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Vendors begin boasting of their price hikes

Some of the world's biggest telecom network equipment suppliers have been hinting for months that they will raise prices due to factors including supply chain constraints and inflation.

In recent weeks, some have been discreetly touting the successes of their efforts.

"It will take some time for that to flow into the [revenue] model ... but we do expect to see some benefit of last year's [price increase] actions in the second half of this year. So we'll start to realize some of that here in a few quarters," said Juniper Networks CEO Rami Rahim during his company's quarterly conference call, according to a Seeking Alpha transcript.

Rahim isn't alone.

"Every single deal is usually separately price negotiated," explained Nokia CEO Pekka Lundmark during his company's quarterly conference call, according to a Seeking Alpha transcript. "And I can assure you that in all new deals that we are making we are putting in all the input cost increases that we have seen. And of course, ... I believe the whole industry that everybody has an interest and an intention to pass on as much of the input cost increases on to customer prices as possible."

 (Source: Paweł Czerwiński on Unsplash)

(Source: Paweł Czerwiński on Unsplash)

Indeed, at fiber vendor Corning, the company's recent price increases were a driving factor behind the 7% rise in the company's fiber division income.

"Certainly better price realization helps on the revenue line," said CEO Wendell Weeks during his company's recent quarterly conference call, according to a Seeking Alpha transcript.

The executives at Extreme Networks, which currently sells Wi-Fi equipment but plans to expand into 5G equipment, offered similar commentary.

"We had an incredible March quarter, some of that due to a price increase," said CEO Edward Meyercord during his company's quarterly conference call, according to a Seeking Alpha transcript

Other companies that have discussed increasing the price of their equipment include Airspan, Cambium Networks, Cisco, CommScope and Ciena.

Inflation and supply chain constraints

Financial analysts have broadly cheered vendors' ability to get more money for their existing products. "Some have the impression it [Nokia] cannot raise prices; the answer is nuanced," explained the financial analysts at Raymond James in a recent note to investors. "Nokia will not retroactively raise prices on existing contracts, but will incorporate the cost inflation for new deals and new products. Where it has its strongest technological advantages (e.g., fixed access, routing), it has the most opportunity. In mobility, where Nokia is playing catch up and chasing share, it has less pricing power."

Of course, a big reason that vendors are raising prices is overall inflation. But continuing supply chain constraints stand as another massive factor affecting virtually all players, no matter their size.

"Our expectations for 2022 assume current supply chain challenges persist," said Juniper's Rahim.

Indeed, iPhone giant Apple reported that such constraints cost it between $4 billion and $8 billion in its most recent quarter, a significant increase from previous quarters. The company said a big reason for those constraints are the ongoing COVID-19 lockdowns in China, a device-manufacturing hub, as government leaders there pursue a seemingly impossible campaign to stamp out the virus completely.

But on smaller vendors, supply constraints can be even more severe. In a lengthy note to investors on Extreme Networks, the financial analysts at B. Riley Securities highlighted just how difficult the situation can be for smaller players.

"It appears that the supply chain situation has deteriorated in the last 2-3 months," the analysts wrote last week. "For example, management noted that even the broker market for chips/components has become lean. The situation is much worse for the wireless segment, as Wi-Fi chip availability has deteriorated. This led to a 22% decline in the wireless segment despite strong demand in F3Q. We believe this segment will decline further in F4Q."

Continued the analysts: "Management has taken several measures to mitigate the situation. For example, the company has designed out a certain wireless chip, as only a small portion of wireless customers want that particular chip. The company plans to backfill them as the chip availability improves in CY23. Furthermore, the company has established direct relationships with chip suppliers rather than relying on ODMs [original design manufacturers], which will provide clearer visibility into the inventory situation. As such, management believes F4Q will be the peak regarding the intensity of the supply chain pressure."

Intel, for its part, recently forecast that supply chain constraints might continue through 2024, a full year longer than the company's previous forecast.

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Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano

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