James.Faucette@morganstanley.comMeta.Marshall@morganstanley.comYuuji.Anderson@morganstanley.comErik.Lapinski@morganstanley.comCautiousMORGANSTANLEY&CO.LLCJamesEFaucetteEQUITYANALYST+1212296-5771MetaAMarshallEQUITYANALYST+1212761-0430YuujiAndersonEQUITYANALYST+1212296-8284ErikLapinskiRESEARCHASSOCIATE+1212761-5541Telecom&NetworkingEquipmentNorthAmericaIndustryViewTelecom&NetworkingEquipmentTelecom&NetworkingEquipment||NorthAmericaNorthAmericaWhereDoes5GWirelessCapexComefromIfCarrierCapexBudgetsAreFlat?Givencarriercapexbudgetsareessentiallyflat,expectrecentuptickinwirelessspendingtocomeattheexpenseofcorespending.Exiting2019,morecautiousCIENandJNPR,favorCOMMasspendmovestotheedgefromthecore.Generallyflatcapexbudgetscausesspendingtocyclefromcoretoedge.Wetendtobeconservativeoncoreequipmentsuppliersas5Ginvestmentsmovesaroundspendinsteadofbeingincremental(seeExhibit1).Weviewcapexspendinginthreebuckets–core,edge,anddevice–withspendmovingfromonebuckettoanother.Devicespendisbornelessbycarriers,butcoreandedgespendchangeslargelyoffseteachothergivenflatcapexbudgets.AsshowninExhibit3,weclassifycoreinvestmentasfiber,optical,routing,andlabtestequipment,withinvestmentlastingfrom2016-2020,andtheheaviestinvestmentbeinginthe2017-2019period.Wethenseespendingmovingtotheedge,classifiedasRAN,antennas,fronthaul,andtowertestequipment.Thiscategoryshouldseeinvestmentfrom2019-2023,asnotedinrecentERIC/NOK/COMM/XLNXresults,butwewouldexpecttheheaviestperiodstobe2020-2022.Finallycomesdevices,whichaddtrafficontothenetwork,whereheaviestinvestmentshouldbesimilartoedgenetworkbeingenabled.Overall,coreinvestmentcameaheadofedgeinthe5Gcycleascoreinvestmentfutureproofsthenetwork,givingahigherROIasdatademandincreases.Edgeinvestmentfollows,withdegreeofspendlargelydependentonbusinesscasesthatdevelopsfor5G(potentiallyprolongingthecycle).5GinvestmentsstartingwithhigherROIcategoriesgivenpastchallengesmonetizing4Ginvestment.While5Gpromisesnewtelcobusinessopportunities(ashighlightedinrecentMorganStanleyreports5...
