Fiber-optic cable expansion failed to stop profit from falling for the first half of the year

This overcapacity that began in the second half of 2012 finally wakes up China's fiber optic cable companies. In the semi-annual financial report of 2013, several major listed companies took "overcapacity" as their top priority, and were presented in the financial statement. The situation of “income and profit” has been changed steadily, and this time they have either experienced a drop in revenue, or they have had unsatisfactory profits.

Tongding Optoelectronics revenue fell by over 10%, Hengtong Optoelectronics lost a one-time dividend of RMB 90 million, its profit dropped sharply, Fenghuo Communication's profit increased slightly, and Zhongtian Technology’s revenue and profit increased by nearly 20% year-on-year. The decline in profit margins, the only special information that claims profit growth of nearly 60% year-on-year, was not due to the growth of the cable market. It was mainly due to the 61.5% stake in Guangxi Jiguang, the electrolytic aluminum business. In the 2012 financial report, several cable companies still achieved revenue and profit growth of more than 12% in the winter of the entire communications industry. Hengtong Optoelectronics achieved a 35% profit growth.

At the beginning of this year, the prices of fiber-optic collectors have been renewed to new lows in recent years, and excess capacity has exacerbated the fierce price war.

Expansion cannot stop

Just a year ago, China's optical fiber cable industry once welcomed its first price increase in nearly eight years. Now, this is mainly due to the industrial stimulus brought about by the broadband China strategy. Most of the optical fiber and cable companies are betting that "demand will increase by 50%-100%." It now appears that the price increase at that time was like the return of the dream of "fiber shortage."

This proved to be a “yellow dream” a few months later. Broadband China’s strategy has always been without substantive policies. However, at the end of 2012, the price of fiber-optic collective procurement was a new low. In 2013, the price of China Telecom’s collective fiber was refreshed. Records in recent years. In this market that is already fully mature and free to compete, falling prices can only indicate "supply exceeds demand."

However, what's embarrassing is that the capacity expansion of fiber-optic companies is still lingering, and there are even many new players entering this market. "Overcapacity was caused by the blindness of everyone, but today we have been unable to stop." A senior fiber optic industry source told reporters: "In this market where core competitiveness is similar and companies have no bargaining power, only the scale costs and price Waiting for a shuffle."

In 2013 National Day, the first 7.5 million core fiber drawing project in Shandong Province will be officially put into operation. The Pacific Optical Fiber and Cable Co., Ltd. invested 380 million yuan, claiming to make up for the gap in Shandong Province, but it received 100% bad reviews from the industry. "The more you pull, the more you lose."

At the same time, mainstream manufacturers did not stop the pace of expansion. According to statistics from Shenyin Wanguo, Hengtong Optoelectronics' capacity in 2013 is expected to increase by 30% to 30 million core kilometers, and Zhongtian Technology's production capacity will increase by 40% to 20 million core kilometers. Tongding Optoelectronics will increase its production capacity by more than 250% to reach 25 million to 30 million core kilometers. It is now the second-largest fly in the world and has also expanded production.

A long-flying optical fiber cable executive told the reporter: “The optical fiber production capacity may exceed 185 million core kilometers, exceeding the market demand of 40 million core kilometers. Unless the market demand increases by 30%, the excess production capacity is unstoppable.” But this is basically unrealistic. "At this stage, broadband cannot significantly increase fiber demand, and LTE construction will also give priority to upgrading existing sites. It is not as obvious as the previous 2G and 3G upgrades." A FiberHome communications expert expressed this view: "2013 In the year, we cannot see the end of excess capacity."

The advantages of the whole industry chain are not obvious

In addition to achieving a certain price advantage by relying on the cost of scale, leading companies in optical fiber and cable companies have all played an integrated strategy of “stick, fiber, and cable” and hope that the entire industry chain will win. However, at present, this strategy is extremely unsatisfactory.

