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Tsunami of Spending Floods Education and Government Verticals

Dell’Oro Group published an update to the Wireless LAN market 5-Year Forecast report in July 2021. We lifted our forecast and resumed our pre-pandemic outlook that spending on Enterprise-class WLAN equipment over the next five years will approximate $40 B worldwide, resulting in a CAGR of high single digits.

Governments around the world are injecting enormous amounts of cash into advancing network technology in their education systems and improving Internet access to their citizens. Enterprise WLAN equipment just happens to be in the sweet spot. Manufacturers are in the right place, at the right time, particularly those with established relationships in the education and government vertical industries.

Enterprise-class WLAN equipment has been flying off the shelf for the past three quarters. All industry participants from systems manufacturers, to component manufacturers to network integrators that we have interviewed indicated bookings are stronger than supply. Demand is being fueled by an influx of fiscal stimulus from governments of many countries, which we have estimated to approximate $1 B. We reckon there has been some spending from a few large enterprises, but we have yet to see a recovery in spending from broad-based private enterprises of all sizes, and all vertical industries.

We are modeling this phenomenon of extraordinary levels of government spending to abate over the next year, however, we question whether we are entering an Eisenhower-like era of technology infrastructure buildout which could span a decade. Additional initiatives could surface particularly if existing projects are successful, and more countries may also launch initiatives, not wanting to be left behind. We are watching for announcements of government technology or digitization initiatives.

We previously predicted a surge in sales in 2022 with the arrival of Wi-Fi 6E products, but users are not waiting, they are spending now. We learned that many government-funded projects have deadlines, and therefore users are deploying products available now. Ergo, the surge appears to be happening in 2021 rather than 2022.

 

Wi-Fi 6E and Wi-Fi 7 Low-End Access Points Accelerate Adoption

We model a more rapid penetration rate of both Wi-Fi 6E and Wi-Fi 7 because we expect lower-end products to come to market sooner than higher-end. This is a change, as previous technology transitions were led with high-end products, not low-end. Lower-end products dominate market volume and that may translate into a faster return on investment for both semiconductor and system manufacturers. Additionally, the performance advances with 6 GHz spectrum even with a lower-end access point, could delight most users.

 

Cloud-managed and Premises-managed Network Applications to Lift Sales

Sales of WLAN network management equipment (named controllers), and specialty applications such as troubleshooting, and location finding/tracing have been approximately the same level for the past 10 years, while overall WLAN market sales have about doubled, and access point unit volumes have quadrupled. Manufacturers have been developing new features and selling them separately from the management hardware, as subscription licenses. This has been intensely competitive, providing a way for manufacturers to differentiate and rapidly bring new capabilities to market. As in many intensely competitive markets, we’ve recently seen declines in license prices, resulting in a flurry of activity which portends 2021 to be a year of change. We are optimistic that manufacturers will be rewarded with higher revenues as they develop applications reducing customer pain points.

To learn more about the Wireless LAN market, or if you need to access the full report, please contact us at dgsales@delloro.com.

About the Report

The Dell’Oro Group Wireless LAN 5-Year Forecast Report offers a complete overview of the industry, covering Enterprise Outdoor and Indoor markets, with tables containing manufacturers’ revenue, average selling prices, and unit shipments by the following wireless standards: 802.be (Wi-Fi 7), 802.11ax (Wi-Fi 6 and 6E separately reported), 802.11ac (Wi-Fi 5) Wave 1 vs. Wave 2, 802.11n, and historic IEEE 802.11 standards. It includes forecasts for regions of the world and for Cloud-managed vs. Premises-managed. To purchase these reports, please contact us by email at dgsales@delloro.com.

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Today, Huawei presented an update on its CloudCampus business which is thriving. A message that resonated with me was how people embracing digital services and applications triggers the need for equipment with more intelligence and bandwidth. For example, the widespread adoption of mobile application-based financial transactions instead of credit card-based transactions requires big infrastructure changes with financial institutions. People in China are spearheading new technology adoption and in particular, with mobile applications. New technology adoption is the Chinese culture. This was particularly evident to me in a coffee shop in Shenzhen about a year ago. It was late afternoon in the business district and the shop was bustling with people seeking a caffeine lift. There must have been over 50 people—not one of them paid with cash or a credit card—all paid with their mobile phone. I have not seen that level of adoption in other regions of the world—yet.

