Telecom gear market faces crash landing in 2009

By Tarmo Virki - Analysis

HELSINKI (Reuters) - The struggling wireless telecom gear market is facing a crash landing next year as operators cut spending in the midst of recession.

The telecom equipment market, worth $49 billion in 2007, has been struggling for years, roiled as low-price Chinese vendors Huawei and ZTE aggressively entered the market.

But worse is to come.

No. 2 vendor Nokia Siemens has forecast a market fall next year, with analysts saying it could be sharp as new investments are likely to be cut first when operators around the world tighten their belts.

The companies have started to cut costs -- earlier this month Canada's Nortel said it would axe 1,300 jobs, and Nokia Siemens Networks is cutting another 1,820 jobs as the last part of its major cost-cutting program.

Vendors will also be scrutinizing their costs this year and next, trying to focus on the most promising technologies.

The largest vendor Ericsson has said its 2009 planning is based on expectations of a flat market, but stresses this is not the company's official forecast.

Analysts say the reality will be much grimmer.

"Wireless infrastructure investments could decline by 12 percent in 2009, due to a combination of emerging market slowdown and financing risks at carriers accounting for 25 percent of global wireless spending," Credit Suisse analyst Kulbinder Garcha said in a research note dated Nov 24.

Scott Siegler, analyst with U.S. research firm dell'Oro, said the economic situation was especially likely to hurt investments in 3G networks, which offer faster data speeds, with the total market falling "in the single digits" from 2008.

"We believe wireless has become a 'necessity' today, but add-on services like data packages are not," he said.

OPERATORS CALL

When consumer spending slows telecoms carriers focus more on cash generation -- one of the key attractions for investors as it underpins dividend payouts and share buybacks.

Many operators around the world, including Vodafone, the world's largest mobile group by sales, have said they plan to scrutinize costs and many say they will cut investments.

"For operators it's the easiest option to delay investments. They will wait -- postpone investments and make only the ones they have to do," said Hannu Rauhala, analyst with Pohjola Bank in Helsinki.