COMMUNICATIONS AND INFORMATION
NETWORK ASSOCIATION OF JAPAN

The Communications and Information network Association of Japan (CIAJ), a general incorporated association, released its “Mid-Term Demand Forecast for Telecommunication Equipment,” covering FY2014 through FY2019 as follows. The Forecast projects the telecommunication equipment market through FY2019 based on statistical data of orders received/shipped and information gained through interviews of domestic carriers, and major vendors both domestic and abroad. Furthermore, forecasts of major global markets and insights into domestic services and application markets are explained.

1. Outline

In FY2014, Japan witnessed signs of gradual economic recovery with the promotion of the “three arrows,” or prongs, of “Abenomics (Prime Minister Abe’s economic policies),” which are “bold monetary policy,” “flexible fiscal policy” and the “growth strategy.” However, the domestic market continues to suffer from the negative impact of the consumption tax hike and capital investments has been declining for two consecutive quarters. In the domestic telecommunication equipment market, the relocation of manufacturing facilities abroad through 2012 stimulated by the strong yen has drastically increased imports. Together with the global brands vying for Japanese market share, the competition continues to become fiercer than ever.

The total telecommunication equipment market figure for FY2013 was 3.573 trillion yen, or a year-over-year negative growth of 0.7%. Of the 22 categories covered in the study, growth was seen in 8 categories, including fixed communication equipment, base stations, digital transmission equipment and key telephones. On the other hand, 14 categories, including mobile terminals (for public network use), which includes smartphones, optic access equipment and LAN switches had negative growth.

FY2014 is forecast at approximately 3.391 trillion yen, or a negative year-over-year growth of 5.1%. Of the 22 categories, growth is expected in 9 including the following: base stations, office-use multi-functioning facsimiles, key telephones and telecommunication equipment parts. Demand is expected to be weaker in 13 categories, including mobile terminals (for public network use), fixed communication equipment, digital transmission equipment, central office switching systems and routers.

Looking at the mid-term future from 2015 onwards, faster mobile broadband services, such as LTE-advanced and progress in ubiquitous computing are expected to encourage fixed and mobile communication networks to merge as a new network. It will depend on the economic climate, but the telecommunication equipment market is expected to hit bottom in FY2014, as business models and markets become borderless across multiple industries, and with the 2020 Tokyo Olympic and Paralympic Games as stimulus, we forecast a demand growth thereafter.
From these assumptions, the total market value in FY2019 is forecast at approximately 3.585 trillion yen, or an increase of 0.3% over the FY2013 figure.

2. Forecast Figures

[1] FY2014 Forecast

The FY2014 telecommunication equipment market is expected to be 3.391 trillion yen (-5.1% year-over-year growth), with the domestic market accounting for 2.872 trillion yen (-8.0% year-over-year growth), and exports accounting for 519.0 billion yen (15.1% year-over-year growth).

(1) Consumer equipment: 1.627 trillion yen (-6.9% year-over-year growth)

Demand for mobile terminals (for public network use), which makes up approximately 90% of the consumer equipment category, is expected to decline, with smartphone growth not able to make up for the loss in feature phone demand. Cordless telephones, personal facsimiles, multi-functioning personal facsimiles are forecast to decline with the shrinking number of users among households. The domestic market for consumer equipment is expected to decline by 7.7%. Exports in this category are forecast to grow by 3.8%.

(2) Enterprise equipment: 584.5 billion yen (4.9% year-over-year growth)

Domestic demand for renewals and upgrades is the backbone for key telephone systems, PBXs and office-use cordless phones, making it a stable market. With the recovery of replacement demand in FY2014, we forecast an approximately 5% growth. The demand for facsimiles is forecast to decline by a small margin despite users migrating to multi-functioning facsimiles. On the other hand, robust demand for multi-functioning office-use facsimiles is expected to push export figures to positive growth. The domestic market for enterprise equipment is expected to decline by 1.7%. Exports in this category are forecast to grow by 14.6%.

