We’ve just wrapped up the 1H21 reporting period for Dell’Oro Group’s enterprise network equipment programs, which include campus switches, enterprise data center switches, enterprise routers, network security, and Wireless LAN. Enterprises include businesses of all sizes as well as government, education, and research entities. The equipment tracked in these programs can be used for wired or wireless data communication in private and secure networks.

 

1H21 Market Performance

The overall Enterprise Network Equipment market was up 10% year-over-year (Y/Y) in 1H21. The growth was linear across the first and second quarters (up 10% and 11% Y/Y, respectively). Furthermore, the overall Enterprise Network Equipment market was able to exceed its 2019 pre-pandemic revenue level for the first half of the year.

 

The 1H21 growth was broad-based across all segments. Campus switching contributed about 30% of the increase in spending in the first half, followed by Network Security and WLAN at about 25%, each. Even the physical appliances segment of the Network Security market was able to turn the corner and go back to growth in 1H21. This broad-based recovery is encouraging given that last year was characterized by a significant decline in spending on hardware products, specifically campus switches, data center switches, access routers, physical firewalls, and Wireless Access Points (APs). In the meantime, 2020 spending on software and subscription-based products: SD-WAN and virtual and SaaS security, and the licenses portion of the WLAN segment, increased.

We attribute the 1H21 recovery to the following:

• Improving macro-economic conditions and business confidence
• Strong government stimulus around the world
• Pent-up demand from verticals that have been hit hard by the pandemic such as the hospitality and retail sectors
• Network upgrade activities in preparation for the back-to-work event planned for the second half of the year.

Despite the robust revenue growth recorded in the market in 1H21, major vendors reported that revenue would have been even stronger if they had not experienced supply constraints. In other words, demand outpaced supply. Although the gap between supply and demand impacted the different sectors within enterprise networking, it appears that the issues were more acute on the higher volume WLAN APs, where unit shipments declined Y/Y and Q/Q for some US-based manufacturers during a seasonally strong quarter.

 

1H21 Vendor Landscape

The analysis contained in these reports suggests the ranking and share of the top 10 vendors remain relatively stable, with the top two vendors, Cisco and Huawei, comprising nearly 50% of the Enterprise Network Equipment market in 1H21. We would like to note, however, that Cisco lost some shares between 1H20 and 1H21, while Palo Alto Networks, H3C and Arista, gained one point of revenue share, each.

 

2021 Market Outlook

Even with the unusual uncertainty surrounding the economy, the supply chains, and the pandemic, the Dell’Oro analyst team remains optimistic about the second half – the overall enterprise network equipment market is projected to advance 5% to 10% for the full-year 2021. However, we are expecting a slowdown in the second half, compared to the first half as supply constraints seem to be worsening which may hinder market performance.

 

Dell’Oro Group Enterprise Network Equipment research programs consist of the following: Campus switches, Enterprise Data Center Switches, SD-WAN & Enterprise Routers, Network Security, and Wireless LAN.

We just wrapped up the 1H21 reporting period for all the Telecommunications Infrastructure programs covered at Dell’Oro Group, including Broadband Access, Microwave & Optical Transport, Mobile Core & Radio Access Network (RAN), SP Router & Switch. The data contained in these reports suggest that the positive trends that characterized the broader telecom equipment market extended into the second quarter, even if the pace of the growth slowed somewhat between the first and the second quarter.

Preliminary estimates suggest the overall telecom equipment market advanced 10% year-over-year (Y/Y) during 1H21 and 5% Y/Y in the quarter, down from 16% Y/Y in the first quarter. The growth in the first half was primarily driven by strong demand for both wireless and wireline equipment, lighter comparisons, and the weaker US Dollar (USD). Helping to explain the Y/Y growth deceleration between 1Q and 2Q is slower growth in China.

The analysis contained in these reports suggests the collective global share of the leading suppliers remained relatively stable between 2020 and 1H21, with the top seven vendors comprising around ~81% of the total market. Within the mix, we estimate Huawei and Nokia lost some ground between 2020 and 1H21 while Cisco, Ericson, Samsung, and ZTE recorded minor share gains over the same period.

