Huawei's well-known security woes in a growing number of Western countries are creating opportunities for ultra-broadband wireless access vendors ADTRAN, Calix and Nokia.
That's good news for these vendors and for operators that have traditionally purchased Huawei solutions without considering one or more of these alternative developers, according to some analysts that track this segment. Today, for example, MKM Partners' Managing Director Michael Genovese called ADTRAN an "under-appreciated potential beneficiary" of Huawei's situation. Currently, Australia, the United Kingdom, the United States and New Zealand ban the use of the Chinese telco vendor's equipment, with some "shadow bans" -- i.e., less formal barring of Huawei technologies without ceremonial paperwork -- in place elsewhere. Several service providers, such as Orange (at least in France), also have stopped using Huawei, with Italy's TIM remaining one of the few public holdouts, although others are wavering.
Global Telecom Equipment Spending Forecast, 2015-2020
Nokia, Ericsson and Ciena are often discussed as benefiting from Huawei's plight, wrote Genovese. Likewise, within the ultra-broadband wireline ecosystem, competitors include ADTRAN, Calix, Nokia and Huawei, he wrote. ADTRAN's international sales for the first three quarters of 2018 represented 45% of sales, versus 24% in 2017 as the vendor saw more success abroad with customers such as Australia's NBN, Germany's Deutsch Telekom and Britain's BT.
"Investors have been discussing companies such as NOK, ERIC and CIEN as beneficiaries as Huawei is banned and shadow banned by a growing list of countries over Cyber Security concerns. We believe that Adtran should be included in this discussion," Genovese wrote. "We don't think it's necessarily a coincidence that Huawei had less success in some of these countries. We think this trend of increasing wins in countries where Huawei is locked out could continue for Adtran in 2019, just as it likely will for Nokia and Calix."
Within the United States, the Federal Communications Commission's additional funding for Connect America Fund II provides more money for tier two and tier three providers, as well as municipalities and utilities -- types of operators both Calix and ADTRAN have successfully wooed. Both vendors paid extra attention to these groups during their own events this year, each hosting specific panels or speakers that specifically addressed those providers and their markets.
The only near-term hurdles ADTRAN faces are lower CenturyLink sales compared with the year-ago period and uncertainty over AT&T's Gfast plans, with business drivers for 2019 including ongoing growth within cable MSOs for fiber-deep architectures and EPON, and NBN for multiple technologies including FTTx, PON and Gfast, Genovese wrote.
"First, and most importantly, is the company's share gains in the Cable MSO market … MSOs will likely be ~5% of ADTRAN's sales in 2018. This should grow to 10%-20% in 2019," he continued. "ADTRAN is currently ramping sales to NBN in Australia, a country that recently banned Huawei. We think there could be more wins like this in the future for ADTRAN."
Nokia should fare well due to its extensive produce line-up and spending on R&D, wrote Thierry Guermann of S&P Global in "Can European Telecom Equipment Vendors Regain Investment-Grade Status?," a 2017 paper that predates some governments' Huawei security worries but delivers a lot of insight into vendors such as Nokia and Ericsson. This array gives operators many options; Nokia's embrace of open source and standardization should serve it well as Huawei's woes once again underscore the communications industry's need for mix-and-match pieces for their intricate network puzzles.
Given Huawei's extensive array of technologies, its absence creates a vacuum as operators and their end-customers make plans and investments for 2019 and beyond. After all, CenturyLink's 2017 acquisition of Level 3 and the subsequent planning and integration phases impacted both Calix and ADTRAN financials via changed or postponed product purchases. Operators' mandated (or potentially regulated) inability to buy a specific vendor's many, many products will undoubtedly send shockwaves around the industry that will go on for years.
These tremors, however, do provide a big opportunity for Huawei competitors -- especially those able and willing to integrate, where possible, with Huawei products already inside their networks. With service providers worldwide (along with enterprise network and data center IT departments) expecting to spend more than $7 billion on PON by 2022, they cannot indefinitely wait around for their governments' minds to change.
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