This analysis is by Bloomberg Intelligence Senior Hardware & Networking Analyst Woo Jin Ho. It appeared first on the Bloomberg Terminal.
Heightened geopolitical sensitivity and the separation of software from hardware could transform the telecom-equipment supply chain. The US Buy America act may help re-shore $25 billion in communications gear. And the emergence of virtual technologies, like ORAN, might diversify the vendor ecosystem, boosting the $41 billion mobile RAN market.
Law can affect $25 billion in gear production
Heightened geopolitical sensitivity could near- or re-shore manufacturing of $25 billion in communications equipment for North American networks. The region accounts for 27-28% of the $91-$92 billion global market, which should grow in line with GDP. Nokia, Adtran and Calix are among the companies committed to building gear in the US, responding to the Build America, Buy America Act to participate in the country’s $42 billion Broadband Equity Access Deployment program. The act requires 55% of components to be sourced in the US, rising to 75% by 2029.
The Buy America act has limitations and the government could have done more, but the law may serve as a blueprint for bringing more communications-gear production back to the US.
Software helps realign $41 billion market
The separation of networking software from hardware can help make the communications supply chain more mobile and regional. Open Radio Access Network gear and other virtualization technology could allow for greater modularity in RAN hardware. It might also create a more diverse vendor ecosystem in the $41 billion RAN equipment market, which is dominated by Ericsson, Nokia, Huawei and Samsung. O-RAN adoption has been underwhelming, but telecom and vendor interest has grown and could play a bigger role in 6G networks, which may open up regional manufacturing opportunities.
Ericsson is among the companies that shifted capacity to the US in 2020 and might be a precursor for others.
Satellites could realign manufacturing hubs
The emergence of satellites in low earth orbit as possible conduits for wireless communications could cause long-term disruption to existing telecom-equipment supply chains. Though satellite communications currently are mostly deployed for broadband, T-Mobile’s partnership with SpaceX and Apple’s contract with Globalstar suggest that broader adoption for wireless within the next two decades may not be far-fetched.
Leading satellite manufacturers — like Thales, Boeing and Airbus — plus vertical integration efforts — similar to what SpaceX and Planet Labs are doing — could play a larger role in communications contract manufacturing and may drive a shift in equipment assembly and manufacturing hubs to North America and western Europe from Asia.
