ZTE’s temporary shutdown during the second quarter of 2018 sank optical networking hardware sales in China and in turn impacted the worldwide market, according to a new report from Dell’Oro Group.

Jimmy Yu, vice president at Dell’Oro Group, said the Chinese market witnessed a 13 percent year-over-year drop in optical networking sales during this period. China is the largest market for optical networking equipment — the sales slide sent worldwide revenues down 4 percent year over year.

The report stated that Huawei was the worldwide market share leader in the second quarter, followed by Ciena and Nokia. Yu noted that without its operational troubles, ZTE would have been No. 3 on the list.

China is served primarily by homegrown vendors ZTE, Huawei, and Fiberhome.

ZTE at one point in the quarter said it had stopped all “major operating activities” in its Shenzhen, China, factory. That move was tied to a U.S. ban preventing the vendor from acquiring necessary components from U.S. partners.

Yu noted that ZTE normally generates 85 percent to 90 percent of its optical transport revenues from its home market. The vendor generated an estimated $2.2 billion in optical transport sales last year.

One interesting aspect of the ZTE issue was that the other dominant vendors in China – Huawei and Fiberhome – did not make an aggressive play to steal market share.

“In some ways it showed some consideration for ZTE’s situation by operators, and even for Huawei and Fiberhome,” Yu said. “The operators did not aggressively pursue other vendors, and those vendors did not aggressively target growing their market share.”

Some had speculated that Huawei and Fiberhome could have benefited in the Chinese market from ZTE’s troubles. Most other vendors, outside of Nokia, do not have a strong presence in China.

Yu also said he did not expect the ZTE issue to impact China’s 5G deployment plans.

“There might be a minor delay, but most of the operators were looking at 2019 deployment plans anyway,” Yu said. “And China has so much fiber infrastructure already that it won’t really have an impact.”

The Dell’Oro report did note that demand outside of China continued to surge in Q2.

“Demand outside of China continued to improve, which is a great sign for the overall market health,” Yu said, adding he expects the second half of the year to see significant growth as operators in China make up for lost sales.

Ciena was the leading second-quarter revenue generator in North America, followed by Cisco. Yu noted that Cisco in particular had made gains based on its software focus and was gaining traction with operators like Verizon and hyperscale service providers.

“Cisco has done well with hyperscalers and the disaggregated transponder market in North America,” Yu noted. He added that software control was becoming a very important part of the optical networking market, but that “no one is making any real money yet.”

“We have noticed that software opens doors into the operator market and then allows hardware and services to flow in,” Yu said. “Software is the point of the arrow.”

Among second-tier vendors, Yu said Infinera’s recently announced deal to acquire rival Coriant could propel the combined company into the top tier of vendors. He explained that post-acquisition, Infinera would be No. 5 worldwide in terms of revenues.

But, Yu expressed mixed feelings on that deal. While he noted that it should boost overall market share for the company, such arrangements are often fraught with issues.

“If they can integrate it will be good for Infinera,” Yu said. “Coriant has a lot of Tier-1 customers that Infinera hasn’t been able to get into. But now they have to leverage that. They have to execute on integrating the portfolio, on sales, and on its overall organization. That’s the hard part. Everyone is saying it can be easy, but historically it’s been hard.”

One beacon for Infinera could be in following the model set by Ciena. Yu said Ciena’s ability to integrate recent acquisitions and come out stronger is a good example for Infinera to target.

Ciena acquired Cyan in 2015, which included that firm’s Blue Planet software platform that has become a core component of Ciena’s optical transport operations. More recently, Ciena announced plans to acquire Packet Design in a move to boost the Blue Planet platform.