China’s 5 Year Optical Component Plan to aid domestic parts makers
In December 2017, China’s Ministry of Industry and Information Technology (MIIT) released a five-year plan outlining a road map for commercial and technological progress in a broad set of optical technologies.
China has optical component makers, but they have generally produce lower-speed devices that lag U.S. companies by a product generation. China’s efforts to develop a domestic optical industry aims to support optical network equipment makers, such as Huawei and ZTE, according to Jefferies analyst Rex Wu.
The 63-page MIIT document is written in Chinese (Mandarin), but Cignal AI commissioned a professional English translation which summarizes the section of the plan about the Chinese optical components industry.
The goals and objectives outlined in the plan are exceptionally ambitious and should gravely concern incumbent component vendors. This document outlines strategic rather than rational economic objectives to catalyze market progress in Chinese component companies. Our interpretation is that this will increase the number of non-rational economic actors participating in the component market.
If executed, this plan will greatly increase the level of competition in an already fractured industry. It will also reduce or in some cases eliminate access for western component vendors to the largest market for optical communications components in the world – China.
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NeoPhotonics, Oclaro, Acacia, Lumentum, and Finisar sell the most optical components to China, says a UBS report. Those optical parts makers took a hit in 2017 as demand weakened from China’s telecom service providers. Analysts have been expecting a rebound in 2018 spurred by spending on fiber-optic networks, 5G wireless backhaul and data centers designed for cloud computing services.
China’s domestic optical component makers include O-Net, Accelink and Innolight.
“The government aims to have two to three Chinese optics companies in global top 10 in 2020, and one company in global top 3 in 2022,” Mr. Wu wrote in a Jefferies report to clients. “The market share of Chinese optics companies will reach over 30% worldwide in 2022,” according to the government’s plan, he added.
References:
https://cignal.ai/2018/01/chinas-5-year-optical-component-plan/