Diversification
for Manufacture of communication equipment (ISIC 2630)
The communication equipment industry is highly dynamic, with value continuously shifting from hardware to software and services. Pure hardware manufacturers face significant risks from technological obsolescence (MD01), high R&D investment burdens (IN05), and intense margin pressure (MD03)....
Why This Strategy Applies
Entering a new product or market beyond a company's current activities to reduce risk and capture new revenue streams.
GTIAS pillars this strategy draws on — and this industry's average score per pillar
These pillar scores reflect Manufacture of communication equipment's structural characteristics. Higher scores indicate greater complexity or risk — see the full scorecard for all 81 attributes.
Diversification applied to this industry
The inherent challenges of rapid obsolescence (MD01), high R&D burdens (IN05), and intense margin pressure (MD03) necessitate aggressive diversification from hardware-centric models towards software-defined solutions, managed services, and targeted vertical applications. Success hinges on strategic M&A for rapid capability acquisition and agile organizational structures to foster recurring revenue streams and secure market leadership in emerging digital ecosystems.
Transition to Recurring Software & Service Models
The communication equipment industry's core hardware is facing significant commoditization (MD03), making a strategic shift to predictable, higher-margin subscription-based software and managed services essential. This directly counters rapid technological obsolescence (MD01) by prioritizing continuous value delivery over one-time product sales.
Restructure existing sales and product development teams to prioritize and launch at least two new enterprise-grade, recurring revenue software/service offerings within 18 months, with dedicated P&L responsibility and customer success metrics.
Acquire Niche Software & AI/ML Expertise Swiftly
The significant R&D burden (IN05) and talent scarcity in critical emerging areas like AI/ML, cloud-native architectures, and advanced software-defined networking make rapid organic development challenging. Strategic M&A offers the most efficient path to acquire critical capabilities and talent pools, mitigating legacy technology drag (IN02) and accelerating diversification efforts.
Allocate 15-20% of the annual innovation budget towards a dedicated M&A fund for acquiring startups or smaller firms with proven software platforms, AI/ML intellectual property, or specialized engineering teams within the next 24 months, with strong talent integration plans.
Develop Integrated Solutions for Industrial IoT
Leveraging deep expertise in robust communication infrastructure, the industry can diversify into higher-value integrated solutions for Industrial IoT (IIoT), smart logistics, and connected health. This means moving beyond selling components to offering full-stack, secure, and reliable network solutions, addressing the need for deeper value chain engagement (MD05) and higher margins.
Establish a focused 'Vertical Solutions Group' tasked with co-developing and deploying 3-5 tailored private network and IoT orchestration platforms for specific industrial or enterprise verticals, aiming for a 20%+ solution margin within three years.
Drive Standards in Emerging Digital Ecosystems
Active leadership in defining open standards and consortia for nascent digital ecosystems (e.g., smart city data, edge computing interoperability, private 5G profiles) is crucial. This secures future market positions and reduces fragmentation risks in diversified markets, enhancing innovation option value (IN03) beyond traditional telecom standards.
Assign senior technical and business leaders to actively participate in and aim to chair at least two new industry standards bodies or consortium working groups focused on non-telecom vertical applications (e.g., smart manufacturing, autonomous logistics) within the next 12 months.
Foster Internal Venture Studio for 'Horizon 2/3'
To effectively counter rapid market obsolescence (MD01) and manage high R&D costs (IN05) for non-core innovations, a dedicated 'Horizon 2/3' innovation arm operating with venture capital principles is essential. This allows for the structured exploration and incubation of high-risk, high-reward opportunities beyond the current product roadmap, identifying future growth engines.
Launch an internal venture studio with a dedicated initial fund of $X million and a clear mandate to incubate 3-5 commercially viable, non-core concepts annually, incorporating external customer validation gates and potential spin-off or integration paths.
Strategic Overview
The 'Manufacture of communication equipment' industry is characterized by rapid technological obsolescence (MD01, IN02), high R&D burdens (IN05), and intense margin pressure on commoditized hardware (MD03). Diversification is a critical growth strategy to mitigate these inherent risks, open new revenue streams, and leverage existing technological expertise. This involves strategically expanding beyond core hardware manufacturing into adjacent, higher-growth markets such as software-defined networking, cybersecurity solutions, IoT infrastructure, or related managed services.
Successful diversification requires careful market analysis, strategic partnerships, or targeted acquisitions to build new capabilities and market presence. This strategy directly addresses challenges like market saturation (MD08), shortened product lifecycles (MD01), and the need to move up the value chain from pure hardware provision. By reducing dependency on a single product or market segment, firms can enhance resilience (FR05) and ensure long-term relevance in a constantly evolving technological landscape.
4 strategic insights for this industry
Shift Towards Software-Centric & Service-Based Offerings
The communication industry is rapidly transitioning to software-defined networking (SDN), network function virtualization (NFV), and cloud-native architectures. Diversifying into developing and offering software platforms, orchestration tools, and managed network services (e.g., Ericsson, Nokia's software divisions) creates higher-margin, recurring revenue streams, mitigates hardware commoditization, and extends product lifecycles (MD01, MD03).
Targeting Adjacent High-Growth Verticals with Existing Expertise
Leveraging existing communication technology expertise to enter related high-growth sectors such as smart city infrastructure (e.g., intelligent traffic systems, public safety networks), industrial IoT (IIoT) connectivity, or specialized cybersecurity solutions for critical infrastructure. This mitigates market saturation risk (MD08) in traditional telecom markets and opens new distribution channels (MD06).
Strategic Mergers & Acquisitions (M&A) for Rapid Capability Acquisition
Given the high R&D burden (IN05) and talent scarcity in emerging tech areas (ER07), acquiring startups or smaller companies with niche expertise (e.g., AI for network optimization, quantum cryptography, edge computing) can accelerate diversification. This enables rapid integration of new capabilities and intellectual property, addressing legacy drag (IN02) and reducing time-to-market for new offerings.
