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CIAJ Releases “FY2012 – FY2017 Mid-Term Demand Forecast for Telecommunication Equipment” Explosion in data traffic from smartphones stimulating the market

2012-12-12

The Communications and Information network Association of Japan (CIAJ), a general incorporated association, released its “Mid-Term Demand Forecast for Telecommunication Equipment,” covering FY2012 through FY2017 as follows. This year’s Forecast takes a more detailed look at mobile phones, including smartphones. It also presents global market trends in a more graphical format.

1. Outline

The domestic telecommunication equipment market in 2011 experienced the Great East Japan Earthquake and Tsunami in March followed by the wide-spread flooding in Thailand and its vicinity in July, hurting domestic consumption and assembly lines of Japanese manufacturers. A gradual recovery in demand has been seen in 2012, mainly due to recovery efforts, but the global recession and the fierce competition from foreign players in not only global markets, but the domestic market as well, has brought on difficult challenges in the latter half of the fiscal year.

FY2011 saw a rise in investment in equipment related to the popularity of smartphones and the accompanying explosion in data traffic, leading to growth in the mobile phone category. Private sector capital investment in facilities also recovered, with healthy demand for enterprise equipment. On the other hand, demand fell for fixed communication equipment and central switching systems, as well as consumer equipment, such as cordless phones. All in all, the total telecommunication equipment market figure for FY2011 was approximately 3.498 trillion yen, or a year-over-year positive growth of 0.9%.

Expected growth categories in FY2012 are base stations from the continuing rise in data traffic and global as well as domestic demand for office-use multi-functioning facsimiles. However, demand is expected to be weaker for some categories which had healthy growth in FY2011 – namely mobile phones, fixed communication equipment, and optical access equipment.
In sum, the total telecommunication equipment market figure for FY2012 is forecast at approximately 3.518 trillion yen, or a positive year-over-year growth of 0.6%.

The Japanese market is expected to record a gradual decline from FY2012 onwards with the gradual decline in the overall population and number of households, as well as the number of enterprises and offices. Nation-wide broadband access will be completed and new demand creation will have to wait for the emergence of the next generation of networks.

Looking at the mid-term future, the further popularity of smartphones and faster communication speeds should bring about demand for new devices, but after peaking in FY2012, we forecast this demand to revert to a gradual decline.
From these assumptions, the total market value in FY2017 is forecast at approximately 3.234 trillion yen, or a decrease of 7.6% over the FY2011 figure.

FY2011 actual
Recovery in the mobile phone, enterprise and infrastructure markets. Large drop in exports.
3.498 trillion yen (0.9% year-over-year growth)

  • Domestic: 3.123 trillion yen (5.6% year-over-year growth)
  • Export: 375 billion yen (-26.0% year-over-year growth)

FY2012 forecast
Healthy demand for smartphones, enterprise and mobile infrastructure markets.
3.518 trillion yen (0.6% year-over-year growth)

  • Domestic: 3.149 trillion yen (0.8% year-over-year growth)
  • Export: 369.0 billion yen (-1.6% year-over-year growth)

FY2017 projection
Small decline in all categories. Healthy demand for mobile infrastructure equipment.
3.234 trillion yen (-7.6% growth over FY2011)

  • Domestic: 2.858 trillion yen (-8.5% growth over FY2011)
  • Export: 375.8 billion yen (0.0% growth over FY2011)

2. Forecast Figures

[1] FY2012 Forecast

The FY2012 telecommunication equipment market is expected to be 3.518 trillion yen (0.6% year-over-year growth), with the domestic market accounting for 3.149 trillion yen (0.8% year-over-year growth), and exports accounting for 369.0 billion yen (-1.6% year-over-year growth).

(1) Consumer equipment: 1.769 trillion yen (-3.5% year-over-year growth)

Demand for fixed-line phones and facsimiles will continue, due to their ease of use and their fixture as part of the personal communications infrastructure. However, in recent years, their frequency of use has declined, and demand for cordless phones, personal facsimiles, and multi-functioning facsimiles are forecast to remain flat or show slight declines.
Subscribers to mobile phones and public-use PHS continues to rise, with faster communication speeds and strong demand for smartphones encouraging renewals and upgrades. However, the popularity of smartphones cannot make up for the drastic drop in the shipment of feature-phones, and with the fierce price wars, both the number of devices shipped and their total value are expected to decline.

(2) Enterprise equipment: 563.0 billion yen (6.9% year-over-year growth)

Healthy demand is expected for key telephone systems, PBXs and office-use cordless phones, with renewals and upgrades. However, exports are forecast to show negative growth, due to the strong yen and the relocation of manufacturing facilities abroad.
The demand for office-use facsimiles is witnessing a significant drop in recent years as users migrate to multi-functioning office-use facsimiles. With such migration and replacement demand for devices with added functions, both domestic demand and exports are expected to continue healthy growth.

(3) Infrastructure equipment: 767.6 billion yen (7.6% year-over-year growth)

Capital investments to keep up with the explosive rise in mobile data traffic will lead to growth in base stations and digital transmission equipment, and central office switching systems will rebound from recovery efforts after last year’s earthquake and tsunami. Fixed communication equipment demand is dependent on public-sector budget trends and is expected to continue with negative growth. Exports in all categories are expected to decline due to the worsening of the European economy, sluggish U.S. demand, slower growth in emerging markets and fierce price competition.