Additional key takeaways from the 1H21 reporting period include:

• Following the Y/Y decline in 1Q20, our analysis suggests the overall telecom equipment market recorded a fifth consecutive quarter of growth in the second quarter.
• The improved market sentiment in the first half was relatively broad-based, underpinned by single-digit growth in SP Routers and double-digit advancements in Broadband Access, Microwave Transport, Mobile Core Networks, and RAN.
• Aggregate 2Q21 revenues were in line with expectations, however, within the programs both Broadband Access and Microwave Transport were surprised on the upside while Optical Transport and SP Routers came in below expectations.
• From a regional perspective, China underperformed in the quarter, impacting the demand for both wireless and wireline-related infrastructure.
• Ongoing efforts by the US government to curb the rise of Huawei are starting to show in the numbers outside of China, not just for RAN but in other areas as well.
• Though Huawei is not able to procure custom ASICs for its telecom products, the supplier is assuring the analyst community its current inventory levels is not a concern over the near term for its infrastructure business.
• The majority of the vendors have through proactive measures been able to navigate the ongoing supply chain shortages and minimize the infrastructure impact. At the same time, the supply constraints appear more pronounced with higher volume residential and enterprise products including CPE and WLAN endpoints.
• Even with the unusual uncertainty surrounding the economy, the supply chains, and the pandemic, the Dell’Oro analyst team remains optimistic about the second half – the overall telecom equipment market is projected to advance 5% to 10% for the full-year 2021, unchanged from last quarter.

 Dell’Oro Group telecommunication infrastructure research programs consist of the following: Broadband Access, Microwave Transmission & Mobile Backhaul, Mobile Core Networks, Mobile Radio Access Network, Optical Transport, and Service Provider (SP) Router & Switch.

Power generation is perhaps not the shiny object that comes to mind when suppliers and operators think about potential 5G game-changers. After all, Nokia estimates power generation accounts for approximately 0.4 percent of the global industrial site opportunity. At the same time, LTE/5G NR activity for power utility applications using both public and local spectrum are on the rise, reflecting a confluence of factors including the benefits and flexibility with cellular technology, the improved availability of local spectrum, and the renewed sense of urgency to modernize the grid to address more extreme weather variations. In this blog, we will review the cellular power utility opportunity, the benefits of using LTE/5G, typical performance requirements for the electric power industry, and review progress with some of the early cellular electric utility adopters.

The power generation market is small relative to the manufacturing opportunity, however it still sizeable. According to the EIA, there are around 60 K to 65 K power plants globally. China is home to four of the world’s ten largest power plants. In the US, the electric systems consist of around 7 K power plants and 360 K miles of transmission lines (US Department of Energy).

Perhaps more importantly, the push to manage capacity growth while embracing energy efficiency is spurring countries to modernize their power grids with various smart grid capabilities, including improved connectivity solutions.

How can cellular technologies help electric utilities? The electricity supply chain can be conceptualized into three high-level functions: generation, transmission, and distribution. One of the more compelling aspects of the power industry is that secure, reliable, flexible high-performance connectivity can make a significant difference in various parts of the electricity supply chain and deliver material savings, both in terms of revenue and lives – there is typically not much effort required to inform this sector about the benefits with LTE and 5G vs. WiFi or other proprietary protocols.

Also, the cost, security, and roadmap benefits with the 3GPP standards are well understood. While the macro mobile network will continue to play an important role with 4G/5G power utility networks, the availability of a new local spectrum will also enable the utilities to improve the coverage in areas with limited macro coverage.

From a service perspective, early 5G adopters are looking into four types of applications including:

• Production control area
• Production non-control area
• Information management
• Local campus coverage

According to the 5G Deterministic Networking Alliance (5GDNA) and China Southern Power Grid (CSPG), 5G slices can help with the production control area to monitor power systems in real-time and address differential protection on power distribution networks, intelligent distributed FA, precise load control, and distributed energy control.

