ZTE is obviously going to be hit hard after the U.S. Department of Commerce yesterday forbade American companies from selling components to ZTE for seven years. The commerce department instituted the ban because ZTE failed to comply with terms of a U.S. sanctions case.
But what will this mean for other companies, particularly in the optical components business?
Since yesterday’s news, some analysts have weighed in on which companies might be affected by the ZTE ban. They assign winners and losers based on whether the company will lose ZTE business or whether it competes against ZTE and can grab market share.
“We think that Ciena stands to be a potential winner here,” writes Jefferies analyst George Notter in a research note. He added that Infinera and Nokia might benefit as well. “Ciena, in particular, could be a winner on two dimensions,” he writes. “First, it does compete with ZTE in the international market. It stands to reason that ZTE – without access to critical components from the U.S. – could have a drastically compromised ability to deliver products and compete.”
Raymond James analyst Simon Leopold said Huawei was the most likely to benefit from ZTE’s ban in terms of optical equipment. In China, Leopold said Huawei, Nokia, and Fiberhome are best positioned to pick up ZTE business losses.
And Ciena could benefit from ZTE’s problems in the United Kingdom. In addition to the U.S. actions against ZTE, the U.K.’s National Cyber Security Centre (NCSC) also advised companies to avoid buying ZTE equipment. “We believe Ciena is currently the leading provider of optical systems to BT in the U.K.,” writes Leopold.
Losers will be those companies that sell components to ZTE but don’t compete with ZTE to offset their losses. Notter called out Acacia for whom ZTE is a major (30 percent) customer. “We’re increasingly viewing Acacia as the key long-term competitor for Ciena,” he writes. “With Acacia banned from shipping components into ZTE, its ability to grow and ramp its R&D budget gets compromised to some extent.”
Makers of high-end optical components may be largely unaffected by ZTE’s problems. “For high-end components there are high barriers to entry and a lack of non-U.S. suppliers,” writes Leopold. “We think Lumentum‘s and Oclaro’s positions in high-end components make them resilient.”
It’s yet to be seen how stridently the Department of Commerce will enforce the ban.
“We note that the newly imposed seven-year ban is an incredibly harsh punishment,” writes Notter. “It may be possible that the order serves as a starting point for further negotiations between the U.S. government and ZTE.”