Business is booming for TXO Systems. A supplier of used parts and repairman to operators, the company has seen a 25% uptick in sales amid the COVID-19 pandemic as customers prioritize maintenance of existing networks over investment in new services, according to senior executives.
The update from the UK-based firm is a further sign of COVID-19's impact on the telecom sector as service providers face dwindling sales, a spike in network traffic and supply chain disruption. Telefónica has seen more Internet traffic growth during the pandemic than it did last year, said the Spanish operator this week. Telecom revenues are expected to fall 3.4% in 2020, according to Analysys Mason, a market-research firm.
The trends are prompting a rethink about investment activity, says Kieran Crawford, TXO's sales director. "We have seen a number of programs for deployment put on hold and that budget being moved more toward maintenance of the network," he told Light Reading. The remarks came as Greece's OTE said it would cut expenditure and delay a planned upgrade to 5G, according to Reuters.
That's bad news for equipment makers like Ericsson, which previously expected 2020 to be a growth year for the 5G market. But it's a situation in which TXO appears to be thriving as a low-cost stockist of the equipment operators need for their overburdened legacy networks.
Founded with a much narrower focus back in 2005, TXO today sells used gear for just about any part of the network, whether fixed broadband, radio access, optical transport or core network systems. Although it does manufacture some optical transceivers, most of its inventory comes directly from customers that are decommissioning components and shutting down networks. In that sense, TXO acts as a broker between these operators and those in the market for used parts. "We can offer a service to recycle or resell and a sizeable revenue return," says Simon Griffiths, TXO's chief financial officer.
Next to major equipment vendors, TXO looks tiny, employing about 200 people and generating revenues of about £33 million ($41 million) in its last fiscal year (which ended in June 2019). Ericsson, by comparison, made roughly $22.6 billion in 2019. Yet TXO has been on a recent growth spurt. Last year, its revenues were up 11.4%, and takeover activity made only a small contribution to that increase, with TXO completing its acquisition of MMX, a services business, in May. Since the arrival of COVID-19, sales have been growing at a rate of about 25%, says Crawford.
TXO's middleman role, connecting buyers to sellers, may explain some of the headline sales difference between it and a traditional vendor. A part of that gap is also down to the cost savings the UK firm promises. Griffiths says used parts can be anywhere between 60% and 90% cheaper than new components. As operators look to fortify their networks under budgetary constraints, money is going heavily toward the core and backbone, says Crawford. "We have seen an increase in requests for 100-gigabyte equipment to support increased capacity demands."
But cost does not appear to be the only attraction. "We have seen examples every day of potential customers coming through the door because they can't get new supplies or used parts elsewhere," says Griffiths. "Without doubt, we have seen increased demand because of supply chain issues. We have inventory on the shelf, or we know where it is and can get our hands on it pretty quickly."
Outside Europe, major geographical markets for TXO include the US, which TXO serves from a facility in Baltimore; Australia, where it has a presence in Melbourne; and South America, to which it caters from a base in Brazil. France and other French-speaking territories are served from Paris, leaving other parts of the world, including Africa, to the UK team. "The number of countries we sell to is well in excess of 100 and there are around 1,200 customers a year," says Griffiths.
Despite the upsides during the crisis, COVID-19 has brought its share of worries for TXO. Some operators are nervous about sending workers into the field, admits Griffiths, and TXO has had to make do with fewer staff on some projects to alleviate the concern. "We are basically having to redesign some of our work as to how we deliver it," he says. "What used to be a two- or three-man team is now being deployed as a one-man team, which obviously slows down deployment."
Even so, the privately owned business claims to be in a strong position financially, with no debts and decent cash reserves. Those could prove essential if a prolonged downturn has an impact on TXO. In the meantime, the company is providing one of the few positive stories in the current gloom.
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— Iain Morris, International Editor, Light Reading