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The global upswing that began in the second half of 2018 has become deeper and stronger. Even with the higher-than-usual degree of uncertainty around the economy, we forecast that the RAN market will grow at a healthy pace over the next three years, before growth tapers off in the outer part of the forecast period, resulting in a mid-single digit CAGR between 2018 and 2022. Cumulative investments over the 2019 to 2024 period are expected to eclipse $200 B.

The main growth drivers have not changed. They include:

(1) A rapid shift toward 5G NR for mobile broadband (MBB) applications, resulting in a condensed deployment phase;

(2) New capex to address IoT, Fixed Wireless Access (FWA), In-building, and Public Safety opportunities for both private and public deployments;

(3) The shift from passive to advanced antenna systems, which will shift capex from the antenna to the RAN market.

The expected impact of these growth drivers has changed. Cumulative revenue projections for the 2019 to 2024 period have been adjusted upward, reflecting more upbeat expectations in China and North America. This in combination with a more favorable outlook for FWA is expected to outweigh downward risks associated with COVID-19 and a pickup in Open RAN—we have adjusted the Open RAN projections upward, with Open RAN now approaching a double-digit share of the overall RAN capex by the outer part of the forecast period. Within the technology mix, cumulative 5G NR RAN revenues for the 2019 to 2024 period have been revised upward while the equivalent LTE capex has been adjusted downward.

Our forecast that 5G NR will be deployed at a faster pace than LTE and surpass LTE in 2021 hinges on a set of key assumptions, including:

(1) The 5G NR mid-band business case for MBB applications remains compelling;

(2) 5G mid-band spectrum will be available sooner than LTE spectrum was made available in the 3G to 4G transition;

(3) New dynamic spectrum sharing technologies will simplify and accelerate the migration from LTE to 5G NR;

(4) Initially 5G will be just another G, but long-term it will be more than another G, even if it takes time to reach the full potential of 5G;

(5) Complete 5G systems to address new use cases will be deployed gradually, at a slower pace than Sub 6 GHz MBB 5G NR.

Regional projections have been adjusted to reflect some COVID-19 related near-term slowdown in late majority MBB regions, including Europe, Latin America, parts of Asia Pacific (APAC), and parts of Middle East & Africa (MEA). While the CAGR is fairly flat in most regions, the capex envelope within the forecast period is expected to vary across the regions.

Risks are broadly balanced. The geopolitical uncertainty could trigger more government stimulus than we have currently considered to support network swaps and other forms of tax policies to improve the staying power of non-Chinese vendors.

Taking into consideration that significant changes in GDP resulted in material RAN changes with a roughly one-year lag in the 2001 and 2008 recessions, and that we are modeling 2021 to be a growth year, the baseline projections rest on the assumption that there will be some downward push over the short-term in the less advanced MBB markets. At the same time, we anticipate the upside driven by the 5G rollouts in the advanced markets will ultimately outweigh the downward adjustments, implying that the extent of the projected growth will appear disconnected from the underlying economy.

Other takeaways from the July 5-Year RAN Forecast include:

  • The Millimeter Wave outlook has been revised upward driven by improved momentum in the Asia Pacific region.
  • The pickup in mid-band deployments has propelled the demand for Massive MIMO. In this forecast, 5G NR Massive MIMO is projected to comprise more than half of the cumulative 5G NR capex.
  • The underlying assumptions driving the regional projections remain fairly unchanged, with the APAC region being the main near-term growth vehicle.
  • With more clarity about the 5G rollout plans in the North America region, we have adjusted the near-term outlook upward and now forecast the North American RAN market to continue advancing over the near-term.
  • Global macro base station (BTS) shipments are projected to remain elevated between 2020 and 2022, underpinning projections that 5G activity is set for an upturn. This positive momentum will eventually slow, resulting in some softness in the outer part of the forecast period.
  • The high level small cell vision has not changed. We expect unlicensed WiFi systems to coexist with cellular technologies. For upper mid-band deployments, operators will need to accelerate indoor deployments rapidly while the sub 6 GHz micro adoption phase will be more gradual.
  • Since the last forecast, we have adjusted the outdoor small cell outlook upward, driven primarily by a more favorable Millimeter Wave forecast.
  • Fixed Wireless Access (FWA) Radio Access Network (RAN) investments, including mobile network and dedicated fixed networks, are projected to comprise a growing share of the overall RAN capex envelope over the next five years, reflecting the size of the potential upside, various technology advancements, and improving market sentiment for both basic and high performance connectivity
About the Report