The current use of optical transport for the centralized connection is not always ideal from a capex perspective. Wireless connectivity technologies should be able to deliver an improved cost structure. And according to 5G DNA, 5G is preferred over LTE as the required network latency should be 15 ms or better to provide enough margin to ensure the phase delta does not result in asynchronous monitoring. Also, this type of latency requires the UPFs to be deployed at the edge sites.

5G is also expected to play an increasingly important role in information management. Utilities still rely heavily on manual inspections, which tend to be inefficient, time-consuming, and in some cases dangerous. LTE and 5G can help to transform these services and provide the right foundation to digitize much of the inspection process including the inspection of substations and transmission lines. Using videos, AR, robots, site cameras – thousands of devices can be checked in real-time.

Historically information management has typically been addressed using 3G/4G, WiFi, and fixed technologies such as optical fiber. But this combination is not always perfect. In addition to the UL limitations, there are also security risks that are better managed with 5G and Multi-Access Edge Computing.

Initial findings with some of the early adopters support the premise that 5G can improve efficiency. CSPG, which covers roughly a quarter billion people in China, has started to incorporate 5G into its connectivity roadmap. Working with China Mobile and Huawei, CSPG is using two separate 5G slices for production control and information management.

Preliminary findings suggest precise fault locating and fast fault isolation for power distribution network differential protections reduces the fault location time from a few second to a few milliseconds.

According to CSPG, 5G enabled them to install new monitoring systems and ultimately reduce the inspection duration for 1330 items from 3 days to 1 hour.

Similarly, the inspection duration for 500 kV power transmission lines has been reduced from 10 days to 2 hours.

In the US, power utilities are exploring how they can leverage the capacity upside with CBRS and the coverage benefits with a low-band spectrum to focus on grid modernization and wildfire prevention. New York Power Authority (NYPA), the largest state public power organization in the US, is exploring how LTE can provide drones with the connectivity needed to manage critical field operations and ultimately reduce the reliance on manual inspections.

In other words, the LTE/5G NR power utility market is nascent. However, the benefits of cellular technologies are clear and the business case is straightforward. And more importantly, we don’t have to wait to verify this narrative – utilities across the world are already exploring and utilizing LTE and 5G NR to modernize various parts of the electricity supply chain. So even if the TAM is somewhat limited relative to other industrial opportunities, the time is right to start getting excited about the incremental value LTE and 5G can deliver to the power utility vertical.

 

The global demand for broadband service has resulted in an acceleration of interest among fixed and mobile operators alike to either expand their existing LTE or point-to-multipoint fixed wireless offerings or roll out early 5G services to a growing base of current and potential subscribers. In both mature and emerging markets, there has been a tremendous increase in the number of RFPs for equipment and software to support large-scale 5G fixed wireless service deployments. Clearly, service providers are looking to strike while the iron is hot, securing subscribers who need broadband now, while also taking advantage of growing government subsidization of broadband service rollouts.

The vendor ecosystem supporting 5G fixed wireless has naturally increased, particularly in the area of dedicated CPE. According to the GSA (Global mobile Suppliers Association), there are currently over 130 FWA CPE devices (both indoor and outdoor) that have been announced by a growing list of vendors, which now numbers above 50. Over 50 of these dedicated CPE are now commercially available, which is up from 15 commercially-available units just one year ago. By the end of 2021, we expect that the number of commercially-available devices will exceed 100 and will double in 2022. The number of vendors producing or planning to produce 5G FWA CPE already exceeds the number of suppliers of 4G FWA CPE.

 

 

The increase in available units, which corresponds with the perceived addressable market of 5G network deployments and subscriber uptake, combined with the rapid uptake of 5G-capable smartphones will help to push the cost of both indoor and outdoor 5G FWA units down to levels that satisfy the business case requirements of operators globally. In particular, operators in emerging markets where ARPU levels are typically low, cost-reduced CPE are an absolutely critical requirement to ensuring a faster ROI.

The larger the addressable market, the more willing component suppliers will be to forward-price to capture a larger share of that growing market. The resulting price reductions in components begets wider availability of finished CPE. It becomes an iterative cycle that benefits the entire supply chain and the network operators as end purchasers.

