'We aim to expand our industrial park geographically within 1-2 years'

One of the top manufacturers and suppliers of copper and fiber optic cables for operators and corporates, Japanese firm Furukawa has managed to ride the ongoing wave of connectivity demand despite increasingly rough macroeconomic waters.

In its last fiscal year, the group's Latin America unit, which comprises plants in Brazil, Argentina, Colombia and Mexico, as well as operations in several other markets, saw its revenues rise 32% compared to the previous fiscal year.

Projected revenue growth for the current fiscal year is slightly lower at 15%, as the firm's expansion is expected to normalize after the effects of the 2021 post-pandemic pick-up, Dário de Menezes, head of sales for international markets at Furukawa Electric LatAm, tells BNamericas.

In this interview, the executive also talks about persistent problems in the supply chain, upcoming elections in Brazil and Colombia, restrictions on imports in Argentina and the process to redraft the constitution in Chile, in addition to the arrival of neutral networks in Latin America, among other topics.

BNamericas: Nearly halfway through the year and considering the macro scenario and demand for connectivity, cables and fibers, how does Furukawa see the market and what are the prospects for the rest of the year?

De Menezes: We’re in beginning-of-the-year mood. Furukawa's fiscal year ends in March and the new one begins in April. All of our current planning was done thinking about April onward.

Fiscal year 2021 was a very good year for Latin American operations as a whole, particularly because 2020 was relatively bad, one in which we ended up having a little decline [in business]. So 2021 was a year of recovery. We returned to pre-pandemic levels, and even surpassed them, growing 32% in sales [in Latin America].

We continue to undergo a major logistical crisis. This crisis has affected us a lot: lack of raw materials, increase in costs, difficulty in obtaining containers, booking of ships. All sorts of logistical woes. But there’s a small detail: this logistical difficulty has affected our competitors more than us.

BNamericas: In what way?

De Menezes: Our competitors have suffered much more because they import more than we do. We import supplies, they mostly import products. We have factories, a very geographically broad distribution chain, a strong network of integrators.

So, we struggled with all these problems, we continue to struggle, but our competitors have struggled much more.

For Furukawa it has even been an opportunity to supply customers who were and are facing this deficit with other providers – one more reason we grew the way we did.

BNamericas: So you managed to gain a little more market share from rivals?

De Menezes: A lot, it wasn't a little. 

And 2022 continues with that promise of growth. The logistics crisis continues. We don’t see a horizon for a solution in the next year at least, not least with the political and economic scenario still very troubled in the region and throughout the world.

Latin America has two macro events that are complicating things a bit more. One is the elections in Colombia. Everyone is holding up investments, waiting to see what will happen. And also Argentina, with a macroeconomic event regarding restriction of imports.

The [Argentine] government started to adopt some measures at the beginning of the year to restrict more imports. We fully understand the government's goals of retaining dollars, improving the trade balance, but this also ends up affecting our raw material imports.

BNamericas: There are also elections in Brazil and the constitutional process in Chile.

De Menezes: Yes, and these factors also play a role, contributing to the lack of robustness in the resumption of business in the region.

But the aspect of [supplying] electronic components, electronic assets, is really very complicated. 

BNamericas: What measures have you adopted to minimize that?

De Menezes: We bought some companies in this segment. We now have a robust team of asset and software engineers. But in general, the only thing we can do is make a longer-term forecast. Because with this electronic equipment, we’re buying now to receive and sell [the finished product] a year from now.

BNamericas: With the increase in interest rates to fight inflation, financing by companies with banks to buy products, for example from Furukawa, is more expensive. I know Furukawa has been offering credit lines to customers for a number of years. How is that going in the current scenario?

De Menezes: We consider the lines of credit with which we work to be insufficient [for demand]. 

In Brazil, we have several lines and it seems to us that they’re meeting the demand well. But elsewhere in Latin America it’s very incipient. And then in Argentina we have more difficulty obtaining credit for our customers.

In some places, we're having to do our own financing. For example, in Mexico, for payment in 12 installments. But this isn’t a large-scale replicable economic model we envision. We really want partnerships with banks and financial institutions to improve credit for customers. We have one with Santander, which is reasonably robust in several countries.

We are extremely active in conversations with banks, but interest ends up getting in the way and we end up not deploying those lines.

BNamericas: And despite all that, there’s continuous demand for fiber and cable from operators and ISPs. How should Furukawa's growth in the region look in its current fiscal cycle?