Dell’Oro Group’s Mobile RAN 5-Year Forecast Report offers a complete overview of the Mobile RAN industry by region – North America, Europe, Middle East & Africa, Asia Pacific, China, and Caribbean & Latin America, with tables covering manufacturers’ revenue, transceivers or RF carrier shipments, unit shipments for 5GNR, 5G NR Sub 6 GHz, 5G NR mmW, LTE, LTE FDD, LTE TDD, WCDMA, and GSM pico, micro, and macro transceiver base stations. The report also include splits for macro and non-residential small cells and Massive MIMO. Click here to learn more about the report or contact us (dgsales@delloro.com) for the full report.

 

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Optical Transport Market to Expand for many more Years, Reaching nearly $18 Billion

The world experienced a global pandemic in 2020 that ushered in a global economic recession. It is still unknown how much longer the coronavirus, COVID-19, will spread and cause economic disruptions, and at what rate the global economy will recover following massive shutdowns in the first half of the year. That being said, while in past macro-economic recessions the Optical Transport market would contract, we believe that in this recession, the demand for Optical Transport will increase as a large number of people shift to remote learning and working.

We believe the fundamental driver for the optical market—bandwidth—persists and that its value has been amplified by the recent pandemic. As a result, we forecast the Optical Transport market, largely comprised of DWDM systems, to expand in 2020 and for the next five years, reaching nearly $18 billion. However, there are near term challenges related to supply, distribution, and installation.

Shift to 800 Gbps-Capable Line Cards will be Rapid in DWDM

The first 800 Gbps-capable line cards started to ship in early 2020. We expect volumes to ramp during this year, as additional vendors introduce their products. We forecast that by 2024, nearly 30 percent of wavelength shipments will be from an 800 Gbps-capable line card. More than half of these line cards are expected to be used at 400 Gbps.

We predict the next wavelength speed following 800 Gbps will be 1200 Gbps (1.2 Tbps). Based on the timing of past coherent DSP introductions and first-line card shipments, we anticipate 1.2 Tbps-capable line cards to enter the market in the 2023-2024 time period (but more likely in 2024).

Other Market Trends

  • Demand for Optical Transport gear for data center interconnect (DCI) is expected to take a turn in the near future.
  • Disaggregated WDM transponder unit sales are a bright spot of growth, annually growing at a double-digit percentage rate.
  • 400ZR will moderate the market’s growth.
About the Report

The Dell’Oro Group Optical Transport 5-Year Forecast Report offers a complete overview of the Optical Transport industry with tables covering manufacturers’ revenue, average selling prices, unit shipments, wavelength shipments (by speed up to 1.2 Tbps). The report tracks DWDM long haul, WDM metro, multiservice multiplexers (SONET/SDH), optical switch, optical packet platforms, data center interconnect (metro and long haul), and disaggregated WDM. Click here to learn more about the report or contact us at dgsales@delloro.com.

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We just finished our Mobile Core Network (MCN) five-year forecast (2019 to 2024). The MCN forecast includes 4G and 5G packet core, policy, and subscriber data management network functions, as well as the IMS Core. Here are some of the highlights from the forecast:

  • 5G SA networks with 5G Cores are expected to launch during the second half of 2020. Regionally, China and South Korea will lead the way, followed by the US, Western Europe, and the Middle East.
  • MCN revenues are projected to grow 8% per year over the next five years with the move to 5G Standalone (5G SA).
  • The cumulative revenue investments from 2020 to 2024 in 5G MCN functions are expected to be 20% of the combined investments in 4G and 5G MCN functions.
  • 4G MCN revenues are estimated to peak in 2022 and decline thereafter as the move to 5G SA accelerates.
  • MCN revenues Y/Y growth rates will fluctuate as different parts of the world deploy 5G SA at various times.
  • Technology is beginning to transition from virtual machine servers with virtual network functions, to bare-metal servers with container-based cloud-native network functions. The total cost of ownership savings is expected to be 30% over time, with the added benefit of reduced complexity.
  • As expected, the cumulative revenues for 5G MCN in the Asia Pacific will represent the largest regional share, led by service providers in China.

Over 70 SPs are now providing 5G coverage with the 5G NSA architecture. The size of 5G SA deployments in 2020 is uncertain at this time and could impact the forecast. Also, the transition from 5G NSA to 5G SA could affect the product mix between 4G and 5G network functions, though the overall size of the market would be the same.

