Telecommunications Equipment Sector, 2008

U.S. Market Overview

The telecommunications equipment sector is characterized by several large multinationals, as well as a high concentration of small and medium-sized enterprises (SMEs). The wireless sector continues to be the fastest growing segment of the industry. T he tech market downturn from 2001 until mid-2004 had a significant long-term effect on the telecom equipment industry, with many firms either not surviving or undergoing major restructuring, and domestic production declining 50 percent over the last five years. The U.S. market, which once constituted about half of the global market, now represents less than one-third of global demand. The financial health of the U.S. telecommunications equipment industry is exhibiting mixed results as the industry continues to recover from the tech downturn. The U.S. market for telecommunications equipment increased 15 percent to $90.0 billion in 2006, but is still down 17 percent from a peak of $107.9 billion in 2000.

Many U.S. manufacturers have shifted operations overseas, particularly in the growth markets in Asia. This not only enables manufacturers to be closer to their customers in high growth markets, but also to be closer to the source of supply of many components, and to take advantage of lower cost labor. Because the market for customer-owned equipment tends to be extremely price-sensitive and the equipment is mass-produced in volume, the production of most terminal equipment has long since shifted from manufacturing facilities in the United States to lower cost manufacturing facilities in Asia. Most U.S. imports are high-volume commodity products, such as wireless and wired handsets produced in Asia. It is worthwhile noting, however, that these imports typically have a high-level of U.S. content. Although network equipment tends to be much more complex and expensive than terminal equipment, the production of telecom infrastructure equipment has also shifted overseas. While many U.S. firms are outsourcing much of their manufacturing overseas, most U.S. telecom equipment companies maintain their principal software development and R&D operations in the United States.

Most leading foreign manufacturers of high technology telecom equipment (such as Ericsson, Nokia, Fujitsu, Siemens, and Alcatel) invested in the United States to produce telecom equipment years ago, because of the size and competitiveness of the U.S. market. The Bureau of Economic Analysis has reported $10.5 billion in foreign direct investment in communications equipment in 2005. Demand for telecommunications equipment, particularly cellular telephones, currently outstrips U.S. manufacturing capacity since U.S. production has shifted overseas as described above, and the bulk of U.S. demand is met by imports.