The current first quarter 2016 outlook for the wireless base station original equipment manufacturer market is weak according to the latest report from EJL Wireless Research titled “Vector Analysis of Wireless Infrastructure Industry Q4 2015 Review and Q1 2016 Outlook.” The analysis covers the wireless BTS OEM supply chain and specifically the major BTS OEMs including: Ericsson, Huawei Technologies, Nokia Networks, Samsung Electronics and ZTE.
Coming off of a seasonally strong Q4 2015, the current outlook, before any impact of the short-lived ZTE export ban, was a decline in demand into the BTS OEM supply chain. Since the ZTE ban, the outlook for Q1 has worsened and will definitely have a negative impact on Q2 2016.
We have initiated a net negative outlook rating for the wireless BTS OEM supply chain for Q1 and Q2 of 2016, with a potential recovery in the second half of 2016. This does not reflect any future impact regarding that situation with ZTE, which the Commerce Department will re-evaluate on June 30, nor does it necessarily indicate end market shipments and demand of BTS equipment have a negative outlook for 2016. It merely implies a potential excess inventory situation within the BTS OEM supply chain with the possibility of a soft end market demand situation. The first quarter also has a seasonal inventory build up due to the celebration of Lunar New Year and factory closures across China and Asia Pacific in the late January/early February timeframe within Q1.
ZTE situation update
The latest update from the U.S. Commerce Department indicates it will temporarily lift the export ban for ZTE from some licensing requirements on the condition that ZTE will abide by commitments to the U.S. government. U.S.-based suppliers can resume communications with the company once the official date of the temporary relief has been determined. This will also imply ZTE has stopped all activity to the countries on the banned list and will comply with current U.S. export restrictions. The immediate snapback of shipments will force suppliers to resume logistical operations and shipments to ZTE, which could take some time to ramp up again. This will most likely improve the current Q2 outlook for the supply chain.
Another Chinese company under investigation
One caveat to all of this is the fact that within the ZTE documents were references to another Chinese telecommunications equipment supplier ZTE specifically cited as also having participated in illegal activities similar to the ones ZTE was punished for. What is unknown at this point is what information and evidence the U.S. Commerce Department may have already found and what any future investigation may find.
Ultimately, there could be the potential another Chinese company ends up on the entity list and the impact of such an event would be potentially catastrophic for the semiconductor industry.
