There could be upside for telecom gear maker Ciena (CIEN) from the U.S. Commerce Department’s decision to ban domestic firms from selling components to Chinese telecom gear maker ZTE, analysts said Tuesday.
Ciena largely avoided the carnage that hit the likes of Acacia Communications (ACIA) and Oclaro (OCLR) on Monday, in which Acacia plummeted 36% and Oclaro tumbled 15%. Meanwhile, shares of Ciena edged up a fraction on Monday. On Tuesday, it rose 1.2% to 26 on the stock market today.
“We think that Ciena stands to be a potential winner here. Ciena competes with ZTE in the international market. It stands to reason that ZTE — without access to critical components from the U.S. — could have a drastically compromised ability to deliver products and compete,” said George Notter, a Jefferies analyst in a report. He says Infinera (INFN) and Nokia (NOK) also could benefit from the ban on component sales to ZTE.
Acacia, Oclaro and other optical device makers took a hit after the commerce department issued new sanctions on ZTE. The sanctions follow a probe into illegally shipped equipment to Iran and North Korea. Department officials determined that ZTE has violated terms of its 2017 settlement agreement with the U.S. involving the shipped gear.
Companies could be banned from selling components to ZTE for up to seven years. Ciena, like ZTE, makes optical communications systems built into telecom networks.
Others Will Benefit
Simon Leopold, analyst at Raymond James, has a similar view to that of Jefferies’ Notter.
“We believe Huawei, Nokia and Fiberhome are best positioned to pick up business ZTE loses in China,” Leopold said in a report. “Ciena would join the list when considering opportunities outside of China.”
Market research firm IHS says Huawei holds 29% of the global market for optical systems, with Ciena at 14%, and ZTE and Nokia both at 13%.
The commerce department initially probed ZTE’s sales to Iran in 2016. The Chinese gear maker pleaded guilty last year in federal court in Texas for conspiring to violate U.S. sanctions to Iran.
ZTE paid $890 million in fines and penalties and agreed to take other steps but has not followed through, the commerce department said.
After Monday’s big losses, Acacia was up 0.5% to 26 on Tuesday while Oclaro rose 4.6% to 8.36.
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