China Optical Vendors Take a Hit From Fiber Glut
It has been a tough year for Chinese optical manufacturers after prices plunged because of over-supply.
Among the main suppliers, Hong Kong-listed YOFC was worst hit, posting a 46% slide in first-half profit, with revenue down 41%, to 3.32 billion Chinese yuan ($470 million).
Hengtong's earnings were down 38%, to RMB731 million, and Fiberhome's fell 8%. Tongding, a smaller player, experienced an 89% drop in profit.
YOFC said the average optical cable price for China Mobile, the biggest customer, fell by approximately 40% during the period.
While demand was roughly in line with 2018, the market was over-supplied.
"From 2015 to 2018, the demand for optical cable grew fast because of both mobile and fixed network construction by domestic telecom operators," YOFC said.
Late last year, after the LTE and FTTH rollouts peaked, growth in demand slowed and "competition became fiercer."
A similar scenario played out for YOFC's other major product, optical fiber preform, the raw material for fiber cable.
The ramp-up in demand from 2015 had created a shortage which drew more players into the market, creating an over-supply when network construction fell away.
Another supplier, Shenzhen Tefa, whose profit slumped 31% year-on-year, said both demand and product prices had fallen and that a US-China trade war had reduced orders from ZTE and Huawei.
The vendors' results, covering the first half of the year, do not include the ramp-up in 5G network construction after licenses were issued in June.
However, investors have yet to be convinced. YOFC's stock closed at HK$12.24 Wednesday, 59% off its 2019 peak of HK$30.15.
Research firm CRU said the China market declined 1% in 2018 and by early this year some bare fiber prices had fallen to below 2015 levels.
With China's FTTH networks now passing 90% of households, "it has become increasingly clear that China's FTTx and 4G markets have become saturated with fiber and that demand from both sectors will be softer this year," it said.
It has forecast a further decline in China in 2019, holding back global growth to just 2%, but does not expect the Chinese downturn to last long, especially with the 5G rollout underway.
"5G will be a key variable in fiber demand for many advanced telecom markets, including China over the coming years."
The research firm believes China will account for approximately half the growth in global optical demand between 2018 and 2023 and will remain a key driver of demand over the mid-term.
— Robert Clark, contributing editor, Light Reading