Shares of leading US optical component suppliers slide sharply on March 9th. Oclaro fell 14.4%; Lumentum fell 6.3%; NeoPhotonics fell 4.8%; Fabrinet fell 5%; Finisar fell 6.1%; Inphi fell 4.6%; M/A-Com fell 4.3%. The U.S. Commerce Department is set to place export restrictions on ZTE for alleged violations of U.S. export controls on Iran, which causes the slide.
Oclaro thinks it may cut the sales outlook of 3Q16 because 10% of Oclaro's sales come from ZTE. Acacia may be hit harder by the restriction since ZTE accounts for 25% of Acacia's sales by report, and it even has an effect on the IPO of Acacia.
Chinese government expressed strong opposition to export restriction on ZTE by the US Commerce Department. Wang Yi, China's Foreign Minister, said it was a wrong treatment of economic-and-trade contradiction, hurting others without benefiting oneself. China's Ministry of Commerce issued a document, pointing out, "This move will seriously affect Chinese companies' normal business activities. China will continue to negotiate with US over this."
We can see that ZTE and Huawei are still not able to survive in the US market for they have been suffered from unwarranted reasons of trade barriers. For instance, ZTE and Huawei were axed by US after they won the bidding of Sprint.
ZTE is one of the four major telecom equipment vendors and its annual purchase amount reaches tens of billions of US dollars while its annual amount of purchase from US vendors hits billions of US dollars. If the banning were implemented, ZTE will no doubt be affected, and US suppliers will also face huge loss. Some considers that major component suppliers such as Qualcomm and Intel can make up the loss by gaining purchase orders from other device manufacturers, but this may not happen to other component suppliers. ZTE's short-term supply chain may be undermined by the restriction which may push ZTE to turn to non-US suppliers such as MediaTek. Trading in the shares of ZTE has been suspended while shares of US optical component suppliers start to slump since this week due to the export restriction on ZTE. In addition, other Chinese vendors like Huawei and FiberHome are big buyers to US component suppliers, which is to say, it will be difficult to estimate the loss of US component suppliers if this trade friction escalates into a trade war.
However, China's telecom industry is still far off from word's advanced level, especially in the aspect of low-level component and chip. Chinese vendors have to rely on US and Japanese suppliers, which can't be solved in a short time, and ZTE is facing unpredictable risks.
C114 believes that Chinese vendors must accelerate developing its core technologies, get rid of the dependence on foreign suppliers and strive for more weight in its foreign trades to reduce such political interference.