At the critical moment of 5G technology development, who can overtake Huawei?

Jul 15, 2020 Hardware HUAWEI

The imagination of 5G has forced participants to do their best to compete for every contract. Yi Kangbao, President & CEO of Ericsson, feels that the next three years will be crucial in determining the 5G landscape.

The 5G base station business is the starting point of this "battle for the seat". According to the market research from DellOro, In the first quarter of this year, Huawei ranked first in the 5G communications equipment market with a 35.7% market share, while Ericsson ranked second with a 24.6 % market share. Nokia ranked third with 15.8%.

Huawei holds the largest number of technology patents of 5G today. The latest data shows that Ericsson now has 95 5G commercial contracts, ahead of Huawei and Nokia.

A large part of the overtaking is due to the US blocking of Chinese tech companies in the US-China trade war, 5G in particular.

This is a direct reflection of U.S. efforts to convince various countries to refuse to use technology and equipment from Chinese suppliers. For example, the U.S. recently solicited British telecom operators to build 5G networks without using China's communications equipment. However, most of the UK's 3G and 4G network infrastructure is built on Huawei's base station equipment. Chinese suppliers of 5G base stations have a price advantage, and getting rid of equipment from Huawei or ZTE would directly drive up construction costs.

To this end, the UK formed a 'D10 Alliance' with the USA, Germany, France, Japan, Italy, Canada, Australia, South Korea, and India. They are trying to move away from their dependence on Chinese communications equipment and establish a new supply chain system. France said on July 3 that it would not ban Huawei's equipment entirely, but encouraged operators to avoid using it.

 

The overtaking of Ericsson

Ericsson is a traditional giant in the communications sector. Since 1990, Ericsson has been the industry leader with a 40% market share in 2G.

In the following decade, Ericsson grew at an average annual rate of almost 35% or more. Under the technology spillover, Ericsson has also expanded its business into smart devices, mobile phone chips, and other areas. But the new business didn't lead to new growth and instead dragged the communications equipment giant down, causing it to fall into a financial morass for a time.

So, similar to Nokia, Ericsson sold its 50% stake in the mobile phone business to Sony in 2011 to re-focus on developing and selling communications equipment. The state of this firm over the years can be described as "tepid".

However, as the U.S.-led effort to curb Chinese tech companies expands, it creates an opportunity for Ericsson to overtake in the build-out of global 5G networks. On the one hand, Huawei is greatly hampered in its marketing because of the US restrictions; On the other hand, at the product level, Ericsson is catching up to Nokia.

 

Nokia in the 5G competition

Nokia is in third place in the 5G competition, but it seems to be having a tough time.

Since selling off the phone brand, Nokia has been focusing on communications infrastructure technology. In fact, from the 2G era to the 4G era, Nokia owned a large number of patents on communication technologies that Apple had to pay huge royalties to every year.

However, Nokia itself is not so fortunate in the 5G push, despite the external environment that has helped it.

On June 22, Nokia announced that it would be laying off 1,323 employees in France which is the fourth round of layoffs for the Nokia company in four years. Overall, Nokia has already reduced its workforce by 5,000 in 2019, which they externally responded to as "heavy cost pressures".

But that didn't boost its profit rate, and instead, the gross profit rate fell by 1.7% in 2019.

In early January 2020, Nokia announced more than 2,000 5G patents, second only to Huawei. However, Nokia is continuing to reduce its investment in 5G research and development because of funding issues while reducing human costs.

This also led to the departure of Nokia's then-president, Jeff Sully. Rumors of a takeover once haunted Nokia.

Not long ago, the U.S. government was even trying to convince local company Cisco to buy Ericsson to make up for the lack of 5G infrastructure manufacturers in the United States. And, if the acquisition is completed, the U.S. would become the country with the most 5G patents in the world. However, Cisco did not respond.

 

The next phase of the 5G competition

According to Ericsson's past research, the carriers that pioneered 4G technology and networks at the time grew significantly faster in the 5G era, said Yi Kang Bao. The opportunity for operators to leapfrog also lies in 5G. This also relates to the growth trends of the communications infrastructure suppliers behind the operators.

At the time of 3G, Ericsson's market shares in 2011 were 43% and Huawei's was 11%. After entering the 4G conversion period, Chinese manufacturers have enjoyed rapid growth with their low- and mid-range positioned products. By 2016, Huawei was No. 1 with 29% of the market and ZTE was the fourth with 12%. This period marked the completion of the catch-up of Chinese communication equipment manufacturers in terms of market and technology. In the 5G era, from a technical point of view, Chinese manufacturers have completed overtaking.

From the market level, in the complex international situation, Huawei, Ericsson, and Nokia, who used to catch up with each other, are now back on the same starting line.

Although manufacturers such as Ericsson and Nokia are currently augmented by the political influence of the US, there are always many variables in politics.

Japan, for example, though, has joined the "D10" alliance, which aims to get rid of its reliance on Huawei equipment and exclude it from the new supply chain. But according to the Wall Street Journal, Japanese companies are profiting from supplying components for these Chinese devices to help " push" China's 5G leap forward.

By the end of 2020, China plans to spend $150 billion to deploy more than 500,000 base stations across the country to achieve nationwide 5G coverage. These base stations usually use equipment from Huawei and ZTE.

Tsuneo Murata, chairman of Japanese electronic component manufacturer Murata, said, "The Chinese government is actively promoting the use of the new technology in China. The proliferation of 5G is a very promising market for our company. The Japanese government has not responded to this, and the political business game has shown its cunning and complex side.

In addition, telecom base station equipment is the starting point of 5G rollout, but it is not all of 5G.

“Until the 5G infrastructure is in place, it will be difficult to define any killer applications. However, it is clear to us that once the 5G infrastructure is in place, the killer applications will emerge and will create enormous value,” Bo Yikang predicted.

On the one hand, the United States and other countries "indirectly" support companies like Nokia and Ericsson in terms of funding, tax exemptions, and policies; on the other hand, Huawei, Nokia, and other equipment manufacturers need to continuously expand and demonstrate their technological and industrial advantages.

This has moved away from purely commercial competition. The game of inter-regional interests is unfolding "directly" before everyone's eyes in the form of technological warfare.

In the past, mastering technology was like holding the key to the next era. And in the complex political and profit-seeking battle of 5G, it's clear that we need to re-understand technology and business.