Other factors that could impact the forecast include further price erosion than assumed, brought on by competition, not only by the incumbents, but by startups trying to break into the market, or by Cloud SPs vying for SPs to host their MCN network functions on their servers; the aggressiveness of MEC (Multi-Access Edge Computing) and FWA (Fixed Wireless Access) deployments; and the number of 5G Cores built per SP, such as dedicated 5G Cores for the consumer market, the enterprise market, and the mission-critical markets, such as public safety. Examples already exist in the LTE world, with numerous private LTE networks for enterprises, dedicated EPCs for public safety by AT&T and Verizon in the US, and separate cores for MVNOs. China Mobile and China Unicom have already awarded vendor contracts to build separate 5G Cores to serve both consumers and enterprises.

To learn more about the options service provider have to transition to the 5G Core, please see my previous blog, 5G Core – Are We Ready?

Dell’Oro Group’s Mobile Core Network 5-Year Forecast Report offers a complete overview of the market for Wireless Packet Core, IMS Core, policy, and subscriber management with historical data, where applicable, to the present. The report provides a comprehensive overview of market trends by network function implementation (Non-NFV and NFV), covering revenue, licenses, average selling price, and regional forecasts for various network functions. Click here to learn more about the report or contact us (dgsales@delloro.com) for the full report.

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In just over half a year, COVID-19 has made its presence felt far and wide.  But it has been capricious.  The pandemic has caused severe illness for some individuals, while in others causing no symptoms. With 1Q20 squarely in the rear-view mirror, our data shows that the network security market experienced a similar phenomenon.  On the whole, the network security market paused in 1Q20 and registered small growth of just under 1% Y/Y.  But within the individual four product segments including Content Security, Application Delivery Controller, Firewall, and Intrusion Prevention Service, we track, 1Q20 played out very differently, with some seeing significant growth and others a marked deceleration:

The content security segment was the strongest as it accelerated to 16% Y/Y growth in 1Q20. Within this segment, we include secure web gateway products, which count remote access connectivity among its feature sets.  Before the pandemic, few enterprises were capable of supporting all employees as teleworkers.  There was no precedent.  With the pandemic turning most employees into full-time telecommuters’ virtually overnight, enterprises had to augment their remote connectivity infrastructure quickly.

Moving to a neutral segment, which experienced both growth and deceleration tension, was the application delivery controller (ADC) segment. While ADCs posted a modest revenue growth of 3% Y/Y in 1Q20, individual vendors experienced mixed results.  Some vendors saw overall revenue acceleration, while others hit headwinds.  There was no single factor that determined whether a vendor experienced tailwinds or headwinds.  There were at least three factors we identified, including uses cases serviced, market verticals sold into, and geo region exposure.

In the negative-neutral territory was the firewall segment, which experienced a marked deceleration in 1Q20 when compared to recent history. While still in the positive territory at 3% revenue growth Y/Y, it was not close to the high single or low double-digit growth we have typically seen.  The number of projects paused outnumbered the ones that went forward. In some instances, those that went ahead were reactionary projects caused by the pandemic.  For example, we heard from VARs and system integrators that small teleworker firewall appliances sold well and exhausted all available vendor inventory quickly.

Lastly, in negative territory was the intrusion detection service (IDS) and intrusion prevention service (IPS) segment with a Y/Y revenue decline of 4.2%. To be fair, the IDS and IPS market had already entered its twilight years before the pandemic’s arrival.  With IPS features in firewalls becoming good enough, the standalone IDS and IPS market has been under pressure for several years.  The pandemic added an extra layer of headwinds as remaining IDS/IPS projects got put on pause.

Looking at the rest of 2020, we expect it will continue to be a bumpy market, but cautiously optimistic that network security will be one of the first IT markets to bounce back.  Pandemic or not, IT security has been and will continue to be a top business imperative.  We do not see demand vanishing outright, but do see some continued project delays, as well as priority shifts between different product segments, as evidenced in 1Q20.  We are currently updating our 5-year forecasts, and in an upcoming blog will dig deeper into longer-term expectations.

To learn more about Dell’Oro Group Network Security and Data Center Appliances market research program, please check out the Network Security page for more information.

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For several years now, we have been watching the SD-WAN market push through the growing pains and the ups and downs that new technologies typically encounter. As end users became more educated about SD-WAN technologies, use cases, vendors’ solutions, and the cost-benefit that solutions provided, the market grew at a remarkable rate.

