The rapid growth in China, and Asia's, FTTH market is driving the development of the next-generation of Chinese telecom vendors. Not long ago ZTE and Huawei were flying under the radar and slowly taking market share from established giants. Today they are almost household names.
While none of the new generation is in a position to be a real challenger to ZTE and Huawei, the rapid development of the market is introducing some new names to the global telecom industry that are growing rapidly.
Typically, these firms are either start-ups created by returning Chinese who are entrepreneurs and technologists, or state-owned firms, which grew from research grants to universities.
According to Ovum, FTTx is growing at a much faster rate in Asia than the rest of the world. By 2016, 50% of all wireline broadband subscribers in the Asia Pacific will be FTTXs compared to 16% in Europe and 14% in North America.
This will represent 100 million Chinese subscribers by 2016, largely off the back of a major infrastructure push by China Telecom.
This has created an attractive opportunity for a number of smaller Chinese vendors that now have the ability to at first develop their business domestically, and then take it to the world as FTTH subscribers grow outside of Asia.
Julie Kunstler, Ovum's principal analyst for optical components, names four companies which are taking advantage of this growth opportunity: Shenzhen Gongjin T&W, Cambridge Industries Group in Shanghai, Superxon and Wuhan's FiberHome (see sidebar: On the fast track ).
"There are millions of customer equipment premises devices shipping each quarter," says Kunstler. "In Q2 more than 6.5 million devices for FTTx were shipped worldwide and 80% ended up in China. So the market is still young in the sense that it is still growing."
Support from the majors
This new generation of vendors is partially dependent on ZTE and Huawei at this point for their growth, as many of them supply to the Chinese big two - and to foreign vendors such as Alcatel-Lucent on an ODM basis.
This is the model being pursued by Cambridge Industries Group (CIG), founded in 2005 by Gerald Wong, a graduate of the Massachusetts Institute of Technology (MIT) who worked at Alcatel-Lucent before returning to China to start his own company.
CIG is a significant supplier of GPON ONTs, and Kunstler says the company is leading the charge to bring BOSAs (bodirectional optical subassemblies) on board for PON equipment, an advance that delivers savings of around 40% when compared with traditional optical module-based designs.
Rose Hu, CIG's marketing director, says the company is focused squarely on the PON CPE market. "In this market we sell ODM and deal with tier-one and tier-two companies," says Hu.
"Huawei are also a small portion of our business, and our products are available in the US via equipment vendors and we have recently opened an office there."
CIG is a private company and employs about 1,100 people, including 1,000 workers at a factory in Shanghai. It recently announced a doubling of its production capacity.
Hu declines to be specific about the company's financial performance, but says that in the two years from 2009 CIG's revenues jumped more than 400%.
Wong reported in October 2010 that CIG's revenues had grown at a CAGR of more than 125% from 2008 to 2010.
Hu says the domestic Chinese market accounts for 30% of CIG's business, with 70% going offshore. International markets, she says are a major focus.
"We have a very international face," says Hu. "The investors and many of the people working here are both Chinese and hold international passports and have lived and studied overseas. To look internationally is very natural for us."
Ovum's Kunstler also names another privately held company, Chengdu-based Superxon, as another vendor on the rise.
Some of Superxon's founders and employees came out of Fiberxon, which through a series of mergers and acquisitions is now Source Photonics. Kunstler says Superxon also has a link to UTStarcom through that company's CEO Jacky Lu, and believes that UTStarcom was an early Superxon customer.
Like CIG, Superxon is focused on the PON market, and is supplying equipment to major vendors. The company's strategy also involves BOSA designs for 10G PON equipment and Ethernet over Coax (EoC).
Kunstler says this will give Superxon and opportunity when the Chinese cable industry begins to adopt PON within the next few years.
Another expanding firm is Shenzhen Gongjin T&W, which came together in 2008 when Gongjin Electronics merged with Shenzhen T&W Electronics. T&W has a significant R&D capability and manufacturers a range of DSL products, with a growing interest in network video.
"I met with them in Shenzen in September, and as far as I was concerned walking into their headquarters was no different to walking into an Ericsson or Alcatel-Lucent facility," says Kunstler.
"In terms of their product display, their knowledge of the market and discussions on many aspects of communications we had a very intense debate, and you could have blindfolded me and I wouldn't have been able to tell the different between being at T&W or with another world-class equipment company."
She was particularly impressed to learn that T&W had applied for CableLabs certification and conformance testing in the US.
"Devices approved by CableLabs will be used by the likes of Time Warner and Comcast for use in FTTx in the US. It gives them a good opportunity if and when that market moves over to PON in a much bigger way."
At rival research house Infonetics, analyst Jeff Heynen pointed to Beijing-based Sumavision Technologies - which is listed on the Shenzen stockmarket - as a name to watch. The company was founded in 2000 and has a market capitalization of around $780 million.
"The company is the leading supplier of video infrastructure to Chinese cable operators," says Heynen. "With these operators in a major spending cycle to upgrade from analog to digital, Sumavision stands to expand very quickly, since the cable TV subscriber market exceeds 150 million."
With the Chinese cable industry moving into consolidation mode and convergence a major project for the immediate future, Sumavision is also poised to take advantage of the growing domestic market.
Side bar: On the fast track
If any company is mentioned as likely to challenge either ZTE or Huawei, FiberHome's rapid growth in the optical networking market is certainly a top candidate.
The state-owned FiberHome Group owns Accelink and WTD, which together are the largest optical component and module vendors in the Chinese domestic market. FiberHome Group is also the parent company of FiberHome Telecommunications Technologies, the company which only started to compete in earnest on the global market as recently as 2010.
While FiberHome is active at home, it is building up its global sales from a small base and according to Ovum, should be the fifth ranked company with 4% of the $20 billion optical networking equipment market by 2015. Last year domestic sales accounted for 93% of its business.
Domestically the company has had recent success in the PON markets, being selected as one of five suppliers for China Mobile's GPON equipment procurement tender, and one of three winners of the EPON tender.
FiberHome's growing success is the result of several decades of development. Founded in 1974 and previously known as the Wuhan Research Institute of Posts and Telecommunications, the company now employs around 12,000 workers across five factories in China from its base in Wuhan, now known as "Optical Valley.".
Despite its growth and prospects, FiberHome's 21% growth in 2010 should be put into perspective. It's revenues of $826 million compares with $27 billion for Huawei and $10 billion for ZTE, but then, both those companies were small once.
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