10 October 2018
The cash cows, the cyclic and the winners in the telecom market


Telecom is an interesting market space, where the need for huge investments and valuation of companies is highly dependent on the success of technology in this dynamic eco-system.

In this blog, I will be looking at the telecom value chain starting top down from the mobile operators via the system vendors to the component suppliers (i.e. companies like Sivers IMA). For most of the mobile operators the share prices have not increased much for many years due to price pressure and lack of high enough revenue and earnings growth. From a “growth market” investor point view, this is maybe not what they looking to invest in, since share price are often quite flat.

Many mobile operators are in a mature phase which should be attractive to those who are looking for “safe cash cows”, giving stable dividend yield each year.  Below are a few examples of mobile operators from different places in the world: Verizon (US), NTT Docomo (Japan), Vodafone (UK) and Telia (Sweden).

Operator name Approx. profit 2017 YoY share price growth 2017 Dividend Yield
Verizon 243 billion SEK flat 4,4 %
NTT Docomo 117 billion SEK flat 3,68%
Vodafone 140 billion SEK +30% 8.27%.
Telia 6.6 billion SEK flat 5,84 %


This table shows that even if the mobile operators have challenges in growing year on year (YoY), they are making extremely good profits. This gives them all the cash they need to invest in the next generation networks like 5G, as well as buy expensive spectrum licenses without hesitation, to secure their position.

Mobile operators in many cases has a quite healthy competition and hence invest heavily in new technology to stay ahead. (Remember this part, since it is important to understand it towards the end of this blog). New technology advancements also offer them new and better networks for the customer as well as lower cost per megabit than the previous generation technology. This is very important for the mobile operators since the end customers (you and me) are not normally willing to pay more for the service each year, we often like to pay less. This is of course very good for the companies at the next level in the value chain, the system suppliers like for example Ericsson and Nokia, which both just recently received +30 billion SEK orders from the US for 5G networks. However, the system suppliers need to develop and invest in new technology (i.e. next generation networks like 5G) long before they can sell any systems, due to this they become cyclic. For example, often before the next generation shift is about to happen they are quite pressured since the older generation’s equipment is sold with lower margins and the next generation has not started to generate enough revenue yet. Looking at Nokia share price during 2017 it was down -15% with a profit around 18 billion SEK and Ericsson share price was quite flat with a loss of -35 billion SEK. This means that now when 5G is staring to happen, it should be quite positive for system suppliers with the most competitive 5G solutions.

All system suppliers are more or less dependent on external components to be able to develop their systems. There has been a trend among the systems suppliers within telecommunication to reduce their in-house development and instead buy more and more components externally. In the datacom industry there has, on the contrary, been a race often to move as vertical as possible and own everything. Even so, many of the biggest winners within telecommunication has been the component suppliers. Below you can see some of the major ones from EU and US.


Component suppliers Share price over the last 5 years
Broadcom Inc (US) +450%
Analog Devices Inc (US) +85%
Integrated Device Technology (IDTI) (US) +371%
NXP Semiconductors (EU) +115%
Infineon (EU) +164%


Sivers IMAs place in the value chain is as a component supplier, we sell our 5G components to the system supplier that sell to the data- and telecommunication market, or in the 5G case to the mobile operators. We are also part of data communication market (and other markets), where we for example sell our optical semiconductor directly to the companies that builds and run the hyperscale data centers. But that is another blog describing this vertically highly integrated high-growth market.

Even if Sivers IMA has been around since 1951, we are today in a sort of a very well-established “start-up phase” regarding our new technology and we are ready to address an explosive growth, within this high growth market. By offering the state-of-the-art components for next generation 5G networks.

As you can see the mobile operators are very stable cash cows that need to invest in the next generation technology, the system suppliers are now gearing up for the next cycle (i.e. 5G etc) and we believe this will lead to a very large demand that will be a foundation for further high growth for Sivers IMA and other semiconductor component suppliers.


Anders Storm

Group CEO

Sivers IMA