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 FY2015 through FY2020 as follows. The Forecast projects and analyzes the telecommunication equipment market through FY2020 based on statistical data of orders received/shipped and information gained through interviews of foreign vendors. Furthermore, global market trends influencing domestic telecommunication equipment demand and insights into new technologies and services have been enhanced.

1. Outline

The Japanese telecommunication equipment market underwent gradual recovery with the reconstruction efforts following the Great East Japan Earthquake and Tsunami as well as growth in exports due to the weaker yen in FY2014. However, aggressive competition by foreign vendors in the domestic market, which pushed prices down and a lull following the round of capital investments by telecommunication carriers resulted in a slight negative growth.
The total telecommunication equipment market figure for FY2014 was 3.395 trillion yen, or a year-over-year negative growth of 5.0%. Of the 22 categories covered in the study, growth was seen in only 6 categories, including key telephones, office-use multi-functioning facsimiles and optic access equipment. On the other hand, 16 categories, including digital transmission equipment, central office switching systems, mobile terminals (for public network use), public-use PHS and base stations had negative growth.

Japan is reported to have undergone gradual recovery in FY2015, but with capital investments by the private sector taking a cautious stance with unclear future prospects, the forecast of real GDP growth in FY2015 has been lowered to 0.8% (average of calculations of 9 private sector research institutions as of November).
The total value of demand for telecommunication equipment in FY2015 is forecast at approximately 3.219 trillion yen, or a negative year-over-year growth of 5.2%. Of the 22 categories, growth is expected in 4 including PBX and fixed communication equipment. Demand is expected to be weaker in 18 categories, including base stations, central office switching systems, mobile terminals (for public network use), digital transmission equipment and public-use PHS.

From FY2016 through FY2017, investments towards LTE-readiness in mobile terminals and base stations, which make up approximately two-thirds of the telecommunication equipment market, will have tapered off and rely mostly on replacement demand, leading to a negative growth forecast through FY2017.
From FY2018 onwards, demand for devices taking advantage of 5th generation mobile communication system (5G) technology and services, demand for digital transmission equipment to deal with the surge in data traffic from 5G/IoT and big data as well as demand for fixed telecommunication equipment to be put in place as part of satellite launch plans are forecast to nudge demand towards positive growth.
From these assumptions, the total market value in FY2020 is forecast at approximately 3.267 trillion yen, or a decrease of 3.8% over the FY2014 figure.

2. Forecast Figures (Chapters 1-3)

[1] FY2015 Forecast

The FY2015 telecommunication equipment market is expected to be 3.219 trillion yen (-5.2% year-over-year growth), with the domestic market accounting for 2.761 trillion yen (-4.3% year-over-year growth), and exports accounting for 457.8 billion yen (-10.3% year-over-year growth).
The following is a list of the 22 categories referred to in this forecast (17 equipment categories + others and parts: Total of 22 categories)

(1) Consumer equipment: 1.675 trillion yen (-1.4% year-over-year growth)

Domestic demand for mobile terminals (for public network use), which makes up approximately 90% of the consumer equipment category, is expected to increase with renewal purchases. Cordless telephones, personal facsimiles, multi-function personal facsimiles are forecast to decline with the shrinking frequency of use and enhanced features leading to longer replacement cycles. The domestic market for consumer equipment is expected to increase by 0.6% in FY2015. Exports in this category are forecast to decline by 26.5%.

(2) Enterprise equipment: 577.9 billion yen (-0.3% 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. However, there are fluctuations in the renewal cycle. In the domestic market, the key telephone renewal cycle has come to an end, PBXs are about to see the replacement demand pick up and push figures into positive growth, while office-use cordless phone figures are expected to remain flat. The migration from simple office-use facsimiles to multi-functioning facsimiles should push numbers down and up respectively. The domestic market for enterprise equipment is expected to decline by 0.2%. Exports in this category are forecast to also decline by 0.5%.

(3) Infrastructure equipment: 596.7 billion yen (-18.3% year-over-year growth)

With the domestic installment of LTE equipment having peaked out in FY2013, base stations are expected to show a large drop along with digital transmission equipment. There will also be a significant drop in export figures as price wars intensify with foreign vendors. Demand for fixed communication equipment is forecast to grow with little progress in the effort to switch government emergency systems to digital and plans to launch satellites for the public sector. The domestic market for infrastructure equipment is expected to decline by 18.7%. Exports in this category are forecast to drop by 16.1%.

(4) Internet equipment, telecommunication equipment parts: 369.5 billion yen (-4.1% year-over-year growth)

With capital investments by telecom carriers having tapered off and both the private and public sectors pulling back on new investments, demand for routers is expected to decline. Despite upgrade demand from the rise in data traffic, LAN switches is expected to show flat figures due to the drop in unit price of ports. Optical access equipment will see demand from expansion of 4K/8K broadcasting services, a steep decline is forecast following the one-time surge in FY2014. The export market for telecommunication equipment parts is expected to show healthy demand as domestic manufacturers meet demand from foreign smartphone brands. The domestic market for internet equipment and telecommunication equipment parts is expected to decline by 4.3%. Exports in this category are forecast to grow by 4.7%.

[2] Midterm Projection

The FY2020 figure is projected at 3.267 trillion yen (-3.8% growth over FY2014), with the domestic market accounting for 2.810 trillion yen (-2.6% growth over FY2014) and exports accounting for 457.5 billion yen (-10.4% growth over FY2014).
The following is a synopsis.