Within enterprise networks, Huawei is seeing strong demand for upgrades to Wi-Fi 6 as enterprises move to large-scale deployment. Demand is from several vertical industries: manufacturing seeks automated optical inspection to increase production yields; agriculture seeks automation for stocktaking, feeding, and cleaning robots; universities and general commerce businesses are adding sensors creating smart campuses, smart buildings. Interruption-free and consistent service across heterogeneous Wi-Fi networks is also driving network upgrades.

In 2020, the adoption of Wi-Fi 6 in China climbed to just over 40% of overall Wireless LAN market sales, compared to just over 30% for all regions excluding China. We have been meeting (virtually) with many companies in the Wireless LAN market in the past few weeks and have learned that since January, similar to Huawei, others are seeing gigantic demand for Wi-Fi 6 and that demand for older technologies are “falling off a cliff”.

I question whether massive government spending in many countries could be bringing a multi-year technology transformation such as what “The New Deal” brought in public works (bridges, highways, sewage systems, buildings, etc.) after the Great Depression? If yes, Wi-Fi will certainly be a winning technology.

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The Outlook Is Improving, but Mixed

At the beginning of 2020, we expected a solid year for the WLAN market, driven by a still humming economy and a technology upgrade cycle to Wi-Fi 6. After the pandemic hit, we revised our forecast down steeply (double digit decline)—similar to prior economic declines. As the year progressed, however, WLAN proved resilient and 2020 revenue is on track to come slightly lower than 2019—a remarkable result of government stimulus coming primarily from the US, followed by China and select countries in EMEA such as Germany. For example, the US’ E-Rate program, which provides telecommunications funding for K-12 schools, was opened to a second round in September 2020 to allow schools to request additional funds for 2020-21 to address surging bandwidth demand stemming from remote learning. In China, the government’s Made in China 2025 initiative has provided incentives for manufacturers to modernize their processes.

Recently, during financial publications conference calls, a number of WLAN manufacturers announced that government stimulus would spill into 4Q20, and possibly into early 2021. Several economists at world leading banks recently raised GDP forecasts. With this brighter picture on the macro-economy, we raised our outlook for 2021. There are many promising signs, like the distribution of vaccines, and approval of another economic aid package in the US.

But there are also warning signals. We have read real estate reports highlighting over 40% Y/Y increases in excess commercial real estate in 30 major cities in the US. If real estate companies use technology to increase the attractiveness of their buildings WLAN sales could rise. Alternatively, spaces could remain empty or converted to residential. We are watching for indicators.

Another WLAN market constraint includes surging infection rates that are once again causing targeted shut-downs of economic sectors. Several WLAN vendors attributed 3Q20 softness in Europe to resurging infections particularly in southern counties. Meanwhile, a new strain of COVID-19 in the UK is spreading more rapidly than previous strains and many countries have banned travel to/from the UK. Clearly, there remains tremendous uncertainty and potential for volatile demand swings in 2021 as businesses open and close.

Could Wi-Fi 6E Stall Market Demand In 2021?

The 802.11 standard has seen regular updates over its 20+ year history, and so the looming update to 6E should not seem out of the ordinary. But two trends are changing market dynamics:

  • Wi-Fi technology cycles have been shrinking, from every 4-5 years to 3 years. That makes it more compelling for buyers to sit out a cycle in anticipation of even better features and enhancements. We can see this playing out right now in the Wi-Fi 6 cycle, where adoption is significantly running behind what unfolded with Wi-Fi 5 Wave 2.
  • Manufacturers advise us that client devices with Wi-Fi 6E capability will ship in early 2021. Early-to-market manufacturers of enterprise class access points advise that shipments may be as early as 2Q20. However, we don’t expect the majority to launch 6E products until end of 2021/early 2022. With Wi-Fi 6E just around the corner, users may pause purchases and wait for their favorite supplier to launch its 6E products. We anticipate high-end users and the high-end of the midrange market, which combined could comprise 20% or more of market revenues, will be willing to pay a premium to harness the benefits from Wi-Fi 6E.

Pandemic Accelerates Cloud Management

In the past several months, the pandemic has triggered intense interest in remote management capabilities given the complications around visiting locations in-person to install, upgrade, or troubleshoot equipment. The speed of innovation on cloud platforms is another benefit; for example, several vendors quickly repurposed their existing location-based technologies to develop contact-tracing applications to combat the spread of COVID-19.

