Ovum: Services more critical than hardware to equipment vendor profits

MARCH 25, 2008 -- The telco services market hit $65 billion in 2007, including product, network, and IT-related service spending, according to 2007 service business results for network infrastructure vendors that Ovum (search for Ovum) announced today. Network equipment providers accounted for approximately 60% of that total.

"The importance of services to telecom equipment vendors is hard to overstate," said John Lively, vice president, network infrastructure, at Ovum. "The telco services market is larger, and growing faster than optical networking, switching and routing, and broadband access equipment combined, and it's generating profits. Simply put, services are key to infrastructure vendors' financial success."

Key findings of the study include worldwide telco services revenues were $65 billion in 2007, up 17% versus 2006; services revenues were more than 20% of total company revenues for top-tier network infrastructure vendors as a group; and average operating margin on services was 13%, versus 5% for hardware.

Lively says the capacity glut of the past several years, combined with the rise of Chinese vendors, with their lower labor costs and relationships with well-funded development banks, have made it difficult for large incumbent network equipment providers to make money on products. Meanwhile, service providers are increasingly pulling systems vendors into network-related services.

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