The Communications and Information network Association of Japan (CIAJ), a general incorporated association, released its “Mid-Term Demand Forecast for Telecommunication Equipment,” covering FY2016 through FY2021 as follows.
The telecommunication market witnessed the rapid penetration of smartphones with the spike in traffic from photo sharing, video streaming, and other bandwidth-heavy services. This, in turn, led to increased investment in radio equipment, but the most recent cycle seems to have subsided. At the same time, the migration away from fixed-line telecommunications has also slowed. Furthermore, the slower growth in emerging markets continues to make enterprises cautious of capital investments and CIAJ forecasts demand in FY2017 to remain low. On the other hand, from FY2018 onwards, structural changes in the Japanese economy and society are expected to create IoT, Big Data, AI and robotic technologies and services. Together with 5G/ITS technologies, self-driving cars and other services integrating diverse technologies data traffic should increase even more and demand, led by network infrastructure equipment, should recover.
Despite weakness in capital investments, the Japanese economy witnessed gradual recovery in FY2015, with solid performance among businesses and improvements in employment and income. This was reflected in the 0.9% real GDP growth rate, which was the first year-over-year positive figure in 18 years. Even though the completion of investments in LTE/4G and the migration to IP networks resulted in negative year-over-year growth for infrastructure equipment and central office switching systems, the overall demand growth for telecommunication equipment was positive, due to the small, but positive growth for mobile telephone imports, which accounts for a large portion of the market. Actually, the number of mobile phones imported decreased, but the strong yen pushed the total value of imports higher and thus, the small, but significant positive growth for the category. In sum, the total telecommunication equipment market figure for FY2015 was 3.473 trillion yen, or a year-over-year negative growth of 2.3%. Of the 22 categories covered in the study, growth was seen in only 4 categories, including mobile terminals (for public network use), fixed communication equipment and cordless telephones. On the other hand, 18 categories, including base stations, central office switching systems, office-use multi-functioning facsimiles, optic access equipment, routers and digital transmission equipment had negative growth.
Japan is continuing to undergo gradual recovery in FY2016, with healthy demand abroad, as seen in the export of electronic parts to Asia for mobile phone production. The outlook for real GDP in FY2016 was revised upwards to 1.0% (the average of figures announced by 9 private sector research institutions as of November). Meanwhile, corporate capital investments are forecast to decrease with the stronger yen and uncertainty about growth in emerging markets, leading to the CIAJ forecast for telecommunication equipment demand in FY2016 to be 3.217 trillion yen or a negative year-over-year growth of 7.4%. Of the 22 categories, growth is expected in 7, including fixed communication equipment and key telephones. Demand is expected to be weaker in 15 categories, including mobile terminals (for public network use), office-use multi-functioning facsimiles, digital transmission equipment and central office switching systems.
No large upgrades, like that experienced with LTE/4G, are expected through FY2017 and demand will concentrate on replacement, leading to our FY2017 forecast for the domestic telecommunication market to hit bottom. However, a gradual recovery is expected from FY2018 – structural changes in the Japanese economy and society expected to make IoT, Big Data, AI and robotic technologies and services as self-driving cars which combine 5G/ITS technologies essential.
From these assumptions, the total market value in FY2021 is forecast at approximately 3.474 trillion yen, an increase of 1.7% over FY2019, or a 0.0%growth over the FY2015 figure.
- FY2015 actual
3.473 trillion yen
Domestic: 3.043 trillion yen
Export: 430.2 billion yen
- FY2016 forecast
3.217 trillion yen (-7.4% year-over-year growth)
Domestic: 2.789 trillion yen (-8.3% year-over-year growth)
Export: 427.6 billion yen (-0.6% year-over-year growth)
- FY2021 projection
3.474 trillion yen (0.0% growth over FY2015)
Domestic: 3.614 trillion yen (+0.6% growth over FY2015)
Export: 412.2 billion yen (-4.2% growth over FY2015)
2. Forecast Figures (Chapters 1-3)
 FY2016 Forecast
The FY2016 telecommunication equipment market is expected to be 3.217 trillion yen (-7.4% year-over-year growth), with the domestic market accounting for 2.789 trillion yen (-8.3% year-over-year growth), and exports accounting for 427.6 billion yen (-0.6% year-over-year growth). FY2021 forecasts by category are as follows.