Ecosystem and Standards Leadership in New Frontiers
Active participation and leadership in developing new industry standards and fostering ecosystems for emerging technologies (e.g., 6G, Open RAN, private 5G networks) can create new market opportunities and establish a competitive advantage. This approach mitigates the risk of technological obsolescence (MD01) and ensures long-term innovation option value (IN03) by shaping future market directions.
Prioritized actions for this industry
Develop and Scale a Dedicated Software & Managed Services Business Unit
Invest significantly in R&D and talent acquisition to build capabilities in network software, cloud services, and managed network solutions. This moves up the value chain, capturing higher-margin, recurring revenue, and mitigates hardware commoditization (MD03, MD01).
Form Strategic Partnerships and Joint Ventures in Emerging Verticals
Collaborate with companies in smart cities, industrial IoT, automotive, or healthcare sectors to co-develop and deploy communication solutions tailored for these specific markets. This reduces R&D risk, provides accelerated market access (MD06), and shares capital burden (IN05).
Establish a Corporate Ventures or M&A Arm for Technology Scouting
Proactively identify and acquire innovative startups or companies with complementary technologies (e.g., AI for network optimization, quantum computing, specialized chip design, cybersecurity). This rapidly acquires new capabilities, talent, and intellectual property, shortening development cycles and addressing legacy drag (IN02) and talent scarcity (ER07).
Invest in 'Horizon 2/3' R&D with a Dedicated Innovation Hub
Allocate a portion of R&D budget and resources to explore and incubate disruptive, long-term technologies like 6G, advanced photonics, or quantum communication, even if immediate commercialization isn't clear. This positions the company for future relevance, hedges against market obsolescence (MD01), and maintains innovation option value (IN03).
From quick wins to long-term transformation
- Pilot managed service offerings for existing enterprise customers.
- Form non-equity partnerships with specialized software vendors to offer integrated solutions.
- Conduct internal 'hackathons' or innovation challenges to ideate new product/service concepts leveraging existing IP.
- Launch a new software-defined product line alongside existing hardware offerings.
- Acquire a small, niche software or solutions company to gain immediate expertise and market access.
- Establish a dedicated business unit or task force for entering a specific adjacent vertical (e.g., smart manufacturing connectivity).
- Develop a strong partner ecosystem to co-sell and co-develop diversified solutions.
- Significantly shift revenue mix, with a substantial portion coming from software, services, or new verticals.
- Successfully integrate major acquisitions into the core business, realizing promised synergies.
- Achieve a leadership position in a new market segment through sustained investment and innovation.
- Transform organizational culture to fully embrace and support continuous diversification and innovation.
- Spreading resources too thinly across too many new ventures, leading to poor execution and diluted focus.
- Underestimating the cultural, operational, and market integration challenges of acquisitions.
- Failing to adequately understand the competitive dynamics and customer needs in new markets.
- Cannibalizing existing core product sales without a clear strategy for value migration.
- Inadequate investment in new sales channels and marketing for diversified offerings, hindering market penetration.
Measuring strategic progress
| Metric | Description | Target Benchmark |
|---|---|---|
| % Revenue from New Products/Services (launched in last 3 years) | Measures the success in generating revenue from diversification efforts and the vitality of the product portfolio. | Target >20-30% of total revenue within 5 years. |
| Market Share in New Segments Entered | Indicates the level of penetration and competitiveness achieved in the newly diversified markets or verticals. | Achieve top 3 player status in chosen niche segments within 5-7 years. |
| R&D Investment in Diversification Areas (% of total R&D) | Tracks the strategic allocation of resources towards developing new growth areas, ensuring future relevance. | Maintain >30-40% of total R&D budget focused on diversification. |
| Customer Acquisition Cost (CAC) for New Offerings | Measures the efficiency of entering new market segments and acquiring customers for diversified products/services. | Comparable to or lower than industry average for new market entry; improving year-over-year. |
| Profit Margin of Diversified Products/Services | Ensures that new ventures and diversified offerings contribute positively to overall profitability, ideally at higher margins than legacy hardware. | Achieve gross margins >50% for software/services; >30% for specialized hardware. |
Software to support this strategy
These tools are recommended across the strategic actions above. Each has been matched based on the attributes and challenges relevant to Manufacture of communication equipment.
Capsule CRM
10,000+ customers worldwide • Includes Transpond marketing platform
Transpond's email marketing and audience tools support proactive brand communication that builds customer loyalty and reduces churn-driven reputational fragility
Cost-effective CRM for growing teams — manage contacts, track deals and pipeline, build customer relationships, and streamline day-to-day work. Paired with Transpond, a dedicated marketing platform for email campaigns and audience management.
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HubSpot
Free forever plan • 288,700+ customers in 135+ countries
Deal intelligence, win/loss analytics, and pipeline data give sales teams the evidence to defend price with ROI proof rather than discounting reactively against commodity competition
All-in-one CRM and go-to-market platform used by 288,700+ businesses across 135+ countries. Connects marketing, sales, service, content, and operations in one system — free forever plan to start, paid tiers to scale.
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Bitdefender
Free trial available • 500M+ users protected • Gartner Customers' Choice 2025
Threat detection and device-level controls prevent unauthorised access to institutional knowledge, proprietary data, and sensitive IP held on employee machines
Enterprise-grade endpoint protection simplified for small and medium businesses. Multi-layered defence against ransomware, phishing, and fileless attacks — with centralised management across all devices. Gartner Customers' Choice 2025; AV-TEST Best Protection 2025.
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Other strategy analyses for Manufacture of communication equipment
Also see: Diversification Framework