(3) Infrastructure equipment: 788.0 billion yen (-10.0% year-over-year growth)

Base station growth is expected to remain flat. Digital transmission equipment, which showed strong performance last year, is forecast for negative growth, as carriers shift capital spending to mobile base stations. There will also be a significant drop in demand for fixed communication equipment with completion of investments in disaster prevention measures and satellite communication equipment. Exports are expected to record significant growth with demand from emerging markets and recovery in the U.S. economy. The domestic market for infrastructure equipment is expected to decline by 14.5%. Exports in this category are forecast to grow by 24.7%.

(4) Internet equipment, telecommunication equipment parts: 392.4 billion yen (-0.4% year-over-year growth)

Although capital investments by enterprises and new data center construction are propping up demand for routers, investment by telecom carriers in NGN has completed its cycle and is thus, forecast to decrease. Despite upgrade demand from the rise in data traffic with the popularity of smart phones, LAN switches is expected to show flat figures due to the drop in unit price of ports. Optical access equipment and telecommunication equipment parts will see demand from capital investment in CATV optic broadcasting services and 4K video services, but a slight drop is forecast with the near completion of FTTH investments. The domestic market for internet equipment and telecommunication equipment parts is expected to decline by 1.7%. Exports in this category are forecast to grow by 67.8%.

[2] Midterm Projection

The FY2019 figure is projected at 3.585 trillion yen (0.3% growth over FY2013), with the domestic market accounting for 3.368 trillion yen (-2.7% growth over FY2013) and exports accounting for 548.2 billion yen (21.6% growth over FY2013).
The following is a synopsis.

In looking at the telecommunications equipment market through FY2019, overall robustness of the Japanese economy will be a factor, but communication networks are expected to evolve even further with faster and larger capacity 5th generation mobile telecommunication system, ultra-large capacity backbone infrastructure, optic access, advances in 4K/8K video technologies, progress in incorporating data collected by various sensors and even more widespread use of the internet. The 2020 Tokyo Olympic and Paralympic Games will raise demand for new devices and services to accommodate the needs of visitors from abroad, including mobile communication terminals (with public network access), M2M (machine to machine), IoT (Internet of things), big data and effective multi-lingual voice recognition/translation. Thus, the telecommunication equipment market is expected to hit bottom in FY2014 and experience gradual growth from FY2015 through FY2019.

The projections, by category, for FY2019 are as follows:

Breakdown of mobile terminals (for public network use)

(1) Consumer equipment 1.818 trillion yen (4.1% over FY2013)

Although demand for smartphones is expected to show a significant drop in FY2014, mobile terminals (for public network use) is forecast to turn around from FY2015 onwards, with the FY2019 figure projected to increase by 4.4% over FY2013. Exports are forecast to increase over the same period by 14.7%. The domestic shipment of smartphones (excluding datacards/mobile wi-fi routers and M2M modules) is expected to account for 83.5% in FY2019, up from 76.2% in FY2013.
The declining use of cordless telephones, personal facsimiles and personal multi-functioning facsimiles in homes and longer replacement cycles is expected to push down demand. Domestic demand for consumer equipment is expected to decrease by 4.8% in FY2019 over FY2013, while exports are expected to decrease by 6.5%.

(2) Business equipment 613.4 billion yen (10.1% over FY2013)

Key telephone systems are expected to hit bottom in FY2016 and then return to positive growth from replacement demand. Replacement demand for PBX is also expected to decline once, followed by flat or gradual decline. Healthy replacement demand for office-use cordless phones is forecast throughout this period. The domestic market for business equipment in FY2019 is expected to be 2.2% above the FY2013 figure, with exports growing by 21.8%.