 

Quick Ramp of 5G FWA Devices Expected

At the end of 2020, we estimate that there are nearly 60M fixed wireless subscribers globally. A large percentage of these subscribers use 4G LTE networks, though there are also subscribers using 3G networks, proprietary point-to-multipoint services, as well as some using early 5G technologies, including sub-6Ghz and millimeter wave. We estimate that the 5G subscribers are around 1 million currently. However, we expect that those subscriber numbers are set to double in 2021, as operators such as T-Mobile (USA), AT&T, Verizon, Bell Canada, Saudi Telecom, Rain (South Africa), Swisscom, Deutsche Telekom, Optus, and others introduce or expand 5G FWA services this year.

With those operator commitments already in place, we estimate that the total number of 5G FWA devices shipping to operators this year will easily exceed 3 million units and could push 4 million units. The vast majority of these units will be to support sub-6Ghz service offerings, though we also expect to see millimeter wave units, as some operators use a combination of those technologies to provide both extensive coverage and fiber-like speeds in areas where the competition from fixed broadband providers is more intense. Overall, however, we expect volumes first from sub-6GHz units this year and into next year, followed by increasing volumes of millimeter wave units beginning in the latter part of 2022 and into 2023.

We also anticipate that the vast majority of 5G FWA deployments will rely on indoor gateways that combine a 5G modem with a WiFi 6 access point for signal distribution within the home. Many of these gateways will also be mesh-capable and will be paired with satellite units to blanket homes with WiFi coverage and to eliminate dead spots within the home.

There will be situations where outdoor units will be required, particularly in the case of millimeter wave deployments which require line of sight because of the high-frequency ranges being used. But even in the case of sub-6Ghz 5G FWA deployments, outdoor units will be required when homes or apartments have very thick-paned windows or are located in LEED (Leadership in Energy and Environmental Design) buildings.

With this growing clarity around deployment models and device types, we expect that the costs of 5G FWA CPE will decline throughout this year and next, providing a catalyst for much larger, global deployments of the service through 2022 and beyond. We believe that the average cost for an indoor 5G FWA CPE supporting sub-6GHz frequency bands will decline from around $350 in 2020 to around $100 by the end of 2023 (Figure 2).

 

 

5G chipsets will see the biggest price declines, helped in large part by increasing volumes of 5G smartphones, but also by a growing ecosystem of 5G modems, gateways, tablets, cars, and other products reliant on 5G networks for WAN connectivity. Currently, 5G SoCs are roughly 4x the cost of 4G SoCs. But we have seen this played out before in the early stages of 4G network and device rollouts when the cost of chips dropped quickly as device volumes increased.

Similarly, the cost of WiFi 6 chips remains about 15-20% higher than WiFi 5 units. While WiFi 6 will be the primary technology for mature, highly competitive markets, WiFi 5 will remain an important option for very price-sensitive markets, particularly those in developing countries and in rural markets where competition comes from lower-cost services. But as enterprise and higher-end residential gateways are built with WiFi 6 technology, the cost of those chips will decline significantly over the next couple of years.

 

 

Beyond these two major components, manufacturing costs will also decline as equipment and contract manufacturers increase volumes based on initial board and hardware designs. FWA gateway designs, like higher-end residential WiFi access point designs, are well-understood at this point. However, with any new product spin, there is a learning curve for the manufacturers. Though the cost of producing the first few thousand units is high, the costs quickly decrease as the manufacturing process becomes clearly defined and as new iterations of the devices incorporate lower-cost components.

There are two critical components for the steady reduction in cost for 5G FWA CPE: Increased orders and volumes from service providers, along with the cooperation among providers of 4G CPE devices and 5G units to understand how to bring down the costs as quickly as possible. This cooperation will be necessary to stimulate interest among service providers, who can then drive the volumes necessary to improve the overall economics of delivering 5G fixed wireless services.

 

5G FWA Will Build on 4G Deployments

Though the deployment of FWA services using 4G LTE networks has been moderately successful around the world, 5G will dramatically boost the addressable market of subscribers, as well as the service’s ability to reasonably compete with most fixed broadband technologies. 5G can comfortably deliver downstream speeds that compare favorably with VDSL and DOCSIS 3.0 services while easily beating previous generations of both fixed technologies. More importantly, C-band and millimeter wave technologies promise to be comparable with DOCSIS 3.1 and fiber services, thereby expanding the addressable market of subscribers even further.

