Although Huawei’s status as an industry giant has been clear for some time, at ECOC we recognized just what this means to the optical component suppliers.
We did not speak to Huawei at ECOC, nor did it make any announcement, but its presence was felt throughout. Its demand forecast was a common subject for numerous component vendors, particularly for 40Gbps parts. Its large purchase and forecast volumes cause suppliers to question the sustainability of the deployments and the wisdom of investing in capital expenditure to meet one customer’s demand.
Given Huawei’s leadership of the optical networking market (25% share) and its share growth across a range of infrastructure segments, past history suggests that one must take the forecasts seriously. The long-term challenge is that by serving Huawei a supplier may get into a monopsony situation and be left with little margin.
Serve customers and build a sustainable business
Overall, at ECOC we verified high demand for optical components. Google and Huawei appear to be making supplier demands that may not fit with the rest of the market, but these do represent growth opportunities. Yet we worry that these opportunities may run counter to suppliers’ goals of sustained profitability.
Suppliers are pleased now, as their businesses are profitable and the market outlook is for continued growth. But analysis in our recent report “In search of sustainable profitability for optical component vendors” shows that component vendors have cut the very things, namely R&D and capacity that they now need to meet market demands. This observation points to the need for new business strategies if these suppliers are to be profitable in lean times and successful during booms.