(3) Infrastructure equipment 758.6 billion yen (-13.4% over FY2013)

The growth in data traffic is expected to funnel capital investment into cellular base stations, with base stations for MCA radio and public sector emergency systems declining after the peak in FY2013. Demand for digital transmission equipment is forecast to decline with the completion of the current phase in investments to boost backbone infrastructure capacity by telecom carriers. With the completion of public sector digital emergency systems in FY2013 and fluctuations in satellite communication equipment demand difficult to foresee, fixed communication equipment is expected to remain flat. The domestic market for infrastructure equipment in FY2019 is expected to be 19.0% below the FY2013 figure. Exports for the entire category are expected to grow by 32.8% due to demand for base stations and fixed communication equipment among emerging markets to lay down infrastructure, despite the price competition in digital transmission equipment for mobile systems having a negative impact.

(4) Internet equipment/telecommunication equipment parts 395.0 billion yen (0.2% over FY2013)

Investment to accommodate the surge in data traffic and growing demand for data centers are not expected to be sufficient to make up for declining unit prices due to fierce price competition, leading to a negative forecast for routers and LAN switches. Telecommunication equipment parts are not expected to be as hard hit by price competition as routers and LAN switches with demand forecast to remain positive. Exports of telecommunication parts is projected to remain healthy. The domestic market for Internet equipment/telecommunication equipment parts in FY2019 is expected to be 1.1% below the FY2013 figure, with exports growing by 69.2%.

3. Study of global markets: Use of data from Gartner Inc.

Although the overall domestic market for telecommunication equipment is expected to undergo a slow decline, global markets, led by emerging markets in Asia, is forecast to significantly push demand higher..

• Figures: 2013 actual market figures in value and number of devices and sales forecast for 2014 through 2018 (calendar year) as of the third quarter of 2014.
  *However, there are differences from CIAJ data in equipment type definitions and sales figures, in addition to the difference in use of calendar year versus Japanese fiscal year.
• Scope: (the following 8 categories)
  “Mobile device (smart phone, feature phone),” “Mobile communication device,” “Copier and MFP (personal, enterprise),” “Optical transport,” “Broadband access,” “Base station equipment,” “Service provider router and switch,” “Enterprise ethernet switch”
• Summary of global market forecast and major equipment trends
  According to the 2014 “Communications White Paper,” the global telecommunication equipment market will continue to grow, mainly from demand for mobile terminals and telecommunication infrastructure among emerging markets. The global ICT market (includes devices, telecommunications, data centers, software and IT services) is projected to grow an average 3.4% per annum, reaching 4.3 trillion dollars in 2018, despite commoditization.

In the 8 categories mentioned above, mobile devices and mobile communication devices will grow by an average 10.7% per annum, led by Asia and Pacific regions (excluding Japan, but including China and India). Demand from telecommunication carriers for base stations, digital transmission equipment, and routers and switches are also forecast to show robust growth.

[1] By communication protocol, 3G (W-CDMA, TD-SCDMA, HSDPA, HSUPA) will show flat growth after 2015, followed by decline from 2018.
LTE will spread rapidly, with LTE devices amounting to 1.126 billion devices (4.5 times the 2013 figure) in 2018.

[2] The market for service provider routers and LAN switches is forecast to reach 19.683 billion dollars, or 1.3 fold the 2013 figure in 2018, with investments by telecommunication carriers and enterprises throughout the globe in infrastructure network to accommodate for surging traffic.

With the growing economies and rising incomes of emerging markets, data traffic will grow exponentially throughout the globe as people take advantage of broadband services and the internet. Smartphones will increasingly become the device for telecommunications and internet access, translating into further need for investments in communication infrastructure to accommodate the mobile data traffic. Reliable operations of basic social infrastructure will be in demand, meaning not only products, but services and system operations will need to be combined in these countries.

Please contact Mr. Miya (e-mail: s_miya[at]ciaj.or.jp) to purchase a copy of the CIAJ FY2014 Mid-Term Demand Forecast for Telecommunication Equipment (6,000 yen + tax for CIAJ members, 19,000 yen + tax for non-CIAJ members). The CIAJ FY2014 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

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