(1) Consumer equipment: 1.850 trillion yen (-11.4% year-over-year growth)
Consumer equipment: 1.850 trillion yen (-11.4% year-over-year growth)Fewer terminals with advanced features to stimulate replacement purchases and the stricter government regulation of extreme price cuts has resulted in longer upgrade cycles and lower demand forecast. Cordless telephones, personal facsimiles, multi-function personal facsimiles are forecast to experience gradual decline with the shrinking frequency of use and enhanced features leading to longer replacement cycles. The domestic market for consumer equipment is expected to decrease by 11.3% in FY2016. Exports in this category are forecast to decline by 12.3%.
(2) Enterprise equipment: 526.3 billion yen (-4.9% year-over-year growth)
Domestic demand for renewals and upgrades differs by device, with domestic demand expected to continue growing for key telephone systems and recovery of domestic replacement demand for PBXs. Positive demand for office-use cordless phones is closely linked to key telephone systems and PBX trends, and more recently there is demand from care facilities and healthcare institutions. The migration from simple office-use facsimiles to multi-functioning facsimiles together with overall reluctance for capital investments should push numbers down for simple office-use facsimiles with a smaller decrease for multi-functioning facsimiles. The domestic market for enterprise equipment is expected to decline by 4.3%. Exports in this category are forecast to also decline by 5.5%.
(3) Infrastructure equipment: 496.4 billion yen (+1.4% year-over-year growth)
Domestic demand for base stations is expected to remain flat, with renewals of existing equipment and installment of small cell base stations in order to keep up with growing traffic. Domestic demand for central office switching systems is expected to drop significantly with NTT having completed its switch to new nodes in FY2015 and remaining demand foreseen only in maintenance use. Domestic demand for digital transmission equipment is also expected to decline with the completion in investments by telecommunication carriers for both fixed communication as well as mobile backhaul. The domestic market for infrastructure equipment is expected to decline by 3.9%. Exports in this category are forecast to increase by 38.5%.
(4) Internet equipment, telecommunication equipment parts: 344.2 billion yen (+0.3% year-over-year growth)
New installations and upgrade demand by telecom carriers from the rise in data traffic is expected to exceed the drop in unit price to push routers and LAN switches into positive growth. Optical access equipment (PON OLT and ONU) will see demand from expansion of 4K/8K broadcasting services, and related expansion of CATV optical broadcasting services. The export market for telecommunication equipment parts is expected to show healthy demand to meet overseas production needs of smartphones. The domestic market for internet equipment and telecommunication equipment parts is expected to increase by 0.1%. Exports in this category are forecast to grow by 6.3%.
 Midterm Projection
The FY2021 figure is projected at 3.474 trillion yen (0.0% growth over FY2015), with the domestic market accounting for 3.614 trillion yen (+0.6% growth over FY2015) and exports accounting for 412.2 billion yen (-4.2% growth over FY2015).
Demand for mobile devices and base stations, which make up approximately two-thirds of the telecommunication equipment market, will have tapered off and hit bottom by FY2017 and other categories will also rely mostly on replacement demand, leading to a negative growth forecast for the domestic market. However, it is expected to recover thereafter.
In the domestic market from FY2018 onwards, we forecast a gradual recovery as structural changes in the Japanese economy and society will require an overhaul of the social infrastructure in order to provide adequate medical and long-term care services. This, in turn will require full use of ICT, including IoT, Big Data, AI and robotic technologies and services as well as combining 5G/ITS technologies for self-driving cars.
The projections, by category, for FY2021 are as follows:
(1) Consumer equipment 2.206 trillion yen (-3.2% over FY2015)
Although the total value of mobile terminals (for public network use) in the domestic market for FY2017 will decrease as the upgrade cycle for smartphones become longer and stricter controls on discounts are put in place, a turnaround is expected from 2018 and the launch of 5G mobile services scheduled for around 2020 is expected to push the figure up, though still a negative 1.3% increase for FY2021. The total value of exports is forecast to be -63.7% over the same period.
The declining use of cordless telephones, personal facsimiles and personal multi-functioning facsimiles is expected along with drops in fixed communication subscribers and longer upgrade cycles.