Vendors have responded with increasing the variety of cloud managed products and pricing options, including lowering prices. Lower prices stimulate demand.

We expect this interest to carry into 2021 as the effects of the pandemic linger and organizations are going to be permanently more distributed over the long-term (working from home, more but smaller offices), all of which favors a cloud-based management approach.

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The enterprise-class Wireless LAN (WLAN) market has enjoyed high single-digit revenue growth rates for the past several years. In 2019 sales decelerated as a result of broad-based economic uncertainty causing customers to delay expenditures. Customer hesitation correlated with rising trade war tensions and tariffs, Brexit, and economic slowdown in all macro-regions of the world. The pandemic emerging in 2020 amplified the deceleration.

COVID-19 Near-Term Impact on WLAN Market

As portrayed in the figure, Dell’Oro Group forecasts temporary near-term declines in the enterprise-class WLAN market until the COVID-19 virus passes. Specifically, Dell’Oro Group has lowered its forecast for 2020-2022 removing approximately $4 B from the enterprise-class WLAN market, as a result of a reduction in unit shipments as well as a shift to lower-priced, lower-featured units. For example, an access point suitable for remote worker setup is nowhere near the feature-richness as an access point suitable for a corporate office, a university auditorium, or a sports stadium. Access points suitable for remote workers/home deployments generally have a list price under $500 vs. between $1,000 and $2,000 for those suitable for corporate deployments.

Certainly, both unit volume and a return to a high portion of feature-rich, higher-end, higher-priced access points will lift WLAN market revenues, however, it is access points with 6 GHz capability that will truly catapult market revenues. Manufacturers cannot bring these access points to market fast enough!

Feedback from system integrators reveals that large enterprises from many vertical industries are eagerly awaiting Wi-Fi 6E products. We estimate a portion of users will postpone purchases to wait for Wi-Fi 6E and the number of users that will wait rises as product availability approaches. We expect enterprise-class Wi-Fi 6E access points to become widely available in 2022, and lift WLAN market sales to pre-COVID levels.

 

Wi-Fi 6E Strengthens WLAN Market Outlook

We assume that Wi-Fi 6E strengthens the outlook for the WLAN market, making the technology more competitive, and that access points will be higher-featured, as well as higher-priced. The advantage of being “first in”, or among the early adopters of Wi-Fi 6E technology is access to a massive amount of bandwidth with no other traffic—the high-end of the market, and the upper end of the midrange market would be willing to pay a significant premium which could span several years (i.e., the premium could last several years). While our forecast assumes 6E access points command a similar price premium that Wi-Fi 6 had vs. Wi-Fi 5, we believe the premium could be significantly higher because the benefits of the technology are so palpable.

Long-term, we predict the pandemic will permanently reduce the portion of the workforce that is present in the office full time. While the timing of the rebound will vary by region and by industry vertical, we expect an increase in the number of transient workers which will more likely connect to the enterprise LAN with a wireless rather than a wired connection. We anticipate a portion of the CAPEX previously allocated to wired LAN (i.e., Ethernet switches) will be reallocated to other technologies such as intelligence applications, security, WLAN, etc. Also, many vertical industries will find new use cases that will require low-latency, high-definition video transmission capabilities—enabled by Wi-Fi 6E.

To get a deeper insight of the WLAN market and access the full WLAN market July 2020 5-Year Forecast Report, please contact us: dgsales@delloro.com.

 

About the Report

The Dell’Oro Group Wireless LAN 5-Year Forecast Report offers a complete overview of the industry, covering Enterprise Outdoor and Indoor markets, with tables containing manufacturers’ revenue, average selling prices, and unit shipments by the following wireless standards: 802.11ax (separate reporting of  Wi-Fi 6 and 6 GHz), 802.11ac (Wi-Fi 5) Wave 1 vs. Wave 2, 802.11n (Wi-Fi 4), and historic IEEE 802.11 standards. It includes forecasts for regions of the world and for Cloud-managed vs. Premises-managed.

Related Videos to the WLAN Market Forecast:

Sign up to Dell’Oro Analyst Talk channel at BrightTalk to watch the full video

Analyst Talk - Enterprise WLAN Trends - COVID-19 Near-Term Reshuffle
| 6 mins watch |

 


Sign up to Dell’Oro Analyst Talk Channel at BrightTalk to watch the full video

Analyst Talk - Enterprise WLAN Trends COVID-19 Long-Term
| 8 mins watch |

 

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