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Network Function Virtualization Revenue to Reach $38B

Open source hardware and software projects continue to gain momentum in the global telecom sector. However, after a relatively slow start, the Network Function Virtualization (NFV) market will experience growth through ongoing technology investments by major telecommunication service providers.

According to the latest worldwide market study by ABI Research, North America will lead global growth, accumulating $13 billion in NFV-related investments during 2022. Meanwhile, Europe will experience the highest growth rate, at an estimated 53 percent CAGR between 2017 and 2022.

NFV Technology Market Development

Early adopters of the technology claim several benefits to NFV-enabled systems -- which include reductions in network CAPEX and OPEX, service agility, and reduced deployment times for new network elements.

"In 2015 and 2016, the market experienced some early successes but mostly reconsideration and failure with NFV," says Neha Pachade, senior analyst at ABI Research.

Early adopters conducted proof of concept testing and NFV-integrated system demonstrations with the aim to understand the true impact of NFV technologies. ABI forecasts indicate that NFV will become a sizeable opportunity for vendors, although it is not yet clear whether it will cannibalize existing hardware-based product lines.

ABI Research estimates that total NFV market revenues will reach $38 billion in 2022. Hardware spend -- including servers, storage devices, and switches -- will reduce with time, while software and services will have higher growth rates of 55 percent and 50 percent, respectively.

According to the ABI assessment, although the market is evolving and technical expertise is starting to mature, the standardization and multi-vendor involvement challenges will remain stagnant for the next couple of years.

Software and services vendors will have opportunities to identify NFV use-cases in enterprise verticals and apply these to offer end-to-end integrated systems.

"Early contracts and market trends illustrate the biggest winners are likely to be the established telecom vendors -- including Ericsson, Huawei, and Nokia, as well as specialists like Amdocs and Netcracker -- with systems integration becoming more important each day," concluded Pachade.

Outlook for NFV Application Adoption

Several vendors also committed to open source software, which may increase business opportunities but may also create difficult choices for them in the future -- particularly if telecom service provider interest in specific open source projects fizzles out.

For the time being, NFV is mostly considered as a cost-cutting exercise, since new revenue opportunities require a transformation in a much broader context, which ABI analysts believe is more likely to be driven by 5G wireless technologies, sometime after 2020.

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