Domestic demand for consumer equipment overall is expected to decrease domestically by 14.6% in FY2021 over FY2015, while exports are expected to decrease by 16.0%
(2) Enterprise equipment: 515.4 billion yen (-6.8% year-over-year growth)
Domestic demand for key telephone systems is expected to recover to the 48 billion yen level as construction of accommodations and public facilities towards 2020 will require new installments. PBXs are expected to show a slight drop as key telephone system capacity expands and cloud services replace some of its functions. Demand for office-use cordless phone is expected to show healthy growth, as private and public sector offices install them as replacement for key telephones and/or PBXs as well as new installments in factories.
The domestic market for enterprise equipment is expected to decline by 12.0% in FY2021. Exports in this category are forecast to also decline by 0.5%.
(3) Infrastructure equipment: 588.6 billion yen (+20.3% year-over-year growth)
The domestic market for central office switching systems is expected to shrink even further as demand becomes limited to maintenance and part replacements. On the other hand, demand for digital transmission equipment is expected to grow, supported by numerous factors, such as telecom carriers increasing backhaul investments towards 5G mobile services scheduled to launch in 2020 as well as 4K/8K high-definition video streaming investments. In terrestrial fixed communication equipment, investment in disaster prevention infrastructure is expected to pick up again. Demand is slated to remain steady for satellite fixed communication equipment with launches scheduled over long periods. Domestic demand for base stations is expected to grow with capital investments for 5G mobile services.
The domestic market for infrastructure equipment is expected to grow by 21.7%. Exports in this category are forecast to increase by 10.3%.
(4) Internet equipment, telecommunication equipment parts: 349.1 billion yen (+1.7% year-over-year growth)
Positive factors, such as new installations by telecom carriers from the rise in data traffic, increased VDI implementation and richer intra-corporate contents are not expected to match negative factors including the drop in unit prices from improved efficiency of 10 gigabit ports and virtualization (switch to software) leading to the forecast of a slight drop in demand for routers and LAN switches. Optical access equipment (PON OLT and ONU) is expected to experience a slight rise in demand from CATV operators switching to optical broadcasting services, increased use of IPTV and CATV model optical broadcasting services and upgrades by existing users. Demand for telecommunication equipment parts is expected to grow to meet global demand for overseas production of mobile phones.
The domestic market in FY2021 for internet equipment and telecommunication equipment parts is expected to increase by 1.0%. Exports in this category are forecast to grow by 23.9%.
3. Study of global markets (Chapters 4)
Chapter 4 provides an overview of market forecasts and trends based on global forecast data (in calendar years) provided by a global research company supplemented by CIAJ trend analysis and forecasts with the cooperation of InfoCom Research, Incorporated.
(1) Scope: (the following 8 categories)
Because it is no longer possible to distinguish data for equipment with facsimile functions, the “facsimile/multi-functioning facsimiles” category was removed from the scope of the study. In addition, firewall was separated from “router/LAN switches,” and a new item, “networkd security equipment,” was added.
(2) Summary of global market forecast and major equipment trends
Among terminal devices, smartphones and mobile device usage is expected to become even more prevalent, with new wearable devices, IoT/M2M (machine-to-machine) related smaller devices making significant penetration.
With high-speed internet access environments becoming more readily available, use of SNS, e-commerce, chats, social games, watching videos and unified communications via smartphones will increase and data traffic over the internet will grow even further. This will translate into larger demand for communication infrastructure.
Smartphones will see healthy demand into FY2021, with the number of devices sold in FY2021 projected at 1.67 billion (CAGR +2.6%). Demand for Android terminals is expected to be especially notable in Latin America, Europe, the Middle East and Africa.
In service provider routers, demand is expected to continue growing mostly in large markets such as China and developed countries, reaching 13 billion dollars (CAGR +1.3%) in sales in FY2021.
4. Info-communication market trends (Chapters 5)
In the domestic info-communication market, growth for value-added services, such as ICT solution business (includes “system maintenance” and “server management and operation” services), are projected to grow. Chapter 5 of the Midterm Forecast looks at how growth in the info-communication industry is shifting from equipment to services.
Please contact Mr. Nakai (e-mail: s_nakai[at]ciaj.or.jp) to purchase a copy of the CIAJ FY2016 Mid-Term Demand Forecast for Telecommunication Equipment (6,000 yen + tax for CIAJ members, 19,000 yen + tax for non-CIAJ members). The CIAJ FY2016 Mid-Term Demand Forecast for Telecommunication Equipment is available in Japanese only.
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