The once-booming information and communications technology (ICT) industry will experience a reversal of fortune in 2009, according to a report released by the Telecommunications Industry Association (TIA). The disheartening forecast represents the first time in 23 years that TIA has projected a decline in revenue for the ICT market.
The global ICT industry will see revenues drop 3.1 percent in 2009, while in the U.S., revenues will decrease by 5.5 percent, says TIA’s 2009 ICT Market Review and Forecast, this year’s edition of the association’s annual market intelligence report. The outlook is slightly better for 2010, with TIA projecting a relatively flat year, but the association expects the global industry to truly rebound after 2010 and experience 6.4 percent revenue growth in 2011 and 7.9 percent revenue growth in 2012.
According to Arthur Gruen of Wilkofsky Gruen Associates, which developed the TIA report, the reason behind the decline is simple: “The economy. The economy is in a very substantial recession, and we think that the equipment side and the equipment support side are going to be hit pretty hard.”
In fact, TIA predicts that telecommunications services providers will be cutting their capital expenditure budgets by 13 percent this year, and will only spend $45 billion in 2009 versus the $52 billion they spent in 2008.
“The equipment area is where you can postpone upgrades if your money is tight, and it’s very hard to get credit these days,” says Gruen. “So we think that’s where the downturn is centered.”
Services, on the other hand, seem to be faring better. TIA predicts that wireless and business data revenue will grow by 73 percent during the next four years, from $64 billion in 2008 to $110 billion in 2012.
Wireless device revenues are also on the upswing, driven in large part by the growth of the smart phone market. TIA expects smart phones to comprise 63.2 percent of all wireless phones sold in 2012 in the U.S.—and because smart phones are more expensive than their more traditional wireless handset counterparts, this will help drive manufacturers’ overall wireless device revenues, which will grow from $21.9 billion in 2008 to $24.1 billion in 2012. Smart phone revenue as a percentage of overall device manufacturers’ revenues will increase as well, from 50.9 percent in 2008 to 80 percent in 2012.
Video conferencing is another bright spot in the industry. Describing the videoconferencing sector as “booming,” Gruen attributes the growth to the direct cost savings companies experience when they replace business travel with video and Web conferences. “On the other hand, unified communications, which is supposed to be a pretty big growth area, is stagnating,” he continues. “People are not jumping into that. That’s an area where there’s a lot of productivity advantages, but they’re not that easy to measure, and they’re a little subtle. Whereas if you can save on a business trip, that’s very obvious in terms of being very measureable.”
As demand for data-heavy services continues to increase, infrastructure equipment manufacturers should also experience gains. According to TIA, global Internet traffic more than doubled between 2006 and 2008 and is expected to double again by 2010 and quadruple by 2012. Broadband providers are responding by beefing up their fiber infrastructure—and TIA expects revenues for backbone infrastructure to increase 15.9 percent in 2009.
It’s facts like this that make Gruen believe that this downturn is very different from the one that wracked the ICT industry in 2001.
“In [2001], there was overinvestment in network capacity,” says Gruen. “So we had at that period far more capacity than the traffic warranted at that time… The view was at the time that we had excess capacity for the foreseeable future… This time, I guess one of the most dramatic things is that not only is there not excess capacity for the foreseeable future, now we’re facing some severe shortages in capacity. So it just goes to show you how quickly things can turn around.”
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