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About a decade ago, the telecom network equipment market included roughly seven to eight major vendors such as Ericsson, Nokia, Huawei, Siemens, Motorola, Alcatel, Lucent, and Nortel. That period coincided with the global rollout of third-generation networks and a significant industry shift from voice-centric services toward data-driven communications.
Over the past ten years the sector has seen extensive consolidation through mergers, acquisitions, and strategic partnerships. Major examples include Alcatel’s combination with Lucent, the Nokia-Siemens merger, Nokia’s acquisition of Motorola’s network equipment unit, Nortel’s divestitures of CDMA and LTE assets to companies including Ericsson, and Nokia’s purchase of Alcatel-Lucent. Collaboration models also emerged, such as the alliance between Ericsson and Cisco. These moves dramatically reshaped the competitive landscape.
Today the market is effectively a three-way competition among Ericsson, Nokia and Huawei. Huawei has experienced rapid expansion and strong financial results in the last decade, while Ericsson and Nokia have seen slower or stagnant growth and have repeatedly restructured to reduce costs and workforce. By 2015 Huawei became the largest supplier of telecom technology and services to communications service providers (CSPs) by sales, surpassing Ericsson, Nokia and other rivals. Cisco and ZTE play roles in the sector, but their shares in the CSP market are smaller compared with these three leaders.
Figure 1: Consolidation of telecom equipment vendors
Several factors explain the wave of consolidation and margin pressure among established vendors. A primary driver was the competitive disruption from Huawei, which offered lower-cost equipment and put significant price pressure on Western incumbents. Some established players failed to respond quickly to evolving market dynamics or were hampered by poor management decisions. Huawei also pursued a broader strategy: rather than limiting itself to specific segments such as RAN, core or IP, the company built end-to-end portfolios for operators and positioned itself as an ICT provider bridging telecom and IT.
Below is an overview of Ericsson, Nokia and Huawei—where they have been, where they stand today, and what their near-term outlook looks like.
Ericsson
The Swedish company remains one of the oldest and most established names in telecommunications, celebrating more than a century of operations. Historically a leader in mobile infrastructure, Ericsson has held around a 30% market share in that space. In recent years however, its market share has contracted as many operators reduced capital expenditures. With 2G, 3G and 4G networks already connecting the majority of the global population, large-scale build-outs slowed and Ericsson’s core business faced limited growth. Sales have been largely flat across multiple quarters.
After disappointing Q2 2016 results, CEO Hans Vestberg stepped down amid shareholder pressure. During his tenure Ericsson invested in new areas such as media and cloud services, but those investments had not yet produced significant returns. The successor—likely an external hire—will confront the twin challenges of turning the company around by cutting costs and expanding revenue streams beyond traditional telecom equipment, while steering Ericsson toward a broader ICT positioning. Strategic collaborations were pursued to bolster that agenda: Ericsson formed a partnership with Cisco to offer end-to-end solutions and announced work with Amazon Web Services to accelerate cloud transformation for service providers.
Given a weak macroeconomic backdrop and constrained telecom spending for the next one to two years, Ericsson’s path forward will be difficult. Leadership transitions take time to produce visible results, so near-term financial performance may remain muted. Nevertheless, Ericsson retains solid fundamentals and a long track record that could enable recovery as market conditions improve.
Nokia
Nokia’s history is well-known: a 150-year-old company that evolved from a paper mill into a diversified industrial and telecommunications leader before becoming the world’s dominant mobile phone maker for many years. After its mobile handset business decline and subsequent divestments, Nokia refocused on network infrastructure and strategic acquisitions to strengthen its position.
Nokia’s €15.6 billion acquisition of Alcatel-Lucent was widely viewed as a bold move to create an end-to-end infrastructure vendor capable of offering RAN, core, IP and optical solutions. The deal expanded Nokia’s addressable market and enhanced its competitiveness, particularly in the United States. Nokia also divested non-core businesses such as HERE maps and pursued selective acquisitions to broaden its portfolio: Withings (digital health products) and Gainspeed (cable access solutions) were intended to diversify revenue streams and extend reach into adjacent markets. Additional agreements, such as expanded patent cross-licensing and a long-term arrangement with HMD Global to produce Nokia-branded phones, were designed to generate royalties and stabilize revenue.
Large-scale integrations come with trade-offs. Nokia targeted substantial cost synergies from the Alcatel-Lucent acquisition and increased its projected annual savings as the integration proceeded. To achieve those savings, Nokia announced significant workforce reductions across multiple countries. Despite the restructuring pain, the company’s moves aimed to leave it in a stronger competitive position after consolidating operations and focusing on areas with growth potential.
Huawei
Founded less than 30 years ago, Huawei grew rapidly to become the world’s largest telecommunications equipment vendor. The company operates three divisions: a consumer business (mobile devices and consumer electronics) that contributes roughly a third of group sales, an enterprise business accounting for around 7%, and a carrier business that makes up approximately 60% of revenue and directly competes with Ericsson and Nokia.
In 2015 Huawei reported roughly $61 billion in revenue, with the carrier group generating about $35.8 billion, an increase of roughly 21% year over year. For context, Ericsson’s 2015 revenue was about $30.4 billion and the combined Nokia/Alcatel-Lucent revenues were around $28.5 billion.
Unlike its Western counterparts, Huawei remains privately owned, which gives it strategic flexibility and less public-market scrutiny when investing or pursuing long-term initiatives. Critics have alleged intellectual property disputes and have suggested that Huawei benefited from state-linked support permitting aggressive pricing overseas; Huawei denies these claims. Geopolitical concerns have also limited Huawei’s access to certain markets—most notably the United States, where national-security concerns have prevented Huawei from participating in core infrastructure contracts. Nevertheless, Huawei has expanded into U.S. rural markets, cable operators and smaller carriers, and a future contract with a major U.S. operator would represent a significant competitive shift.
Conclusion
The telecom equipment market outlook in 2016 remains muted, with global operator investment forecasted to decline and 5G deployments still a few years away. This creates a challenging near-term environment for incumbent vendors. Both Ericsson and Nokia need to secure major contracts in emerging telecom domains—such as NFV, customer experience management, IoT and smart city platforms—before the next wave of network investment begins. Their recent moves toward consolidation and cost-cutting reflect the pressure they face to preserve margins while transitioning toward new services.
Nokia’s Alcatel-Lucent acquisition and Ericsson’s strategic alliances with firms like Cisco and Amazon Web Services offer paths to restore competitive balance, but these efforts will take time to bear fruit. If Huawei continues to accelerate its momentum during this critical period, it could further extend its lead. For Ericsson and Nokia, the coming year or two will be decisive in determining whether they can regain market share and adapt to a shifting ICT-centric telecommunications landscape.
Editor’s note: This article represents the author’s views and not necessarily those of their employer.