LightCounting’s summary and analysis of Q1 2021 results was published today in its June 2021 Quarterly Market Update.
The figure below illustrates Q1 2021 financial results across the industry supply chain in comparison with the same quarter of last year. With an exception for capex of telecom service providers, all the changes are positive. This chart for the current quarter will look much different, however. We expect sales of components will be down sharply year-over-year, because of flat guidance for Q2 2021 and record results in Q2 2020. ICP spending will begin entering another slower growth part of its cycle, but telecom service provider spending should be up sharply.
Nine of the Top 15 Communication Service Providers (CSPs) provided capex guidance for 2021 that indicated 11% growth compared to 2020, with the biggest increases planned by AT&T, up 14%, and Telecom Italia, up 46%, after unusually low spending in 2020 due to COVID-19. However, these projects must have been in final planning stages in Q1 2021, as aggregate capex for the Top 15 CSPs fell by 1% versus Q1 2020.
Despite the disappointing CSP capex numbers, telecom equipment vendors as a group enjoyed higher than normal sales growth of 10% compared to Q1 2020, with Adtran, ADVA, Ericsson, Fiberhome, Nokia, and ZTE all reporting double-digit growth rates. Pure-play optical transport vendors Ciena and Infinera had off quarters, with Ciena sales down 7% and Infinera flat.
There were some big share shifts in DWDM optical port shipments in the quarter as well, with Huawei reporting a larger than normal decline in shipments for Q1 compared to Q4, with commensurate gains by Ciena, Cisco (Acacia), and others. Our analysis of the decline in Huawei shipments rules out slow capex in China and points the finger at the rip and replace policies in Europe along with possible component shortages due to the US trade ban.
Global sales of DWDM optical components and modules were steady in early 2021 offsetting sharp declines in sales of wireless fronthaul and backhaul transceivers. There is a lot of uncertainty about 5G deployment in China this year. The official target is 640,000 base stations (similar to the last year), but only a little more than 100,000 was deployed so far and no firm plans or bids were released for H2 2021 yet. This slowdown must have been orchestrated to help Huawei and the Chinese government can afford to wait longer. The annual targets are usually met or exceeded, but China is already leading the world with 5G deployments. While it is a critical technology for advancing future economic development, there is no real applications demanding 5G capabilities yet. Do not hold your breath on waiting for the fronthaul demand to come back, but you never know. It is China…
The Top 15 Internet Content Providers (ICPs) reported sales up 41% year-over-year, coming off a record quarter at the end of 2020, and infrastructure spending was up 31% year-over-year to a new high of $37.7 billion. However Facebook made a notable reduction in its spending guidance 2021, saying: “We expect 2021 capital expenditures to be in the range of $19-21 billion, down from our prior estimate of $21-23 billion.” This would bring Facebook’s 2021 annual capex growth rate to just 11% versus 22% with the prior guidance.
During Q1 2021 datacom equipment vendors experienced moderate revenue growth year over year (+8% from Q1 2020). The growth in Q1 2021 can be attributed to overall market recovery from a noticeably low Q1 2020, where results were significantly impacted by the start of the pandemic. The top 7 datacom vendors (+9% from Q1 2020) drove the year over year growth, whereas the rest of the industry players tracked experienced declines (-6%).
It is no secret that in addition to varying seasonality periods, component supply shortages are also impacting datacom vendors in different ways, from lack of supply to longer than normal lead times. That said based on the guidance provided by seven key vendors (Dell, Cisco, HPE, NetApp, Juniper, Arista and Extreme), the outlook for Q2 2021 revenue looks relatively stable: aggregately growing 5% from Q2 2020 and declining 1% sequentially.
Semiconductor vendor revenues grew significantly in Q1 2021 year-over-year (+26% from Q1 2020). The growth in Q1 2021 can be attributed to high demand from the data center segment, plus general market recovery after a pandemic stricken Q1 2020. The top 7 semiconductor vendors (+27% from Q1 2020) attributed the most to the year over year growth, yet the other key industry players (+16%) also contributed to the increase.
Although the latest results may not show it, but component supply shortages are impacting the semiconductor industry as well, and causing longer than normal lead times, increased demand from customers looking to potentially stockpile supply, and stabilizing prices; yet most vendors remain optimistic. For example, the guidance provided by several key vendors (Qualcomm, Broadcom, NVIDIA, Intel, AMD, Analog Devices, Microchip, Marvell, Semtech, and MACOM) projects Q2 2021 revenue to grow aggregately 19% from Q2 2020 and remain flat sequentially, which is notably similar to Q1 2021 results.
When analyzing Q1 2021 results for the data center segment, three key players are AMD [Enterprise, Embedded and Semi-Custom (EESC)], Intel [Data Center Group], and NVIDIA [Data Center product line]. AMD and Intel are the data center chip incumbents, but AMD and NVIDIA are growing at Intel’s expense. The success of these players can be attributed to cloud providers who are updating their infrastructure to handle more compute-intense workloads like artificial intelligence and machine learning (AI/ML).