Prysmian to create datacenter unit as it welcomes Brazil fiber import tariff hike
Italian cabling manufacturer Prysmian will create a business unit focused on datacenters to better capture opportunities in the segment in Latin America, said Brazil CEO Emerson Tonon.
“We see accelerated growth in the segment. We’re working to create a structure within the company focused on this business. Not only for the supply of optical cable, but also of power cables,” Tonon told a press conference on Monday.
He did not provide details on when the unit will be created nor its size but highlighted what he sees as “comparative advantages” for the company.
Unlike some of its main competitors, which are more focused on communications, Prysmian has a strong presence as a provider of cables and fiber optics for both the telecom and technology sectors and for energy and utilities.
In the first half of the year, the group reported 7.82bn euros (US$8.4bn) in sales, down 3% year-on-year, with a positive contribution from the transmission (+9.5%) and power grid (+1.7%) units being offset by sales contraction in electrification (-3.8%) and, especially, digital solutions (-23.5%).
The drop in digital is mostly related to weaker fiber sales to carriers and internet service providers. Despite that, Prysmian sees opportunities in the long run for the segment – datacenters included.
“The long-term growth drivers for the digital solutions business remain unchanged, driven by massive data growth as well as the increase of FTTH, 5G coverage and datacenters. Prysmian is well-positioned to seize the opportunities offered by digitization,” the company said in its H1 results report.
Last week, Nokia also announced that datacenters will be a company priority for the coming years, offering optical systems for connection both between and within datacenters.
TARIFFS
During the press conference, called by Prysmian to comment on the government's decision to raise import tariffs on fiber optic cables, Tonon said he expects the Brazilian telecom market to regain some balance in the coming quarters.
The increase in tariffs to 35%, initially for six months, is targeted mainly at Chinese fiber, which Prysmian and competitors such as Furukawa and Cablena claim is illegally subsidized by Beijing.
“This measure is very positive and unprecedented. We had [tariffs] applied to both optical cable and fiber. The main objective was to help us stop for a while, breathe, halt the bleeding,” said Tonon, adding that the decision gives "time to organize ourselves.”
The company is now drawing up a new industrial plan for next year, which includes defining commercial strategies and the sizing of local production capacity, the executive said. The leadership in Italy will come to Brazil in November to discuss the topic, he added.
Due to the low prices of Chinese fiber, which according to Prysmian are 60% cheaper than its own, the company lost market share and had to downsize operations at its plant in Sorocaba in São Paulo state.
The factory, the only one in the industry in Latin America dedicated to the full cycle of fiber production, was at risk of being closed. For now, full shutdown plans are on hold.
Last year, the unit was halted for three months to adjust inventories. It is currently operating at 40% of capacity in fiber and 50% in optical cable production.
In fiber, the Sorocaba plant’s current output is 100mn km monthly, whereas its capacity is 250mn km, said the executive.
Tonon said October was the internal deadline for the Italian parent to decide on the fate of Brazil production. If no market measures are adopted this month, it will probably be shut down.
The Brazilian government announced the tariff increase last week and it will be applied as soon as the decision is published in the official gazette, which happened on Monday.
Meanwhile, a dumping investigation is running in parallel and could last up to a year before any anti-dumping measure is introduced.
However, Inaiê Reis, legal director of Prysmian for Latin America, believes that at the beginning of next year, preliminary anti-dumping measures could be applied by the Brazilian government.
In any case, she stressed, the import duty is applied to all importers while potential anti-dumping measures are targeted only at Chinese products.
MEXICO
In Mexico, the company still has its Durango plant halted.
In April, Mexico raised fiber import tariffs to the same 35% rate now applied by the Brazilian government.
At the time, Prysmian’s Latin America executives said they were considering resuming operations in Durango in light of the tariff increase.
Tonon, however, said demand in the US market, which is the main focus of Durango’s production, remains weak and does not justify resuming operations.
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