From FY2016 through FY2017, investments towards LTE-readiness in mobile terminals and base stations, which make up approximately two-thirds of the telecommunication equipment market, will have tapered off and rely mostly on replacement demand, leading to a negative growth forecast for the domestic market through FY2017.
In the domestic market from FY2018 onwards, ICT applications will be indispensable for enhancing the social infrastructure, rebuilding medical and long-term care systems, and realizing an advanced information society as Japan undergoes further urbanization, depopulation of rural areas, lower birth rates and rapid aging of its population. By around 2020, diverse mobile devices taking advantage of 5th generation mobile communication systems (5G) technology and services, spread of IoT/M2M and big data use should create markets for new products and services with enhanced convenience.
The projections, by category, for FY2020 are as follows:

(1) Consumer equipment 1.686 trillion yen (0.8% over FY2014)

Although the total value of mobile terminals (for public network use) through 2018 is expected to drop as the replacement cycle for smartphones become longer, the launch of 5G mobile services is expected to push the figure up to a 4.9% increase over FY2014 for FY2020.

The declining use of cordless telephones, personal facsimiles and personal multi-functioning facsimiles is expected to push down demand. Domestic demand for consumer equipment overall is expected to increase domestically by 2.5% in FY2020 over FY2014, while exports are expected to decrease by 39.6%.

(2) Business equipment 563.8 billion yen (-2.7% over FY2014)

Key telephone systems are expected to remain flat around 240 billion yen, with the launch of new products and construction of new accommodations and public facilities in preparation for 2020. Replacement demand, the mainstay for PBX, is expected to show steeper declines. Healthy replacement demand for office-use cordless phones is forecast throughout this period. The domestic market for business equipment in FY2020 is expected to be -5.6% over the FY2014 figure, with exports growing by 0.8%.

(3) Infrastructure equipment 632.5 billion yen (-13.4% over FY2014)

Increased capital investment in base stations will continue, but the total value will decrease with more concentration in small cell, which has a lower price tag, but demand should grow from FY2019, in preparation for the launch of 5G mobile services. Demand for digital transmission equipment is forecast to increase with telecom carriers enhancing backhaul networks and investments being made in 4K/8K high resolution video transmissions, including high-resolution cameras for monitoring purposes. Demand for fixed communication equipment is expected to rise, with growing investment in 5G/IoT related backhaul networks in the terrestrial market and long-term launch plans for satellite communication equipment. The domestic market for infrastructure equipment is expected to be -15.1% below the FY2014 figure, with the drop in FY2015 having a significant impact. Exports for the entire category are expected to decrease by 3.4% despite demand for terrestrial fixed communication equipment for disaster prevention systems.

(4) Internet equipment/telecommunication equipment parts 384.9 billion yen (-0.1% over FY2014)

Although positive replacement factors, such as investment to accommodate the surge in data traffic, growing demand for data centers, security enhancement measures and steps to conserve energy consumption exist, cost reduction measures and declining port unit prices will continue, leading to flat growth forecast for routers and LAN switches. Telecommunication equipment parts are not expected to be as hard hit by price competition, with demand forecast to remain positive. The domestic market for Internet equipment/telecommunication equipment parts in FY2020 is expected to be -0.2% below the FY2014 figure, with exports growing by 5.6%.

3. Study of global markets: Use of data from Gartner Inc. (Chapters 4)

Chapter 4 provides an overview of market forecasts and trends based on global forecast data (in calendar years) provided by Gartner Inc. supplemented by CIAJ analysis.

• Figures: 2014 actual sales figures in value and number of devices and market forecast for 2015 through 2019 (calendar year) and CAGR for 2014 through 2019 as of the third quarter of 2015.
  *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)
  Categories according to those used by Gartner to analyze global market trends
  • Mobile devices
  • Mobile devices (Android, iOS, Windows, Blackberry, others)
  • Copiers and MFP
  • Optical transport
  • Broadband access/ fixed access
  • Base station equipment
  • Enterprise routers, ethernet switches, firewall equipment
  • Service provider routers and switches
• Summary of global market forecast and major equipment trends
  Asian and emerging markets are expected to significantly push demand higher in the global telecommunication equipment market. CAGR up to 2019 for mobile devices will increase by 4.9% in Asia/ Pacific region (excluding Japan). Global demand (excluding Japan) for optical transport, broadband access/ fixed access, routers and switches will grow from the surge in network data traffic.

In mobile devices, 3G (W-CDMA, TD-SCDMA, HSDPA, HSUPA) devices are expected to remain flat from 2015 onwards and decline from 2018. On the other hand, popularity of LTE devices will grow rapidly in emerging markets, reaching 1.414 billion devices in 2019 (3 times the figure in 2014), translating into worldwide proliferation of LTE devices.

In service provider routers and switches, service providers are expected to invest heavily in expansion, replacements and strengthening existing functions. The 2019 market is forecast to be 20.16 billion US dollars (1.4 times the 2014 figure).

With progress in IoT/M2M and the emergence of new services, new demand for ICT services will grow, smartphones will become the mobile device of choice to take advantage of these new services and global data traffic will surge as emerging economies grow and their average incomes rise. Thus, overall demand for communication devices and infrastructure equipment is forecast to increase.

4. Info-communication market trends (Chapters 5)

With growth in the domestic info-communication market slowing down, there are signs of growth in value added services, such as TOMS (telecom operator management system) and ICT solution businesses. Chapter 5 of the Midterm Forecast looks at how growth in the info-communication industry is shifting from equipment to services, specifically: (1) trends in services and devices, (2) government growth strategy and (3) trends in services taking advantage of ICT.

Please contact Mr. Nakai (e-mail: s_nakai[at]ciaj.or.jp) to purchase a copy of the CIAJ FY2015 Mid-Term Demand Forecast for Telecommunication Equipment (6,000 yen + tax for CIAJ members, 19,000 yen + tax for non-CIAJ members). The CIAJ FY2015 Mid-Term Demand Forecast for Telecommunication Equipment is available in Japanese only.

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

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