Following multiple signals and suggestions that the ultra-broadband market was among the healthiest in the communications networking technology sector, Nokia's 2016 financials cast some doubt on any optimistic outlook -- at first glance, at least.
Certainly the vendor, which had seen its fixed broadband business boom earlier in 2016, suffered an ultra-broadband market setback in the fourth quarter, reporting revenues of €544 million (US$585.58 million), down 7% from the third quarter and a massive 22% from the same period a year earlier.
That's a big year-on-year drop, especially in a market that seemed to be growing. ADTRAN, a company focused on the UBB sector, recently reported promising financials, and the prevailing view is that capex is shifting towards fixed broadband access and packet/optical transport network investments after years of radio access network focus. (See ADTRAN Provides Confidence Boost for Ultra-Broadband Sector, Capex Shifting to Fixed From Wireless in 2017: MKM and Verizon Uses Fios as Shiny Object in Q4.)
That fourth quarter dip hit the full year's numbers too, of course: In 2016, the fixed broadband business (see below for details on what that includes) generated sales of €2.365 billion (US$2.55 billion), down slightly from 2015's €2.385 billion (US$2.57 billion): If the fourth quarter hadn't taken such a hit, the full year numbers would have increased.
So are Nokia's numbers a sign that the broadband market isn't as healthy as it might otherwise seem? Or does the issue lie with Nokia?
The vendor's CEO, Rajeev Suri, provided some insight on the company's earnings call early Thursday. He noted that the full year 2016 was "unusual," in that it didn't follow typical seasonal patterns: The first two quarters were very strong, the third showed signs of slowing and the fourth quarter declined sharply. And that fourth quarter hit came primarily from two deals, he noted, which backed up the commentary from Nokia's earnings slides, which noted: "Approximately 50% of the year-on-year decrease [in fixed broadband] was related to two specific customers, with one customer completing a large project in Asia-Pacific and another customer reducing its level of spending in Latin America."
In addition, Suri, who is not prone to bearish statements, noted that Nokia expects "positive synergies for fixed networks with interest from Nokia base in India and in Japan and Korea" in 2017, while the overall market for network infrastructure and supporting services is set to decline.
So, Nokia has not provided a ringing endorsement of market optimism, but the counter-trend numbers are maybe not as negative as they first appear. We'll continue to monitor the key players and capex forecasts for further guidance on the ultra-broadband sector.
For further coverage of Nokia's overall results and outlook, see Nokia Upbeat on Turnaround Despite Sales Decline and Nokia's Suri Promises IP Routing Innovation.
And here's how Nokia describes its fixed broadband business:
The Fixed Networks business group provides copper and fiber access products, solutions and services. The portfolio allows for a customized combination of technologies that brings fiber to the most economical point for the customer. The Fixed Networks business group consists of the following business units:
- Broadband Access, which includes advanced copper-based solutions such as very high rate digital subscriber line (VDSL2), and innovative vectoring technology to reduce cross-talk interference and improve performance. The Fixed Networks business group is also developing fiber to the home solutions, such as Gigabit Passive Optical Networks (“GPON”) and leading in next-generation fiber access technologies like TWDM-PON.
- The Digital Home unit is responsible for development of the broadband network termination equipment located at users' premises. The main focus is on devices that enable connectivity of users in fiber based network. Recently, the scope is expanding towards specialized models for businesses and enterprises, including Residential Gateway (RGW) and IoT functions.
- Access Management Solutions provides features required to operate end-to-end fixed networks. The solution also includes value-added applications that streamline operations and significantly reduce the operational costs.
- Fixed Networks Services, which is comprised of deployment, maintenance and professional services such as copper and fiber broadband evolution, public switched telephone network transformation, site implementation and outside plant, as well as multi-vendor maintenance.
— Ray Le Maistre, , Editor-in-Chief, Light Reading