In 2019, SD-WAN moved through the early adopter phase and expanded by more than 60% for the third consecutive year. Manufacturer’s revenue surpassed $1 billion, and 2020 was shaping up to be another solid year. Then the COVID-19 pandemic hit the world in an unprecedented manner, and cast a dark shadow on the SD-WAN market’s growth prospects.

How does the pandemic change the market’s potential?

We believe that the momentum of the SD-WAN market will be dampened over the near term, but there are a number of technological and business attributes that provide the basis for a positive long term outlook.

In the first quarter of 2020, the SD-WAN market grew by double-digits, but the growth rate decelerated considerably due to supply chain disruptions and end user purchase hesitations at the start of COVID-19. The lower growth rates will persist for some time, and we expect that over the next 12 months, some enterprises will defer plans to adopt SD-WAN, and severe financial distress will permanently eliminate deployment plans for others. However, over the longer term, we believe that SD-WAN is a compelling technology solution that many businesses will adopt despite the economic pressure resulting from the pandemic. At a high level, the SD-WAN market has these factors in its favor:

  • SD-WAN sales should accelerate as macroeconomic conditions improve, but the flip side is that demand for legacy technologies such as standalone branch office routers will likely erode at a faster rate.
  • SD-WAN is largely a software subscription-based business model whereby a vendors’ revenue is recognized on a recurring basis over multiple-year periods. As companies attain a critical mass of SD-WAN deployments, revenue streams are less susceptible to quarter-to-quarter fluctuations and more predictable.
  • SD-WAN technologies are deployed by enterprises and by service providers, and the use cases for each are quite different: enterprises build infrastructure for internal business operations, and service providers construct infrastructure for revenue generating services. The SD-WAN market will benefit from the diverse demand and investment cycles the two customer sets.

But aren’t more people working from home?

In order to mitigate the spread of COVID-19, governments around the world have instituted lockdowns that force millions of people to work from home instead of travelling to their places of employment. These policies have both short term and long term effects on the SD-WAN market.

For the short term, some SD-WAN deployments will be delayed due to facilities being underutilized or inaccessible. Human and financial resources are being diverted to enable and support people’s ability to work from home. For the long term, we expect that a portion of the work force will continue to work from home rather than return to facilities, and that the number of existing work sites or branches will be reduced to align with the redistributed work force.

The workforce redistribution may present new opportunities for SD-WAN technologies. There is the possibility of a change in work facilities with an increase in smaller, less dense locations that creates additional demand for SD-WAN. Some people working from home may benefit from or perhaps require a SD-WAN solution. New technology and solution developments for work from home use cases will emerge, and these solutions may potentially reshape the reach and scope of SD-WAN solutions. To what extent these solutions are additive or substitutive to the SD-WAN market size is an open question that we will monitor closely.

Will all vendors gain from the market’s growth?

In 2017, Cisco and VMware plunked down more than $1 billon combined to acquire SD-WAN startups Viptela and VeloCloud, respectively. The acquisitions set the stage for the vendor landscape to consolidate around these two companies with deep pockets and several companies with best-of-breed SD-WAN solutions. Our market share research shows that the market opportunity is narrowing to a smaller set of vendors, with more than 75% of the 2019 market revenue concentrated amongst eight vendors.

Now the question is, will the COVID-19 pandemic accelerate SD-WAN vendor consolidation? To be clear, predicting the timing and players of consolidation is a fool’s errand, but we can point to some of the conditions and indicators that potentially accelerate the change in vendor landscape.

  • There are more than 50 vendors touting SD-WAN technologies, and it is unlikely that the SD-WAN market will be large enough to sustain the number of vendors that currently offer solutions. The competition for end user mindshare and spending will be fierce.
  • The global recession and ongoing macroeconomic uncertainties caused by the pandemic will place financial pressure on all SD-WAN vendors. Not all companies will have the resources to support ongoing business and technology developments required to remain competitive.
  • In times of turbulent and unpredictable circumstances, the “flight to quality” becomes a common approach to technology investments. This type of conservative business decision making will drive demand to those vendors perceived to have strong and stable business models.
  • Consolidation can occur in many forms. In addition to mergers and acquisitions, we expect some vendors to deemphasize, downsize, or terminate their SD-WAN solutions.

There is no doubt that the COVID-19 pandemic is disrupting the SD-WAN market in ways that were completely unexpected just six months ago. Because the SD-WAN market is a relatively young, it has the ability to adapt its technologies, solutions, and business models to this unprecedented disruption. We look forward to keeping you apprised of how this market evolves.