China's optical fiber market is coming back, but slowly, according to a note this morning from Rosenblatt Securities analyst Jun Zhang, who follows shares of laser vendor Oclaro (OCLR), Acacia Communications (ACIA), Applied Optoelectronics (AAOI), and other vendors.
" Demand in China is stabilizing and slightly improving," writes Zhang, "but we do not see a broad acceleration in China's recovery yet.
"Chinese vendors recently concluded 2018 component and module procure- ments. Therefore, optical module and component suppliers should have base- line procurement contracts from Chinese vendors for 2018."
The tricky part, indicates Zhang, is that Chinese buyers of components are increasingly coming up with their own internal components, which is going to dent some of the demand:
Instead of overpromising volume to suppliers, we believe Chinese vendors of- fered baseline procurement volume estimates for 2018. Additionally, we believe these current procurement forecasts do not include any upside from initial 5G deployments in 2H18. However, line and client side module procurements from Chinese vendors are all down YoY due to internal sourcing. Therefore, due to conservative forecasts and increasing competition in the module market, most optical suppliers will likely continue to speak conservatively on China demand.
Zhang goes through what to expect, and it's quite a mixed bag for various different vendors:
As we expected, ZTE is attempting to increase its internal sourcing for line side CFP2 DCO modules in 2018. Therefore, Acacia's business could be negatively impacted in 2018 by ZTE. On the other hand, we believe there's a chance Acacia can qualify at Huawei for DSP in 2018, but we see no signs yet. Intel's (INTC: Sell) CWDM4 has been qualified at Facebook (FB) and could have a sizeable market share, similar to the share size we expect InnoLight to also have at Facebook in 2018. However, Applied Optoelectronics shares are down significantly at Facebook in 2018 likely putting its CQ4 guid- ance at risk […] NeoPhotonics (NPTN: Buy) could be up YoY, Lumentum (LITE: Buy) flat YoY, Oclaro down slightly YoY, and Acacia down YoY. We also esti- mate Huawei and ZTE's 100G ports to grow to 150K and 35K from 130K and 45K, respectively, in 2018. FiberHome (600498-SH) recently saw a large share gain at China Unicom (CHU: Sell) and we expect it to double its 100G port shipments in 2018 from a small basis.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
