We have known for some time that HiSilicon, a Huawei-related company, was developing PON MAC (media access control) chips. We now know that HiSilicon’s chips are being used in some of Huawei’s GPON OLT (optical line terminal) systems.
This means that Huawei is adopting a vertical integration strategy in FTTx PON. In addition, we believe that Huawei is researching FTTx optical transceivers and ways to reduce the costs of the optics and related components. If successful, Huawei would be able to save further on its bill of materials (BOM).
We believe that it will become increasingly difficult for the non-Chinese system vendors, and possibly even ZTE, to compete with Huawei. These system vendors need to consider the benefits and risks of acquiring component vendors versus the savings in BOM. The key deciding factor may be the size of the FTTx PON market that they could hope to win with a vertical integration strategy versus market share without such a strategy.
The news that HiSilicon’s OLT chips, which go into the central office, are ready and are being deployed in Huawei’s GPON equipment is not a surprise to PON chip vendors. In fact, it was only a question of when they would become ready. For all PON chip vendors (except HiSilicon), the longer it took, the better, as they had more time for design wins and chip sales.
EPON chip vendors, while concerned, had the first-mover advantage in Japan, Korea, and even China, all countries where EPON has been dominant. While Huawei might choose to use the HiSilicon chip for EPON OLTs, its chip would need to be backward-compatible with more than 1.5 million EPON OLT ports that Chinese vendors have shipped for deployment in China alone. In addition, it is unlikely that Japan and Korea’s equipment vendors would begin to replace their chip solutions given their stage of EPON deployments and favoritism to national vendors.
GPON chip vendors have greater reason for concern. GPON has not been deployed in the same volume as EPON and many deployments are new, implying that Huawei could more easily replace chips from current GPON OLT vendors with HiSilicon’s chip.