Ericsson to acquire Devoteam as part of industry shift from making gear to providing services

Huawei expected to overtake Ericsson as global telecom gear leader, says IDC

As evidence of the market shift of network equipment providers from gear to services, Sweden's Ericsson (Nasdaq: ERIC) has agreed to acquire Devoteam Telecom & Media operations in France.

With 5,000 employees in Europe, the Middle East and Africa, Devoteam provides consulting and systems integration services for operations and business support systems, service delivery platforms and applications, IP multimedia subsystems and IP and radio networks.

In order to broaden their revenue base, network equipment makers are focusing on professional services and software product enhancements, according to a new report from research firm IDC.

This shift is being spurred by global economic instability, competitive pressures and decreased spending by communications service providers (CSPs). Capital expenditures by CSPs are predicted to be slightly lower this year than in 2012, according to IDC.

"As network equipment continues to commoditize, the vendors look to sell software-based product offerings and value-added services in addition to network equipment as a way to drive margin expansion. Those vendors that focus on virtualized product strategies; embrace open, software-based architectures incorporating SDN [software defined network] concepts; and create value by driving CSP opex [operational expenditures] lower will have the greatest impact in the telecom market," said Nav Chander, research manager for enterprise communication services at IDC.

Ericsson and Huawei are the global telecom equipment leaders in terms of revenue, but Huawei could become the market revenue leader this year, IDC predicts. In fact, Huawei forecast this week that its net earnings for 2012 would increase 33 percent and its revenue would increase 8 percent year-over-year.

Bucking the trend of declining network equipment sales, Huawei said it expects sales from its network gear business to jump 10 percent in 2013.

In North America, Cisco (Nasdaq: CSCO), Juniper Networks (NYSE: JNPR) and Ciena (Nasdaq: CIEN) control more than half of the telecom equipment revenues, according to IDC's stats. Juniper and Ciena are hoping to gain on market leader Cisco through investment in research and development.

As the market for network equipment shrinks, gear makers are finding creative ways to generate revenue. Some are turning to providing services, while others are focusing on innovation. For those gear makers that do not act quickly to diversify revenue sources, bankruptcy and insolvency awaits.

For more:
- see Ericsson's release
- check out IDC's stats
- read the article on Huawei and ZTE

Related articles:
Comcast deploys 100G gear from Ciena
Huawei expects jump in 2012 revenue, and may have overtaken Ericsson