulling back significantly in some areas, particularly TDM and IP voice infrastructure and SONET/SDH optical equipment spending. On the other hand, it was a stellar quarter for large service provider shareholders, as free-cash-flow among service providers is at an all-time high. Overall, service providers around the globe are maintaining clean balance sheets, telco revenue continues to show resilience, and consumers are increasing mobile Internet usage on their iPhones and other smartphones. Meanwhile, China's massive stimulus plan is kicking in, the US stimulus package is about to kick in, money is flowing in Russia, and Brazil and China are getting back on track and will grow faster than the developed world. This all adds up to a likely capex hike in the second half of 2009, driven by the learned lesson that if operators don't invest in their increasingly traffic-burdened networks to maintain high-quality service, they risk losing customers to competitors," said Stéphane Téral, Principal Analyst, Mobile and FMC Infrastructure, Infonetics Research.

REPORT HIGHLIGHTS

-- Global service provider capex (capital expenditures) hit a plateau at
$298 billion in 2008, marking the end of a five-year investment cycle

-- This represents a 12.9% increase in capex spending from the previous
year, with much of the growth due to currency appreciation against the US
dollar, which peaked in July 2008

-- 2008 also marked the beginning of a three-year disinvestment cycle,
although this one will not be as dramatic as the one that followed the
great telecom crash of 2000

-- Infonetics projects a 2.8% downturn in worldwide carrier capex in
2009, followed by a flat 2010 and a slow return to growth in 2011 with the
start of a new investment cycle

-- Worldwide service provider revenue is expected to weather the economic
storm and grow from $1.7 trillion in 2008 to $2 trillion in 2013

-- Incumbent carriers entered the global recession on solid financial
ground, and will likely exit the crisis even stronger, maintaining if not
increasing their lion's share of capex and revenue

-- Fueled by currency appreciation on top of double-digit growth rates in
native currencies, Asia Pacific service providers now spend the largest
share on telecom capex, followed very closely by service providers in EMEA
(Europe, Middle East, Africa)

-- Mobile infrastructure capex will continue to dominate total global
telecom and datacom spending, followed by voice equipment

-- The world's 10 largest service providers (ranked in order by 2008
revenue) are AT&T, NTT, Verizon, Deutsche Telekom, France Télécom,
Vodafone, China Mobile, Telefónica, BT, and Sprint (the strong euro tends
to push the European service providers closer to the top)

Infonetics Research: Hike in telecom carrier capex expected in 2H09, though overall capex still down in 2009