I’ve been working in the IT and Communications markets for almost 40 years and throughout this period there has been a constant debate around the convergence of these two industries. The arrival of Private 5G brings convergence back as a major issue as IT servers, storage and software are being used in the core, edge and access network – areas that in previous generations were the preserve of the service provider network suppliers. In this post I look back at 2022, sharing market shares, trends and activities and making some predictions for the coming year.
Network market spending was split 70:30 between service provider used by Communications companies and enterprise ones used as part of IT infrastructure. In fact the total market dropped by -1% to a total of $201 billion in 2022, Enterprise network sales grew by 1% to $63 billion, while service provider ones fell by 2% to $138 billion.
Huawei – a company hit for years by US sanctions – was by far the largest network supplier in terms of 2022 revenues; achieving a market share of 31.5% of the total from a 40.5% share of service provider and 10.5% of enterprise networks in the year. Cisco was in second position with an 18.0% share of the total, due in large part to its massive 57.1% share of the enterprise network market. Finnish company Nokia was in third place (11.4%) and Swedish supplier Ericsson, in forth (9.2%). A summary of market shares is shown in my Figure above.
Huawei’s rise to supremacy of the network market has been driven by the modernization of its home country China. It overtook Cisco in 2015 and continued to extend its lead until 2020, when the effect of US sanctions put it into reverse. despite this recent reversal in revenues, it will take many years before Huawei’s leading position in this market could be challenged by another vendor. The long-tern trends in leading network supplier revenues are shown in my Figure above.
My Figure above shows the amount spent on the enterprise network product types, of which the four most important are LAN switches, enterprise (IP) telephony, routers and Wireless LAN components. They each have a relatively consistent demand with the routers and enterprise telephony exchanging second and third positions at various times in the last 17 years. I expect this mix to change gradually over the next few years as suppliers roll out Private 5G deployments.
Mobile endpoints (i.e. smartphones, tablets and other smart devices) and data networks (i.e. local area networks) already exist – the former are sold by mobile devices vendors and the latter spanning most of the products sized by me in the enterprise network space. The RAN, MEC and 5G core components of private 5G deployments will expand the total available market for both enterprise and service provider network suppliers. This mix of enterprise and service provider technology already exists in those (typically factory or plant) environments who have deployed LTE wireless solutions; but I expect a significant growth in this type of networking driven by cloud suppliers such as AWS, Microsoft Azure, Alibaba and Google Cloud. Within the next five years I expect the addition of around $20 billion revenues to existing and new private 5G suppliers.
Twenty years ago EMEA dominated the spending in the telecommunications market and network suppliers to it. Since the significant Investment in networking – especially by China – has pushed Asia Pacific to the top. Its lead over the Americas and EMEA in networking is smaller if we look at spending in constant 2005 exchange rates (the dotted line in my Figure above) and US sanctions against Chinese vendors such as Huawei and ZTE has lowered Asia Pacific’s spending since 2020. Nevertheless I expect Asia Pacific to retain its dominant regional position for the foreseeable future.
Finally I wanted to throw up some growth comparisons between the spending on the two kinds of networking with the total spending on IT hardware and telecom service (the dotted lines in my Figure above). Enterprise network spending roughly follows the growth of IT hardware; however spending on telecoms services and the service provider networks that support them are less connected – due perhaps to the longer gap between technology investment and return on it in the telecoms market.
So can we say for sure that communications and IT have converged? In my opinion the answer is ‘no’. While the arrival and potential success of Private 5G deployments will force more companies to plan the integration of these two worlds, major differences will exist for a long time. These two areas will continue to converge without ever becoming one and the same.
Information Technology and Communications research
