Recent telco IT vendor results are mixed, but market growth is likely to continue this year

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Summary

Omdia recently published its annual report on the telecoms IT market: Telecoms IT Market Forecast Report: 2023–28. The report assesses market trends in operations support systems (OSS), business support systems (BSS), and telecom-specific analytics tools. It provides recommendations for communications service providers (CSPs) and suppliers about using a public cloud, migration to software as a service (SaaS), retirement of legacy systems, and key criteria for software selection.

The report presents Omdia’s estimates for the telco IT market from 2022 to 2028, broken down into major product categories. It splits BSS into seven subcategories and OSS into four subcategories. We forecast the split across software and services and their subcategories (e.g., SaaS). We present our forecasts by geographic region, with each region’s split of BSS, OSS, and analytics. Additionally, we present our 2022 telco IT market share estimates for the major suppliers.

Although we see no reason to adjust our forecasts at this stage, we are publishing this note as an addendum with the latest financial results from public companies that have significant exposure to telco IT. Table 1 summarizes the key findings from those results that were released after our report was published.

The results from the six vendors present a mixed picture. Two of the vendors reported a June quarter with revenue up year on year (YoY) and a growth trend in line with, or better than, the March quarter. One vendor reported revenue growth substantially less than in the first quarter. Another reported growth that was driven by acquisition. The remaining two vendors reported substantial declines.

The outlook statements were similarly mixed. Two vendors are looking for high-single-digit growth in the current fiscal year, while another is hoping for low-double-digit growth. One vendor is hoping for revenue stabilization, another is hoping it has hit bottom, and the last vendor has not provided guidance.

Some of the companies blame macroeconomic weakness and a slowdown in overall telco spend for their poor financial performance. However, those companies that are growing cite increased pricing and CSP investment in artificial intelligence / machine learning, Internet of Things, and monetization.

Overall, Omdia projects 4% growth in the telco IT market in 2023, in line with 2022. As service providers compete in 5G and fiber broadband, they will need differentiated offers and services to ensure a satisfactory ROI. This will drive demand for support systems (OSS/BSS) and analytics tools that help operators monetize their infrastructure investments, engage better with customers, and ensure a high-quality experience. At the same time, the telco IT market should benefit from an upgrade cycle as operators look to replace legacy systems with cloud-native applications that can be hosted in a public cloud or delivered as SaaS.

Table 1: Summary of recent telco IT vendor financial results and outlooks

Source: Omdia

Recent telecom IT vendor results

Below we provide more detailed commentary on the recent financial results and outlook statements from publicly listed telco IT vendors.

Amdocs

Revenue in the June quarter (the third of Amdocs’ fiscal year) rose 7% YoY in constant currency, slightly below the 8% growth in the March quarter. Overall, in the first six months of the calendar year Amdocs’ managed services revenue (58% of the total) grew 4% YoY, while software and professional services (42% of the total) grew 11%.

The CEO noted that “the impact of economic uncertainty and industry pressure is leading our customers to prioritize and carefully evaluate their investments.” As a result, Amdocs now expects revenue growth in constant currency to be 7.2–8.0% for fiscal year 2023 (ending September), the midpoint of which represents a reduction of 0.4% versus prior guidance of 7.0–9.0%.

On the earnings call the CEO noted that “some customers … are now prioritizing multiyear strategic modernization programs in lieu of further investment to enhance legacy systems.” Given that Amdocs is the incumbent provider of legacy applications for these customers, this shift in priority is presenting “some headwind to revenue growth,” according to the CEO.

Hansen Technologies

Hansen reported revenue for the six months ending June (the second half of its fiscal year) up 10% YoY, an improvement from 0% growth in the six months ending December 2022. The company attributed its sales growth to “renewals, expansions, securing new logo wins, and the repricing of its services and support offerings.”

Revenue from communications customers (48% of the total) grew 7% YoY, a turnaround from the 7% decline in the first half. Just over half of Hansen’s revenue comes from utility companies (gas, electricity, and water). Around 60% of revenue comes from Europe, Middle East & Africa with the remainder split between the Americas and Asia & Oceania.

Looking ahead, the company said it was projecting 5–7% organic revenue growth for FY24.

Optiva

Optiva reported June quarter revenue down 28%, worse than the 22% decline seen in 1Q23. However, the company believes that “the majority of the impacts of the known [customer] churn have been realized, and it anticipates the second quarter marks the low for Optiva’s revenue as new business wins begin to be realized in 2024.” The company noted that public and private cloud deals represent 90% of the sales opportunities in its pipeline, with the remainder being traditional on-premises deployments on dedicated servers.

Spirent

Spirent reported results for the six months ending June 30. Revenue in the Lifecycle Service Assurance division fell 24% YoY because of order delays by service provider and network equipment manufacturer customers. These delays were blamed on macroeconomic weakness and slower than expected deployment of 5G standalone. The division reported a $2m operating loss after a $21m (17% of sales) profit in the prior year period.

Spirent noted that as the company “moved through the second quarter, we saw good engagement for our service assurance solution with North American Tier 1 operators.” The board’s expectations (which have not been made public) remain unchanged for the full year.

Tecnotree

Revenue for 2Q23 rose 5% YoY, a slowdown from the 17% growth reported in the first quarter. However, profitability was strong with an EBIT margin of 32% compared with 23% in 1Q23 and 28% in 2Q22. The company said it believes that “the immediate growth for telecommunication operators will be driven by investments in AI/ML, IoT, and cloud-based monetization.” Tecnotree maintained its full-year guidance for revenue growth of 7–15% and EBIT growth of 10–20%.

VIAVI

VIAVI reported June quarter revenue for its service enablement division up 3% YoY, driven by an acquisition. The company noted that during the quarter it “saw initial signs of stabilization and gradual recovery. Despite the slowdown in overall service provider spend, some service providers have begun to free up funds for network maintenance and optimization, which benefits VIAVI's NSE [network and service enablement] business segment. As a result, our fiscal fourth quarter revenue came in above the higher end of our guidance range. We expect the stabilization and recovery momentum to continue throughout our fiscal year [ending June 2024].”

Appendix

Further reading

Telecoms IT Market Forecast Report: 2023–28 (August 2023)

Author

James Crawshaw, Practice Leader, Service Provider Operations & IT

[email protected]