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From: FUBHO10/1/2017 2:53:36 PM
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Last week of SHYSTER law firms polluting my portfolio news feeds with their bogus suits.

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From: FUBHO1/19/2018 8:37:02 AM
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New 5-Year Optical Component Plan from China’s MIIT spells trouble for foreign suppliers: Cignal AI

January 18, 2018
Author Stephen Hardy
Editorial Director and Associate Publisher
Market research firm Cignal AI reports that a 5-year plan from China's Ministry of Industry and Information Technology (MIIT) released last month calls for Chinese optical component developers to evolve from a focus on low-end products to high-end products for optical communications systems. Chinese systems houses such as Huawei and ZTE should aid this effort by favoring domestic suppliers, say the plan's authors. The effort could have a significant impact on the revenue streams of Western and Japanese optical component suppliers, says Cignal AI founder and chief analyst Andrew Schmitt. He estimates that incumbent Western component vendors could see their addressable market shrink by as much as 30%.

Schmitt acquired a copy of the plan, written in Chinese (naturally), and had it translated. He's posted copies of the original document and the translation on the Cignal AI site (subscription required). The document outlines six areas of focus within the new 5-year plan:

  1. Optical communication devices
  2. Optical fiber and cabling
  3. Specialty optical fibers
  4. Image and photosensors
  5. Solid-state (LED) lighting
  6. LCDs/OLEDs.

The plan's authors state that a lack of domestic supply of optical communications devices leaves control of this core technology in the hands of foreign entities and thus threatens the success of the nation's information technology initiatives. While companies such as Huawei and ZTE have achieved scale through success in foreign markets, their reliance on foreign component suppliers renders them "big but not strong," according to the plan.

The plan therefore calls for a combined effort to grow the number of Chinese component companies in the worldwide Top 10 from the current one to two or three by 2020 – and that one of those companies should shoulder its way into the Top 3. Overall, Chinese component companies should achieve a total market share of 30% by 2022, according to Cignal AI's translation of the plan.

This effort should include the development and production of high-end components and subsystems, the plan states. The document lists 23 areas of focus for component development, including:

  • 200G/400G/1T client-side optical transceivers
  • 100G/200G/400G CFP2-DCO coherent transceivers
  • 25G industrial temperature transceivers
  • Colorless/directionless/contentionless (CDC) ROADMs
  • Silicon photonics coherent transceivers and PAM4 silicon
  • Planar lightwave circuit (PLC)-based arrayed waveguide gratings (AWGs)
  • LiNbO3 modulators.

Overall, the plan calls for Chinese optical systems vendors and others to procure 60% of low-end (below 10 Gbps) and 20% of high-end optical components domestically by 2022. The plan calls for more development of domestic optoelectronic chip supply sources as part of this effort, as well as an emphasis by optical transport systems companies on nurturing and using domestic component suppliers.

The plan obviously isn't good news for incumbent component suppliers in Japan or the West, notes Schmitt. A greater number of Chinese component companies, striving to hit the worldwide market share targets outlined in the plan, could put further downward pressure on prices, he says in an article describing the plan and its ramifications.

One strategy to deal with the plan's fallout is further merger and acquisition activity among incumbent suppliers, Schmitt states. "In the face of this rising competition, the need for consolidation among Western vendors has never been greater," he writes. "The current disparate market structure is vulnerable to the entrance of well-funded Chinese component makers into the higher-end markets. But even consolidated markets such as WSS [wavelength-selective switch] components (two suppliers) will face pricing pressure from aggressive new entrants more focused on market share than profitability."

The release of the plan complements previous reports that Chinese systems houses were cultivating domestic supply sources last year (see "Chinese systems houses engaging with alternative component, subsystem sources: LightCounting").

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