The growth of fourth-generation (4G) telecom services in Taiwan and China is expected to be a major growth driver for equipment vendors over the next two years, Yuanta Securities Co (元大證券) said yesterday.
It will benefit businesses that are involved with building base stations, producing fiber-optic communication gear and networking equipment, Yuanta’s technology research head Wang Deng-cheng (王登城) said in a report.
“The deployment of 4G and optical fiber networks will increase dependence on smartphones as they will become the medium of choice for home and cloud digital computing services,” Wang wrote in the report.
“4G license issuance in Taiwan and China should boost the demand for equipment, and we expect related procurement will reach a peak in 2014 and 2015,” Wang added.
Morgan Stanley Asia Ltd also expects the upcoming 4G infrastructure deployment and capital expenditure cycle to benefit equipment suppliers first such as ZTE Corp (中興), although it may take some time for the 4G handset supply chain to bear fruit, according to a client note issued by analysts Jasmine Lu (呂智穎) and Tsai Yunchen on Wednesday.
The analysts’ remarks came after China’s telecom regulator, the Ministry of Industry and Information Technology, on Wednesday issued three time division duplexing-long term evolution (TDD-LTE) licenses to China Mobile Ltd (中國移動), China Telecom Corp (中國電信) and China Unicom Ltd (中國聯通).
TDD-LTE is a technology upgrade based on China’s 3G time-division synchronous code-division multiple-access technology.
In late October, Taiwan’s telecom regulator, the National Communications Commission, granted 4G spectrum licenses to six companies: Chunghwa Telecom Co (中華電信), Taiwan Mobile Co (台灣大) and Far EasTone Telecommunications Co (遠傳電信) as well as Asia Pacific Telecom Co (亞太電信)and subsidiaries of Hon Hai Group (鴻海集團) and Ting Hsin International Group (頂新集團).
Yuanta said the construction of 4G base stations in China could create business opportunities valued as high as NT$558 billion (US$18.79 billion), given that one station costs about NT$1.8 million and the three Chinese telecom operators are likely to build 310,000 base stations for the first year.
As for potential 4G businesses in Taiwan, the brokerage projects up to NT$40 billion worth of deals to be finalized over the next two years, which will include procurement of about 15,000 base stations and equipment for the premises, according to the report.
“4G license issuance in Taiwan and China will provide momentum for Taiwanese companies next year,” Wang said.
The major Taiwanese beneficiaries of the 4G deployment include base-station antenna maker Wha Yu Industrial Co (譁裕) and base-station diplexer and filter supplier Universal Microwave Technology Inc (昇達), as well as Elite Advanced Laser Corp (聯鈞), Tai Tung Communication Co (台通), Browave Corp (波若威) and Fiber Optic Communications Inc (上詮) in the fiber-optic communication sector, Yuanta said.
Arcadyan Technology Corp (智易), Gemtek Technology Co (正文), Sercomm Corp (中磊), Wistron NeWeb Corp (啟碁) and Unizyx Holding Corp (合勤) are networking vendors that may also benefit from the rising demand for LTE routers and the accelerating construction of small-cell base stations, it added.
However, the 4G take-off could increase margin concerns for handset makers and affect their supply chains given the continued buildup of higher chipset costs, the small scale of economics and stiff price competition, Morgan Stanley analysts said in the note.
Companies involved with touch displays, cameras, printed circuit boards and batteries are likely to suffer more from pricing pressure, while suppliers of tailor-made components such as memory and casing could be better positioned, the note said.
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