Domestic Market for Private 5G to Take off in 2022
The authors are analysts of Shinhan Investment Corp. They can be reached at ym.ko@shinhan.com and hyungwou@shinhan.com, respectively. -- Ed.
Domestic market for private 5G to take off in 2022
Contrary to expectations, investments in 28GHz-based 5G networks have been lackluster. In the absence of B2B contents that require high-frequency band of 28GHz or higher, telecom companies find it demanding to make the high-cost investments. We believe that building a nationwide 5G network based on 28GHz is unlikely to happen in the near term. Related investments will inevitably be made considering that 5G is a service for businesses rather than the public and there is still a demand from companies. Hence, we expect private 5G will be an alternative to 28GHz-based networks.
Steep market growth expected on demand from businesses
Since 2021, major domestic companies including Samsung, SK, Hyundai Motor, and KEPCO have expressed their interest in private 5G and utilizing the technology in their factories and buildings. We are also seeing a growing number of companies registered as private 5G service providers, such as NAVER, LG CNS, and SK Networks Service. The domestic market for private 5G network is expected to take off and begin to expand in earnest from 2022. According to the market research firm IDC, the global private 5G market will grow at a steep CAGR of 36% from USD1.7bn in 2021 to USD8.3bn in 2026.
A private network ensures security, speed, and cost efficiency. These are the three reasons behind demand for private 5G by businesses.
New opportunities for hardware suppliers
Simply put, private 5G is a scaled-down version of a nationwide network. The private network requires the same equipment used to set up existing networks, such as base station radio unit, distribution unit, and layer 3 switches. Telecom companies and private 5G service providers need to purchase hardware equipment from the suppliers as they rarely make their own. The private 5G market offers ample opportunities for hardware suppliers to advance into the new market and expand customer base.
Domestic suppliers are speeding up efforts to advance into the private network market. HFR and Contela (unlisted) are gearing up to provide a total solution of hardware and software like their global counterparts Samsung Electronics, Ericsson-LG, and Nokia. Innowireless and EUCAST are preparing to provide hardware, such as small cell solutions.
Our top pick: HFR, the most visible beneficiary
We expect HFR to emerge as the most visible beneficiary of the expansion of the private 5G market in 2022 based on its order track record. HFR is expected to secure the first order for private 5G in Japan as early as in 1H22, which seems highly likely given the synergy from businesses with the Japanese firm NEC. If secured, this will likely lead to domestic order intake.
In addition, HFR is presumably preparing to develop equipment for open-radio access network for private 5G. Its enhanced competitiveness should help the company gain a solid foothold in the market. HFR is projected to achieve annual sales of KRW100bn upon the ramp-up of the related business. We may revise up our earnings forecast once the order intake is confirmed.