Services drive telco profits, says Ovum

Network suppliers generate almost triple the profit margins on services than hardware.

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Network suppliers generate almost triple the profit margins on services than hardware.

Margins on network services sat at 13 percent in 2007, as opposed to 5 percent for selling hardware, according to the new Ovum report called ‘Services business is key to infrastructure vendor profits’.

Ovum said network services sales were also growing more quickly than total sales of hardware for optical networking, switching, routing and broadband access.

Last year, network firms made $65bn (£33bn) in services sales, up 17 percent from 2006. A high 60 percent of those services revenues were generated by hardware suppliers.

John Lively, VP network infrastructure at Ovum, said services were now a major profit driver for many hardware firms: “The importance of services to telecom equipment vendors is hard to overstate. ... Simply put, services are key to infrastructure vendors’ financial success.”

But IT managers also need to be wary of their network hardware spending. Recently, Gartner analyst Bob Hafner predicted IT departments around the world would waste £65bn in the next five years through poor buying of networking equipment.