Recently, NeoPhotonics announced the second quarter financial results that Huawei’s strategic inventory plan will be completed. In this regard, ICC extracts from the analysis of Light Reading editor Mike Dano.

The industry widely believes that Huawei is stocking more equipment and devices provided by the United States to prevent President Trump from completely banning US and Chinese suppliers from doing business. However, at least one Huawei supplier stated that Huawei’s inventory accumulation has now been completed.

NeoPhotonics CEO Tim Jenks said in the company’s recent quarterly performance report: “Last year, we have reported that our largest customer plans to build strategic inventory due to trade tensions. We believe that at this stage they have achieved their goals.”

If it is true, customers who suspect that Huawei cannot provide the necessary order products need not worry.

Wall Street analysts at MKM Partners wrote in a note to investors: “We believe that the worry that Huawei may ‘run out’ of high-quality semiconductors may be overstated. Huawei will exist for a long time, although its global market share may be lower than the previous level.”

According to NeoPhotonics, Huawei currently has no plans to increase its reserves. On the contrary, Jenks of NeoPhotonics said that he hopes that the Chinese equipment manufacturer’s device purchases in NeoPhotonics can be restored to the original order level. He explained: “The trade tensions put Huawei in a unique position. They have established a strategic inventory. We hope that they will continue to purchase products based on market demand and operating rates instead of gradually consuming their strategic inventory.”

In May, the Nikkei Asian Review reported that Huawei had stockpiled key US chips from companies such as Intel and Xilinx for two years. The media quoted anonymous sources as reporting that after the arrest of Chief Financial Officer Meng Wanzhou, Huawei began purchasing chips at the end of 2018. However, the media also reported that TSMC, as a major international chip supplier, has stopped accepting new orders from Huawei in response to US moves. However, Huawei executives have managed to assure at least some customers that the company is not in danger of running out of reserves. NeoPhotonics’ comments are consistent with this view.

Importantly, NeoPhotonics stated that it expects to continue to provide Huawei with its optical network components, but it will not stock up for the future at an extremely fast speed as Huawei did during the inventory accumulation period.

Jenks said: “We expect that the proportion of Huawei’s revenue will shrink as a result, because in the past year, due to Huawei’s accumulation of strategic inventory, Huawei’s proportion of our revenue is higher than normal.” According to his estimation, under normal circumstances, Huawei’s contribution to NeoPhotonics’ revenue is between 30%-40%, but it has reached about 50% in the past year. “Now, looking forward to the next quarter and next year, we expect that Huawei’s revenue contribution to the company may change.” It implies that Huawei may face a decline in some markets.

MKM Partners analysts agree. They wrote: “This means that as Huawei cedes its market share outside of China to other NeoPhotonics customers, the equipment manufacturer’s revenue contribution ratio to NeoPhotonics should drop to 25%-35%. From NeoPhotonics second. In terms of quarterly performance, Huawei’s business looks like that it should be more durable than we feared.”

NeoPhotonics lists Huawei and Ciena as its largest customers, as well as companies such as Cisco, Nokia and ZTE. In May 2019, the Trump administration began to take action against Huawei, which led to chaos for many American companies, NeoPhotonics was one of them. Indeed, as soon as the news came out, NeoPhotonics’ stock price plummeted, but the company’s stock price has risen to the level before the Trump administration’s ban on Huawei.

For Huawei, despite its substantial revenue growth in the first half of 2020, with increasing opposition from the United Kingdom, France, Brazil and other countries, the company’s long-term prospects may be unpromising.