Analysts cite five opportunities in mobile data

Chips, backhaul nets look bright
SAN JOSE, Calif. — Despite increases in mobile data traffic, carriers will keep a lid on capital equipment spending over the next two years. Nevertheless, systems and semiconductor companies have a handful of opportunities for growth in the sector, according to analysts from Barclays Capital.

Capital equipment spending in Europe will be flat through 2011. But U.S. carriers will continue planned increases in spending as they take the lead in rolling out 4G wireless services, Barclays analysts said.

For some carriers mobile data traffic has grown to require nearly 90 percent of network capacity, up from less than 30 percent three years ago. However, most carriers will be able to manage the increased traffic without buying new gear with a few exceptions such as AT&T which has seen congestion due traffic from Apple iPhone users.

Only five percent of users generate as much as 60 percent of mobile data, and only five percent of base stations ever hit 95 percent of their capacity, said one Barclays analyst.

"There are underlying network congestion issues that vary by carrier and market, but with the exceptions of AT&T and O2 it seems more like a question of time rather than money to solve them," said Andrew Gardiner, a Barclays analyst covering comms systems in Europe.

Opportunity #1: Chips ahoy!

Semiconductors serving a wide variety of mobile data systems should see growth on several fronts despite the tight climate for capital equipment spending by carriers, said Tim Luke, lead chip analyst at Barclays.

To deal with increasing traffic carriers are generally not putting in more base stations, but they are taking a variety of other, lower costs measures that will drive needs for new silicon. They include deploying femtocells and Wi-Fi to siphon off mobile data traffic as well as moving to higher speed networks such as HSPA+ which requires new silicon, Luke said.

Altera and Xilinx are already seeing demand for FPGAs to serve HSPA+ systems. A wider group of mobile data chip companies are seeing increases in sales due to the rise of China's big communications systems makers Hua Wei and ZTE that use merchant chips rather than their own ASICs, he added.

Opportunity #2: Backhaul

The piece of the carrier's network that links a base station to a core network—the so-called backhaul—is facing the greatest congestion and thus is the focus of most network upgrades. Backhaul utilization rates are running at much higher levels than the 30-40 percent in the overall wireless network, Barclays said.

System vendors such as Alcatel-Lucent, Hua Wei, Adtran, Ciena and TellLabs will benefit from this situation given their focus on this part of the net. Makers of IP networking equipment such as AlcaLu, Cisco Systems and Juniper networks will also benefit from the trend, Barclays said.

Mobile data vendors more focused on base stations such as Ericsson and Nokia Siemens Networks will not fare as well, given carriers are not adding significant numbers of new base stations.