(4) Internet equipment: 418.0 billion yen (-1.7% year-over-year growth)

With the round of recent investments tapering off and the slow economy, telecom carriers are decreasing capital investments, leading to a continued decline for this category. Although upgrade demand in routers and LAN switches are expected due to theexplosive rise in mobile traffic, the drop in price per port and continuing decrease in investments in next-generation networks will likely result in negative growth. Optical access equipment figures will also decline with the round of investments in PON systems (data OLT) coming to a close and the completion of FTTH investments.

[2] Midterm Projection

Altogether, the telecommunication equipment market for FY2011 through FY2017 is expected to gradually decline, despite a slight peak in FY2012. The FY2017 figure is projected at 3.234 trillion yen (-7.6% growth over FY2011), with the domestic market accounting for 2.858 trillion yen (-8.5% growth over FY2011) and exports accounting for 375.8 billion yen (0.0% growth over FY2011).
The following is a synopsis.

In looking at the telecommunications equipment market through FY2017, technological innovations in the industry are expected to enhance the convenience of Japanese lifestyles. The realization of ubiquitous services, made possible with faster mobile devices, the convergence of mobile and fixed communication systems, as well as new transmission technologies bringing about the convergence of telecommunications and broadcasting will lead to new business models and markets. However, the race for survival in both the domestic and global markets will also become fierce, with strong competition from foreign players. The aging and decline of the Japanese population, along with the shrinking number of enterprises and offices, are also expected to have a large impact on the demand of telecommunication equipment.

The projections, by category, for FY2017 are as follows:

(1) Consumer equipment: 1.672 trillion yen (-8.7% over FY2011)

In mobile phones (includes smartphones and feature phones), the shift to smartphones will continue, with the domestic shipment of smartphones accounting for 59.2% in FY2012 and growing to 72.8% in 2017. The portfolio of smartphone models will also become diversified, targeted at specific audiences, such as women, middle to older adults and business-users. Not only will the appeal of the devices themselves be important, but attractive services offered via the combination with apps will become increasingly vital. LTE services will be available from all four carriers in FY2012, and LTE-compatible devices will continue to be rapidly released into the market. The number of smartphones is expected to reach 36 million in FY2017.
The number and total value of mobile telephones overall, however, are expected to decrease, with the popularity of smartphones not enough to make up for the drop in demand for feature phones. Data communication terminals, such as M2M modules, are expected to show significant growth.
Cordless phones, personal facsimiles and multi-purpose personal facsimile vendors are trying to create demand by adding advanced features, but it will have little impact on price retention, with gradual deterioration in demand as users become more reliant on mobile phones and e-mail.


(2) Business equipment: 490.7 billion yen (-6.8% over FY2011)

Despite yearly upgrade and replacement demand for key telephone systems, PBX and office-use cordless phones, these categories are susceptible to domestic economic trends and are forecast to remain flat or decrease. The rapid switch to multi-functioning facsimiles will continue for office-use facsimiles. Despite replacement demand encouraged by enhancements of advanced and numerous functions such as strengthening of security features, overall demand is projected to decrease with the shrinking number of offices and the consolidation of devices in the aftermath of the global recession.

(3) Infrastructure equipment: 665.7 billion yen (-6.7% over FY2011)

Demand is expected to vary greatly among central switching systems, digital transmission equipment, fixed communications equipment and base stations. The popularity of smartphones and communication modules, such as M2M, will result in further explosive growth in mobile data traffic. Robust demand growth for mobile infrastructure equipment is projected as more base stations are set up, including LTE base stations, as part of network enhancements to accommodate surging data transmissions. Large growth in exports of 3G equipment to emerging countries and LTE equipment to developed countries are forecast.
With the switch from PSTN to IP networks to be completed in 2025, and new purchases of central office switching systems to be terminated in FY2015, we expect a dramatic drop in demand for this category. Fixed communications equipment is greatly dependent on public sector demand, and thus, difficult to forecast, but at this time, it is projected to remain flat or slightly decrease.

(4) Internet equipment: 405.1 billion yen (-4.8% over FY2011)

With the surge in internet access equipment, such as smartphones, and the increased viewing of video contents by Internet users, telecommunication traffic is expected to show continuous exponential growth. This will encourage further investments in telecommunication facilities, and with the full-scale implementation of home networks, demand growth in routers and switches is expected. However, fierce price competition from foreign vendors and technological advances will pull down the price per port, and the overall figure will remain basically flat.
With the completion of the switch to digital terrestrial broadcasting, demand for image OLT related to optical broadcasting services by CATV companies should lead to growth in demand for optical access equipment. However, advances in mobile broadband services will contribute to the migration to faster networks from FY2012 onwards, with no major growth factors for FTTH subscriptions and resulting in a decline for the category.

Please contact Mr. Miya (e-mail: s_miya[at]ciaj.or.jp) to purchase a copy of the CIAJ FY2012 Mid-Term Demand Forecast for Telecommunication Equipment (6,300 yen for CIAJ members, 19,800 yen for non-CIAJ members). The CIAJ FY2012 Mid-Term Demand Forecast for Telecommunication Equipment is available only in Japanese.

For details, contact

Market Research
CIAJ
tel: 81-3-5403-9356 fax: 81-3-5403-9360

For more general inquiries, contact

Corporate Communications
CIAJ
tel: 81-3-5403-9351 fax: 81-3-5403-9360