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ANALYSIS & OPINION OPTICAL COMPONENTS


As of 31 March, the company held products in inventory designated for ZTE that were valued at approximately $1.5m that will be written off in the first quarter


estimated in 2017 to have been approximately 3 per cent of total revenue. In a statement, NeoPhotonics outlined the


potential loss that it could expect following the ruling: ‘Absent the denial order, the company believes it would have grown revenue with ZTE and its supply chain partners due to both share awards and new product design wins. As a result, the company had expected up to 5 per cent of annualised revenue from these customers which will not be realised. As of 31 March 31, the company held products in inventory designated for ZTE that were valued at approximately $1.5 million that will be written off in the first quarter.’


ZTE has subsequently ceased its major operating activities


the company might source alternative suppliers for its optical communications components. A recent market update from specialist market research firm, LightCounting noted that Acacia Communications supplies ZTE with 100G DWDM DCO modules and DSP chips, citing NEL – a subsidiary of NTT – as the only independent, non-US based supplier to offer similar products. In terms of home-grown components, said LightCounting, Hisilicon manufactures in China, but as a subsidiary of Huawei, and therefore a ZTE rival. How far could the firm go to help a troubled competitor?


Chips are down ZTE’s mobile phone business, highlighted LightCounting, relies on chips made by Qualcomm, while the company’s optical networking and data centre products must be using chips from other US-based suppliers such as Broadcom, Intel, Macom and Semtech, so there will be mounting pressure to source


alternatives in this specialist area. At the time of going to press, trade talks


have been taking place in Beijing between senior officials from both countries, during which ZTE made an appeal to amend the ban. But should it go ahead as planned, the denial of export additionally poses something of a dilemma in terms of impact on the wider industry. LightCounting’s update also stated that US optical component and modules suppliers could find themselves equally impacted by the ban. Acacia Communications, for example, saw its shares drop by 35 per cent in the immediate aſtermath of the announcement. Likewise, said LightCounting, Lumentum and Oclaro were down 9 per cent and 15 per cent respectively by the market’s close on 16 April. NeoPhotonics, meanwhile, has revealed that its direct revenue from ZTE during fiscal year 2017 was approximately 1 per cent of total revenue, whilst revenue generated from supply of component products to certain ZTE supply chain partners was


Taking steps Acacia, too, has issued a response, saying that it is: ‘aware of the recent announcement that the US Department of Commerce by order, effective immediately, is banning American companies from selling, exporting or re-exporting components, soſtware and technology to Chinese telecom equipment maker ZTE Corporation as a result of ZTE’s actions in connection with a previous settlement regarding sanctions violations. Acacia is taking steps to suspend affected transactions and is assessing the impact of these developments on Acacia.’ Elsewhere, UK cyber security watchdog, the


National Cyber Security Centre (NCSC) has advised UK telecoms firms to avoid using equipment from ZTE. In an advisory note, Dr Ian Levy, technical director at NCSC said: ‘It is entirely appropriate and part of NCSC’s duty to highlight potential risks to the UK’s national security and provide advice based on our technical expertise. NCSC assess that the national security risks arising from the use of ZTE equipment or services, within the context of the existing UK telecommunications infrastructure, cannot be mitigated.’l


Issue 20 • Summer 2018 FIBRE SYSTEMS 13


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