At present, domestic optical fiber and cable still follow the "7:2:1" law. The entire optical fiber cable industry profits, 70% concentrated in the optical fiber preform industry, 20% of the affiliated fiber, the remaining 10% of the ownership of optical fiber cable. Before 2010, China's optical fiber preforms basically relied on imports, and over 50% of imports were from Japan. After 2010, Hengtong Optoelectronics, Zhongtian Technology, Fiberhome Communications, Fasten, Zhongli and other companies have independently researched and developed optical fiber preforms. The huge import fees paid to foreign companies each year gradually return to China. The famous cable consulting company CRU predicts that At the end of 2013, China's light bar will be self-sufficient.

But this does not mean that fiber optic cable companies have added 70% of their profits. What is at a loss is that the pass rate, production cost, and drawing efficiency of light bars in the country are still lower than those of international companies. The production cost of light bars for many companies is even higher than the import price.

It is because of this that the availability of light bars has not significantly changed the profitability of companies. In the first half of 2013, the gross margin of fiber optic cable increased between 3-6%, while FiberHome Communications only increased 1%. In 2012, FiberHome's optical fiber optic cable gross margin even fell by 1%.

On the other hand, the advantages of the industrial chain brought by the whole industry chain are not obvious. "The bar-integrated companies will eventually eliminate companies that only have fiber optic cable." A senior industry source told reporters: "But this process was delayed by the operator's collection mechanism and even shelved."

As an end user, the three major operators need only optical cables. However, when the operator collects and collects optical fiber and optical fiber cable, it is divided into two. “Through fiber-optic pooling, operators have lowered the price of optical fiber, which is equivalent to pulling all cable companies to the same starting line.” The above sources said: “The optical cable companies are far more than optical fiber companies. Through optical fiber cable assembly, operators again One time, the price of optical fiber cable was lowered.” This centralized collection mechanism has actually caused the entire industry chain advantage to fall apart. At present, there are less than 10 domestic self-produced light bars and nearly 20 self-produced optical fibers, while cable companies are close to 60. The final profit of the optical fiber and cable industry is basically determined by these 60 companies.

Open source saves self-help

For domestic fiber optic cable companies, the choice is already in sight. "To enter overseas markets and ease domestic pressure" has become a consensus in the industry.

In the past two years, the hottest is the Brazilian market. “To host the World Cup and the Olympics here, Brazilian operators have begun to build a large-scale network.” Hengtong Optoelectronics and Fiberhome Communications have established factories in Brazil to achieve localization in the international market. “Although the international market is also highly competitive, the profits are much higher. ”

At present, FiberHome Communications has opened up emerging markets in Africa, Southeast Asia, and South America by virtue of the system advantages of optical communication systems, cables, and devices. In 2012, the international market started to realize a growth of 3100% in revenue; Hengtong Electric Co., Ltd. In the past two years, it has achieved an increase of more than 60% in the international market. This year's international market revenue is 120 million yuan, an increase of 99% over the same period of last year.

"On the other hand, these listed companies need to ensure adequate cash flow, reduce corporate management costs, and have the psychological preparation for the winter." An optical fiber industry analyst told reporters: "But now, these companies most of the pressure on financial costs, Management costs increase, and cash flow is not sufficient."

In the first half of 2013, the cash flow from Fiberhome Communication's operating activities and cash flow from financing activities decreased significantly, and the latter two companies experienced a year-on-year decrease of nearly 100%. Similarly, Zhongtian Technology's two cash flows were all negative. At the same time, however, both are increasing corporate investment spending, increasing cash flow pressure and also increasing financial pressure. The financial report shows that the main reason for the negative value of cash flow is the poor economic environment of the communications industry and the operator’s arrears. Operators that have been hit by OTT and do not increase revenues are transferring this pressure to the downstream of the industry.

In contrast, Hengtong Optoelectronics, a financial company, was established at the end of 2012 because it has strengthened its cost and cash back control, increased its operating cash flow, and effectively controlled its operating costs and financial costs. This was a rare highlight in 2013 for optical fiber companies.