* Gartner sees 6 pct sales growth after 3 pct last year
* China's 4G push to boost sales, but drag on margins
* European investment driven by Vodafone's Project Spring
* Alcatel's margins seen at risk, Ericsson well positioned
* Resurgent Nokia hungry for more sales of network gear
By Sven Nordenstam and Leila Abboud
STOCKHOLM/PARIS, Jan 20 Telecoms network
operators are expected to spend more on equipment for the second
straight year in 2014, with China and Europe bringing a fresh
spurt of growth as service providers need to build out high
speed 4G mobile broadband networks.
Market research group Gartner sees global sales of network
equipment to carriers rising 6 percent to $85.4 billion this
year, up from 3 percent last year. Asia, excluding Japan, should
grow 7 percent, and Europe and North America 6 percent.
Specialist telecoms forecaster Dell'Oro is less bullish but
still expects 3 percent growth, compared with 2 percent in 2013.
The predictions are good news for Europe's network equipment
makers - Sweden's Ericsson, Finland's Nokia
and Franco-American group Alcatel-Lucent -
but analysts do not expect a softening of brutal price
competition with low-cost Chinese rivals.
Nor will all the vendors fare the same. China Mobile's
huge roll-out of 4G will be more of a boon for
domestic firms Huawei and ZTE that won two
thirds of the work. But China is a mixed bag for Ericsson,
Alcatel and Nokia, boosting sales but dragging on margins since
sales there commanded lower prices.
In Europe, Ericsson and Huawei are best positioned to
benefit from growth because they are major suppliers to
Vodafone, which is due to spend 7 billion pounds under
its 'Project Spring' programme by March 2016 to increase the
speed and coverage of its networks.
"Ericsson has higher exposure to Europe, so that will
largely offset the weight from China contracts and protect the
margins, while Alcatel-Lucent is more at risk because of its
smaller scale in Europe," said Bernstein analyst Pierre Ferragu.
Analysts are less certain how much United States operators
will spend this year as market leaders Verizon and AT&T
have largely finished building their 4G networks, leaving
them to add further capacity when customer demand requires it.
However, others want to catch up on 4G to compete.
Third-largest operator Sprint plans to spend $8 billion
this year and next on a major network upgrade. Backed by Japan's
Softbank, Sprint chose Alcatel, Nokia and Samsung
as suppliers, dropping long-time vendor Ericsson.
T-Mobile US, which is owned by Deutsche Telekom,
also spent $3.3 billion in January to buy mobile spectrum from
Verizon to beef up its coverage. ID:nL3N0KG2YD]
Gartner predicts North American operators will spend 9
percent more on mobile gear this year, from 6 percent last year.
But investment bank UBS expects capital expenditures on mobile
networks to rise only 1 percent and Bernstein sees it as flat.
Gartner analyst Akshay Sharma said Sprint's plan showed that
upside surprise was possible. "That could be a game changer, if
you are all of a sudden spending billions on network roll-outs,"
However, if Sprint and T-Mobile merge, as sources have said
Softbank is currently working on, it could throw operators'
network investment plans into question.
Europe could also grow faster than expected if Telefonica
, Telecom Italia and Deutsche Telekom
react to Vodafone splashing out on its networks.
"Vodafone is putting pressure on everyone. We could end up
with a pretty good year in Europe in mobile equipment," said
Exane BNP Paribas analyst Alexandre Peterc.
Despite a positive outlook for growth, few executives or
investors expect an end to a decade-long price war launched by
the Chinese vendors when they were trying to conquer foreign
markets. Industry leader Ericsson's margins have dropped below
10 percent from more than 20 percent in 2005, while
Alcatel-Lucent has posted an annual profit only once - in 2011 -
since it was formed in a transatlantic merger in 2006.
Although some price pressure has faded as Huawei has stopped
fighting for market share to focus on margins, equipment prices
look set to keep falling, according to a UBS survey of
Some 42 percent of respondents expect telecom equipment
prices to drop even more than usual over the next year, whereas
30 percent expected a "typical" decline of 10 to 15 percent.
This was a shift from the last survey when 80 percent expected
prices to fall at their normal rate or less.
Nokia's network equipment business NSN could sacrifice
margins to win contracts this year because it needs to boost
revenues, which analysts say fell by around 17 percent last
"They will be aggressive, but I don't think it will totally
kill pricing in the sector, because there simply aren't enough
new contracts up for bid this year," said Exane's Peterc.
Nokia is first to report earnings for the fourth quarter and
full year, on Jan. 23, with Ericsson following a week later and
Alcatel-Lucent two weeks later, on Feb. 6.