Ciena, Cisco, and networking equipment vendors likely to benefit from scrutiny surrounding China-based company
Fiber-optic and networking vendor Ciena posted its best quarterly results and stock gain in 18 years as more companies are embracing its products for telecom and data link needs. While the company isn’t saying pressure on Huawei is directly benefiting its sales, market watchers believe the increasing pressure on the China-based conglomerate will cause more enterprises and carriers to rethink their product sourcing strategies.
The Lowdown: The United States is leading a steady drumbeat of criticism and scrutiny of Huawei, alleging the company’s products represent a threat to national security. While the U.S. is among the few countries to issue an outright ban on Huawei’s products, other nations, large enterprises, and carriers around the world are taking second and third looks at Huawei alternatives. Even without total bans, speculation is rising that companies will turn to different suppliers to offset their exposure to Huawei.
The Details: In its earnings call, Ciena reported breaking into Deutsche Telekom — a longtime Huawei customer — for the first time. Industry observers speculate that Deutsche Telekom is trying to diversify its supply chain. Other carriers and content-driven enterprises will likely follow suit and direct business to Huawei alternatives, including Cisco, Juniper Networks, Nokia, Lumentum, NeoPhotonics, and others. Huawei’s troubles have even spurred new entries into the market, including Samsung, which has accelerated its development of networking and 5G products.
The Impact: The pressure on Huawei isn’t trivial. At least six major markets have either banned or curtailed Huawei operations as a result of the U.S. allegations of security risks. Other companies and industry groups have closely scrutinized Huawei as a result of these concerns. Even in markets where Huawei is allowed to operate freely, the pressure will cause customers to seek a diversified portfolio of suppliers, resulting in a sales uplift for vendors and their partners.
Background: For years, the U.S. government has pushed the notion that Huawei is a puppet of the Chinese government and a potential threat to national security. In the past six months, the United States ramped up its pressure on Huawei in connection to the ongoing trade war with China. For its part, Huawei consistently denies any connection to the Chinese government or that its products are conduits for spying and espionage. Huawei’s management says it will not bow to U.S. pressure and says that the criticism will not deter its growth ambitions.
The Buzz: “This dynamic has been in play for awhile,” said Ciena CEO Gary Smith. “Huawei has such a large market share that we began to see carriers get overly sensitive about their dependency on a single vendor over the past couple of years. We represent a good alternative on a global basis.”
“There’s no way the U.S. can crush us,” said Huawei CEO and founder Ren Zhengfei in February 2019. “The world needs us because we are more advanced. Even if they persuade more companies not to use us, we could just scale things down a bit.”