Is Telecom Capex Up or Down for 2012?

By Gary Kim September 11, 2012

It’s fair to say communications network infrastructure suppliers have had a tough 2012. That’s also true of overall information technology sales, especially in Europe. In part, that is an obvious response to tough economic conditions in Europe.

But European service providers have also been spending more money in their networks, as a percentage of revenue, than service providers in other areas – so a reversion to global norms also has put pressure on European spending.

Still, some analysts have forecast capex increases for 2012. Wireless is often seen as the place where capital investment is bound to grow. Wireless capex might be down in 2012, though.

We won’t know which forecasts proved to be correct until sometime in early 2012. What is clear is that telecom capex is under pressure in some regions, and might wind up subdued overall, by the time 2012 is over.

Measured in local currencies to eliminate currency fluctuations, 2012 IT product growth will be 3.6 percent – lower than Forrester Research's January 2012 prediction of 5.3 percent.

Slower economic growth in the United States, Europe, China and India is the reason for the slower growth, says Forrester Research.

But Forrester Research also points out that the slowdown is concentrated in Europe, and notably one technology product category – communications equipment.

In local currency terms, tech markets of the United States and Asia Pacific will grow by 4 to 5 percent, while emerging markets in Latin America and Eastern Europe, Middle East and Africa will expand by over 8 percent.

The weak spot will be Western and Central Europe, where the tech market will shrink by 2.5 percent. Software, IT consulting and systems integration services, and IT outsourcing will grow by 4 to 5 percent or more, and computer equipment by almost 3percent.

But communications equipment purchases will decline by almost 1 percent.

The weakness was not anticipated in 2010 and 2011, when capital investment by telecom service providers seemed to be on a slow but steady upswing after reductions caused by the Great Recession of 2008.

But 2012 has been tough for telecom equipment suppliers. Some will cite regulatory uncertainty (especially in Europe) as a cause for capital investment hesitation. But it undeniably is also the case that experienced telecom executives have realistic and well-founded beliefs about where revenue growth is to be found, namely in wireless services.  

Edited by Braden Becker

Contributing Editor

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