LightTrends

 

Assessing the damage of ZTE ban

LightCounting releases June 2018 Quarterly Market Update Report

ZTE became an early casualty of the unfolding trade war. The company was denied access to all U.S.-made products and technologies in April 2018 and the denial order remains in force as this report goes to print.

This situation is worrisome for all companies in the optical networking industry, but ZTE and its suppliers are the ones taking a direct hit in Q2 2018. ZTE is the second largest supplier of optical networking equipment in the world and probably the number one consumer of telecom optical transceivers, since Huawei makes a lot of its own in house.

LightCounting estimates that sales of DWDM, FTTx, and wireless fronthaul transceivers will decline by 20-30% in Q2 2018. The total transceiver market will be down by 8%, sustained by growth in sales of 100GbE optics. This decline will come after a weaker than expected second half of 2017 and a seasonally slow first quarter of 2018, potentially taking the market down to $1.2 billion in Q2 2018 – the lowest level since 2015.

Figure: Global sales of optical transceivers

If ZTE re-opens for business in the next few weeks, we should expect some recovery in sales of optics as early as Q3 2018, but the negative impact of the ZTE ban will have longer term consequences for the industry.

It is hard to find any companies that benefit from the ZTE ban. Huawei can take some of ZTE’s business in China, but their international customers will be more hesitant to place orders with any Chinese supplier. Growing anti-American sentiment will make it more difficult for U.S. companies to do business abroad. European suppliers of optical networking equipment, including Adva, Coriant, and Nokia may win more orders in Europe, but these companies also do business and have operations in the U.S. Countries that do not have domestic suppliers may encourage the creation of such businesses, but it will take years if not decades for these new companies to emerge.

The optical networking industry benefited from globalization and contributed to it by interconnecting the world. Erecting trade barriers will hurt this industry and slow down economic development. Network operators will have to reevaluate their strategies for sourcing equipment, causing delays in some projects and potentially increasing the cost of network upgrades. In the end of the day, end users of networking services will see less progress in network performance and will have to pay more for it. This will slow down economic growth by hurting all businesses and consumers, with the least fortunate of them being hit the hardest.

It is not all doom and gloom for the suppliers of networking gear and optics. Despite the looming trade wars, the top 15 cloud companies increased their infrastructure investments in Q1 2018 by 102% compared to Q1 2017. A lot of this investment is going into servers, networking equipment and optical connectivity. Sales of datacom hardware were up 14% in Q1 2018 overall and several suppliers reported record revenues, including Arista, Cisco, Extreme, Lenovo, Mellanox and NetApp.

Among suppliers of optics, II-VI Photonics, Accelink and Innolight reported record quarterly sales in Q1 2018. Innolight benefited from continuing demand for 100GbE optics. LightCounting estimates that more than 1 million  100GbE QSFP28 transceivers were shipped in the first 3 months of 2018.

Finisar and Lumentum are reporting strong demand for WSS modules for deployments of ROADMs in China and India. Oclaro set a new record in shipments of 100/200G DWDM CFP2 ACO transponders in Q1 2018.

Nokia reported 34% growth in sales of optical networking equipment in the first 3 months of 2018, compared to the same period last year. ZTE reported 23% growth over the same period, prior to getting hit with the ban.

The newly published LightCounting Quarterly Market Update provides data and commentary on the Q1 2018 financial results of CSPs, ICPs, hardware, optical components and semiconductor chip makers, as well as detailed estimates for more than 100 optical transceiver products sold in Q1 and Q2 2018, based on interviews with suppliers and quarterly data for 2016-2017, obtained via LightCounting’s proprietary vendor shipment survey. LightCounting subscribers can access the PDF and spreadsheet at: https://www.lightcounting.com/login.cfm



RECENTLY PUBLISHED REPORTS:


 

COMING SOON:


ABOUT LIGHTCOUNTING MARKET RESEARCH

LightCounting is a leading optical communications market research company, offering semiannual market updates, forecasts, and state-of-the-industry reports based on its analysis of primary research with dozens of leading module, component, and system vendors as well as service providers and other users. LightCounting is the optical communications market’s first choice source for the accurate, detailed, and relevant information necessary for doing business in today’s highly competitive environment. For more information, visit: www.LightCounting.com or follow us on Twitter at @LightCounting.