China will remain the most important region for suppliers of optics in 2019-2023

Over the last decade, China has had a greater impact on the global optical communications industry than any other country, and in some cases more than all other countries combined. People in China are proud of these achievements and the Chinese government plans to continue leading the rest of the world with fast paced, large-scale infrastructure projects.

The rapid rise of China raised a few “red flags” around the world in 2018. The US government launched a full scale trade war with China. A temporary ban on ZTE in 2018, and the ongoing dispute with Huawei all seem to be part of a larger US government agenda to curb the influence of China on the global economy. The problem is that world economy is so interconnected now, that trade barriers imposed by one country are likely to hurt consumer confidence and businesses globally.

As this report goes to print, Apple and Nvidia are the first large US-based companies reporting significant drops in quarterly revenues because of slower demand in China. Alibaba implemented its first ever cost cutting measures by delaying hiring and restricting travel expenses in anticipation of slower growth in 2019.

Growth in Huawei’s networking businesses slowed down in 2017-2018, but the company set new records in shipments of smartphones, overtaking Apple as the #2 supplier in the world (second only to Samsung).
     
     Huawei’s founder has recently been quoted in the press saying that the trade war has not impacted Huawei’s business in 2018, but the company might face difficulties and challenges (in the future).

Close to 50% of Huawei’s networking business comes from projects abroad, including many contracts with European Communication Service Providers (CSPs). The company recently reported 26 signed contracts with global CSPs for 5G wireless equipment. Security concerns regarding networking equipment manufactured by Huawei and ZTE, raised by the US government, will certainly slow down the international business of these vendors.

New domestic infrastructure projects will keep the Chinese suppliers busy in 2019. China is accelerating deployment of 5G wireless infrastructure and it granted licenses to the three largest CSPs in December 2018. China Mobile plans to start commercial deployments in the second half of 2019 and China Telecom and China Unicom plan to start in early 2020. Domestic 5G deployment will generate large contracts to the Chinese equipment suppliers to offset slower business abroad. It will also boost demand for higher speed optical transceivers, including wireless fronthaul, Ethernet and DWDM modules.

Upgrades of Cloud datacenters in China to 100GbE connectivity started in 2018. These projects along with future deployments of 400GbE will have the most impact on sales of networking equipment, optical components and modules deployed in China over the next 5 years.