fibeReality believes that Huawei Technologies is striving to develop coherent optics and optical switching components, as well as potentially other types of new devices further down the food chain with the intent of going head-to-head across the world with major competitors in the market, including Finisar, Lumentum Holdings, and Oclaro. It seems that a logical assumption can be made that Huawei will follow the money in terms of prioritizing on particular technology. As we have recently discussed, the temptation for Huawei may get to be irresistible, particularly in its home country, in which massive networking buildouts will evidently continue indefinitely.
With state control over the economy, there is always the possibility that it may be decided without any notice to substantially cut back or even halt purchases of optical equipment in China for a while. Yet, the major means of the country currently dealing with its economic difficulties (for better or worse) is through heavy investments in infrastructure. While there appears to be compelling requirements for a great deal of deployment of optical transport gear moving forward, there is that much greater amount of assurance of it continuing because it would tend to be looked upon as just another extension of the overall strategy to improve its financial situation.
Given that the next wave of sales into China is focused on ROADMs, one may assume that Huawei would attempt to target WSS gear with its initial product offerings. At a minimum, even if the new solutions were to become part of a game plan of just becoming more vertically integrated, Huawei would be positioned to get much better deals from its existing vendors, resulting in lower margins.
In fairness, there was some speculation in late 2012 “that Huawei was close to releasing an internally developed ROADM (an optical switching component) solution,” which was supposedly going to have a negative impact on Finiar. Apparently, it turned out to be either a false alarm or was at least made up for by the qualification of new products from the US company to the Chinese system house.
Nevertheless, it is now four years later. Over this time, a lot of work on components by Huawei proceeded ahead, such as in establishing or further bolstering several R&D centers around the world, along with an effort of continuing to scout for technology to buy to incorporate into those centers. For example, in 2013, Huawei purchased an optical chip startup in Belgium, Caliopa. In addition, a good number of optical componentry patents have been obtained by the company during this period.
Another important consideration is that there are undoubtedly still hard feelings in China over the temporary restrictions placed by the US government on optical components sold to ZTE, including from Acacia Communications. Several months after the constraints were removed, a particular analyst said that “China might set its sights on ensuring a local supply of high-end optical devices in the future.” If as we expect Huawei becomes a major threat in the optical component arena sooner rather than later, it would truly be ironic because it is that same person who coined the “optical supercycle” phrase.
It would hardly be unprecedented for Huawei to disappoint component vendors in various industry sectors by bringing functionality in-house. This past summer the supplier’s decision to internally construct a critical base station device resulted in Integrated Device Technology taking a substantial revenue hit.
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[written by Mark Lutkowitz]