Mobile operators around the world who have previously been unable to compete with fixed broadband providers, as well as fixed broadband providers looking to expand the reach of their services more quickly, are all enthusiastic about the opportunity in front of them with FWA. Their growing commitment to the service, as well as a rapidly expanding vendor ecosystem for customer devices, will help to quickly reduce the cost of those devices, thereby ensuring a faster ROI for service providers and a willingness to expand their reach even further.

“We are building a truly mobile 5G so everyone can benefit from the 5G revolution”. That is what T-Mobile said when it first launched 5G in the 600 MHz spectrum, preparing to become the first operator to advertise and offer 5G nationwide. With 5G now proliferating rapidly across the globe and more operators adopt a multi-band based spectrum strategy including not just mid-band but also high-band and low-band spectrum, the timing is right to review the various 5G options, discuss the benefits with low-band spectrum, and assess the status with sub-1 GHz 5G NR deployments.

5G is not all the same. One of the more compelling aspects of 5G is that there are so many different 5G technologies and flavors to support a confluence of use cases with different performance requirements. And the spectrum will play an important role. At a highly simplified level, there are three broad 5G categories from a spectrum perspective, including low-band – ideal for coverage, high-band – ideal for capacity, and the mid-band – ideal for coverage and capacity.

And from spectrum and transceiver perspective, there are at a high level five different 5G NR networks including  (1) sub-1 GHz NR, (2) upper mid-band Massive MIMO, (3) 2 GHz 8T8R and FDD Massive MIMO, (4) 6 GHz NR, and (5) Millimeter Wave (mmWave).

 

 

Not surprisingly, mid-band 5G NR has dominated the capex mix in this initial 5G wave, propelling cumulative 2018-2020 Massive MIMO NR investments to approach $10 B to $20 B. At the same time, low-band NR activity is firming up, validating the message that operators and suppliers have communicated for some time, namely that all spectrum will eventually become 5G spectrum.

While the spectral efficiency uplift between low-band LTE and NR is rather small (10% to 20%), assuming all else equal, both greenfield and brownfield operators are starting to realize that the low-band will play an important role in the broader 5G strategy to expand coverage, minimize the digital divide, and improve indoor performance.

The inherent propagation characteristics with sub -1 GHz spectrum and the resulting coverage benefits will enable operators to build a base layer that will serve as the foundation to expand the geographic and population coverage nationwide.

Also helping to explain the renewed interest in the sub-1 GHz NR is the role the spectrum can play to minimize the digital divide. COVID- 19 is a call for governments across the world to reexamine their broadband capabilities and increase their respective subsidization efforts to minimize the digital divide with comprehensive broadband solutions designed to handle the peak requirements of today and tomorrow. Although broadband inequities remain significant, a string of indicators suggest governments are working to improve connectivity access – the number of countries with a national broadband plan approached 174 in 2020, up from 102 in 2010 (The State of Broadband 2020).

 

 

Indoor remains a challenge. Preliminary feedback from some of the early mid-band adopters also suggests that the gap between macro and small cells will be much narrower with upper mid-band deployments relative to sub 2 GHz systems, reflecting the propagation characteristic with the higher operating frequencies and technology limitations to address outdoor to indoor losses. Given the incremental volumes required to improve the performance indoors, the low-band spectrum can help to reduce the indoor capex.

China Mobile’s recently announced 700 MHz tender, involving around 480 K 5G NR base stations, will provide a significant boost to the low-band ecosystem. This combined with the benefits discussed above and the fact that there are around 400 operators globally operating LTE or 5G NR networks in the low-band (GSA), forms the basis for the improved low-band market sentiment.

In short, the initial 5G ascent was driven by the upper mid-band and massive MIMO. The time is right to start getting excited about the low-band – sub 1 GHz deployments are expected to comprise a greater share of the 5G capex going forward.