Chip shortage taking its toll on China 5G rollout

Spending on 5G networks and other infrastructure by Chinese telecoms companies fell 25% in the first half of the year, a period they previously identified as a peak period for building their new systems broadband.

The decline reflects a combination of microchip shortages that have affected equipment availability and carriers’ efforts to cut costs by sharing infrastructure.

Announcing its half-year results on Thursday, China Unicom said its capital investments fell 45% from the previous year to 14.28 billion yuan ($ 2.2 billion). In comments to reporters, Chairman Wang Xiaochu referred to the company’s infrastructure sharing agreement with its counterpart China Telecom which he said has “achieved a lot of success.”

The new figure brings the combined capital spending of the trio of Chinese national operators – Unicom, China Telecom and China Mobile – and China Tower, their infrastructure joint venture, to 137.65 billion yuan for the first six months of 2021.

This compares to 184.23 billion yuan in the same period last year, when COVID closures disrupted construction, and 151.13 billion yuan for the comparable part of 2019, before the main phase. 5G network construction.

The “co-build, co-share” agreement under which Unicom and China Telecom jointly built and used 5G infrastructure has saved the pair over 86 billion yuan since 2019, the week said. last the chairman of China Telecom, Ke Ruiwen.

The duo extended their deal to share existing 4G networks, saving them more than 24 billion yuan. “The dividend of ‘co-build, co-share’ is indeed expanding,” Ke said.

China Telecom’s drop in spending was also in part the result of the global shortage of microchips that affected the production of cars and many other items. Executive Vice President Liu Guiqing said the lack of chips caused delays in the delivery of some network equipment, affecting the construction of his company’s 5G network.

“The problem really existed in the first half,” he said.

China Telecom’s first-half capital expenditure fell 37% from 2020 to 27.01 billion yuan. But with the resolution of the supply issues, Liu said the company will maintain its initial forecast of 87 billion yuan for annual expenses.

China Mobile has its own infrastructure sharing deal with China Broadcasting Network, a unit of a public broadband company licensed last year to step up competition as the country’s fourth 5G operator.

The cooperation of the two telecommunications companies is focused on the joint use of the 700 megahertz bandwidth, which enables wider signal transmission using fewer base stations.

China Mobile Chairman Yang Jie said last week during the presentation of the company’s financial results that it “will aggressively advance the construction of the 5G network with reasonable use of 700 MHz.”

China Tower, the joint venture of the big three, saw its capital expenditure fall 28% in the first half to 10.36 billion yuan.

President Tong Jilu said last week that the mobile tower builder “is particularly concerned with the efficient management of capital expenditure”, adding that the sharp drop in expenditure reflects the “speed of construction of network operators”.

At the same event, chief accountant Gao Chunlei appeared to allude to a change in the company’s annual plan, claiming that the annual investment budget would be “controlled to less than 30 billion yuan.” In March, he said the annual figure would be “around 30 billion yuan.”

According to figures from the Ministry of Industry and Information Technology released last month, the country had 365 million active 5G connections as of June 30, up 166 million from December 31. According to ministry figures reported by state news agency Xinhua, nearly three-quarters of mobile phones shipped to China in the first half of the year were equipped with 5G.

The savings on capital expenditures translate into higher cash flow for carriers, which in turn increases their dividends for shareholders.

“continuous good control of capital expenditure.”

China Telecom had earlier announced that it would start paying a semi-annual dividend next year and increase its payout ratio to above 70% by 2023, from 40.3% last year.

China Mobile raised its interim dividend 6.5% to HK $ 1.63 per share, “after fully taking into account its profitability, cash flow generation and future development needs.”

Falling capital spending and rising payments have boosted analyst and investor enthusiasm for Chinese telecommunications companies.

According to some analyzes, building 4G networks was more profitable for infrastructure and terminal manufacturers than for operators.

Huawei Technologies, China’s largest equipment operator, said two weeks ago that revenue from its carrier network business fell 14.2% in the first half to 136.9 billion yuan, citing delays in the deployment of the national 5G network.

Edison Lee, analyst at Jefferies in Hong Kong, believes his “sub-consensus 5G investment forecast is coming true, given the 5G co-construction and [China Mobile] the ability to share CBN’s 700 MHz spectrum for 5G implementation. “

“We expect investment by Chinese telecom operators to start declining in 2022, although we do not take into account [China Telecom and China Unicom] the 700 MHz stake in the 5G co-construction,” said Lee, who has “buy” ratings on the big three Chinese operators.

“We are indeed in the peak investment period, but our spending is not going to increase,” China Mobile’s Yang said. “Look at our investment numbers, they are not high, they are within a reasonable range.”

Indeed, the operator’s annual investment plan is 183.6 billion yuan, only 1.7% more than last year and 17% less than its peak year in 2014, when its construction 4G was at its peak. Fonti Di Pace