Dell'Oro perceives lukewarm worldwide telecom capex

April 5, 2023
While global capex is expected to shrink this year - and over the next few years in North America - overall equipment sales are still on track to climb slightly, indicated the analyst for the the telecom, security, networks, and data center industries.
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A recent report from Dell’Oro Group says the analyst's preliminary readings suggest that worldwide telecom capex, defined as the sum of wireless and wireline telecom carrier investments, increased at a low-single digit rate year-over-year in nominal USD terms in 2022, down from the high-single digit growth in 2021.

The analyst for market information about the telecommunications, security, networks, and data center industries notes that this perceived moderation in the capex growth rate was consistent with aggregate telco equipment trends previously communicated by the Dell’Oro's six telecom programs for segments including Broadband Access, Microwave Transmission & Mobile Backhaul, Optical Transport, Mobile Core Network, Radio Access Network, and Service Provider Routers & Switch fortunes.

Dell'Oro's March 2023 3-year Telecom Capex Report and forecast notes how, looking back at the full year, total capex growth was slightly lower than the 3 percent increase the firm initially projected a year ago going into 2022, partly due to the stronger USD.

Meanwhile, the firm states that its global telecom capex projections have been revised upward to reflect the price of the USD and the improved capex outlook in China.

And while global telecom capex is projected to decline at a 2 percent to 3 percent CAGR over the next 3 years (as positive growth in India will not be enough to offset sharp capex cuts in North America), Dell'Oro says capital intensity ratios are projected to improve and approach 16 percent by 2025, hinging crucially on the assumption that carrier revenues will remain flat and outperform capex.

Stefan Pongratz, vice president and analyst with Dell’Oro Group, explained:

“The relation between service provider capex and telecom equipment is not perfect, partly because the equipment makes up roughly one third of the capex. Even with the inherent wiggle room, aggregate R-squared for capex and equipment is in the 0.8+ range over the past seven years, so it is obviously an important metric to consider for short-term projections. At the same time, it is not the only input and with the equipment market expected to grow 1 percent in 2023 and telco capex projected to decline, it can be inferred that the Dell’Oro analyst team is modeling some minor decoupling over the short-term.”

The Dell’Oro Group Telecom Capex Report provides in-depth coverage of more than 50 telecom operators highlighting carrier revenue, capital expenditure, and capital intensity trends. The report provides actual and 3-year forecast details by carrier, by region by country (United States, Canada, China, India, Japan, and South Korea), and by technology (wireless/wireline).

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