De Menezes: The growth for this fiscal year won’t be that great, because 2021 had a lot of bounce-back effect from 2020, a lot of investment that had been held back. 

We believe we’ll grow at more normalized rates this year, at around 15%.

BNamericas: And regarding production volume, what is Furukawa’s forecast output for this year in the region?

De Menezes: There’s pent-up demand for fiber worldwide. With China resuming the rollouts of connectivity projects, this has generated more demand than the supply in place. And there are also supply chain difficulties in the optical fiber area. 

We foresee growth in production more or less proportional to our sales growth as a whole. We expect to grow by 15% in copper and fiber production.

BNamericas: Is copper still relevant?

De Menezes: Demand for copper is still strong, mainly for LAN [long-area network] cables. We had surprising growth in this line.

The reason for that is that macroeconomic events often affect structured cabling very strongly, much more than it affects telcos. Operators are generally less susceptible to the macro environment, sticking to their deployment planning to a greater or lesser extent. 

In structured cabling, no. Roughly speaking, if the economy drops 2%, so does LAN cable. In 2020, LAN cable suffered a lot, but saw a strong recovery in 2021.

BNamericas: Hasn't remote work slowed down sales of structured cabling? For corporates, for example?

De Menezes: Yes, enterprise has decreased significantly, but residential has increased. 

There was some migration [of demand] from corporate to residential within our line of internal networks. But where we felt the most robust growth was in broadband, in providing access to the subscriber's home. FFTH took a huge leap in 2021.

BNamericas: Do you plan to increase production in the region to meet demand?

De Menezes: We do. We have investments that are still under confidentiality terms, possibly for new plants. But we can’t disclose them yet.

What can be disclosed is capex of US$13mn for the region within the 2022 horizon, that amount being divided by regions, by manufacturing clusters, between Brazil, Colombia, Argentina .... 

In Argentina, the only detail is that the investment planned for this year, which should have begun to be allocated at the beginning of our fiscal year, is frozen because of the restrictive policy of the Argentine government.

We had machines ready to export to Argentina, to be imported from our unit in Argentina, but we put that on hold. There's no point in putting machines there if we can't even feed the current machines we have with raw material.

We really want to resume this investment, but for now it's no use.

BNamericas: And when do you think that can be resumed?

De Menezes: As soon as the government signals a policy change in the restriction laws. It's not that we don't want to. It's just that we won't be able to import raw materials.

BNamericas: Are there any negotiations?

De Menezes: We’re talking directly with Fipe, which is Argentina's regulatory body [and] also with other entities. 

Our argument is that, yes, we understand the politics, the end goals, but please separate raw materials. It makes no sense for domestic industry. The government agrees with that, but hasn’t yet taken any steps to make such exceptions. We hope this gets resolved soon.

BNamericas: That US$13m investment planned isn’t a huge amount. Does that rule out new plants and expansions? Are the investments basically for machinery?

De Menezes: That's basically expansion machinery.

BNamericas: So there are plans for new plants, although the details haven’t yet been made public.

De Menezes: There are. We intend to expand the industrial park geographically within a horizon of one to two years.

BNamericas: What changes have you seen in the market?

De Menezes: We’ve perceived a lot of change in the last two or three years. Lots of neutral networks entering the region. It's an interesting model. Operators have been looking at that for a long time.

We see investment funds operating these neutral networks, which seems to us to be an interesting model as well. We’re very much in tune with these new players, supplying virtually all of them.

And the great technological novelty, in our view, the great topology of the future, is the multi-fiber networks. 

They’re here to stay and they meet the needs of these new players. They’re ultra-fast, 12-fiber networks, pre-connectorized, plug-and-pay. It’s a very strong topological trend in these neutral networks, above all, and a network that’s very easy to install.

Datacenters have been using pre-connectorized networks for a long time, indoors. And now we're seeing this, these quick-to-install, water- and dust-resistant networks for operators in the region. Practically all operators in Latin America are either doing it or are studying them.

BNamericas: Speaking of datacenters, how important has this segment been for Furukawa? 

De Menezes: Since we launched our cabling unit for this sector, 10 years ago, it’s been growing in market share year after year.

We have specific products and solutions for it and it's a segment in which new technologies, the new 5G architecture, edge computing, will play a strong role in helping to boost growth in the next three to five years.