Colombian elections, Argentine import restrictions hurdles for Furukawa

Furukawa Electric LatAm, the regional unit of Japan’s structured cabling and optical manufacturer Furukawa, projects another year of double-digit revenue growth as demand for cabling from telcos and other sectors remains heated. But there are hurdles ahead.

On top of disruptions that were already in place and that have worsened in recent months, namely those related to inflation, interest rates, freight and components, Furukawa also sees electoral processes and country-specific political decisions adding unpredictability to the business environment.

“Latin America has two main macroeconomic events that end up troubling the scenario a bit. One of them is the election in Colombia [for president on May 29], which causes a bit of turmoil and leaves the environment a bit more unstable, with decision-makers holding back investments a little to see the outcome, what will happen,” Dario de Menezes, international markets sales VP at Furukawa Electric LatAm, told BNamericas.

The other event, according to the executive, refers to the import restrictions that began to be adopted at the beginning of the year by the Argentine government to curb the outflow of US dollars and improve the country's trade balance.

In addition, elections in Brazil and the process of the new constitution in Chile are also seen as challenges for the "resumption of business in a more robust way" in the region.

SO FAR SO GOOD?

Despite the more adverse outlook, Furukawa's revenues in Latin America grew 32% year-over-year in its last fiscal year ending March.

Sales were driven, among other factors, by fiber-based network expansion projects by operators and ISPs. The high growth rate, however, was also influenced by the relatively poor sales performance in the immediately previous pandemic period.

“2021 was a year of recovery, in which we returned to, and even surpassed, 2019 [Latin America sales] levels,” de Menezes said.

For the current fiscal year, revenue growth should be at a more “normalized pace” of around 15%, he said.

The company has a variety of bets in place. 

This month, it launched a new version of a fully dry and compact optical cable in the region, which expands its line of products for applications in backbone or backhaul networks, for connection with points of presence and also between datacenters.

Furthermore, Furukawa's development center in Curitiba, Brazil, just ran performance tests for a 400Gbs optical network for datacenters.

The tests were carried out in partnership with Viavi Solutions and II-VI Incorporated and are part of Furukawa's goal to increase products, solutions and services to support current and future 400Gbs applications for datacenters.

MANUFACTURING

Furukawa has plans to expand regional manufacturing and open new factories, said de Menezes, although according to the executive details for now are confidential.

Furukawa Electric LatAm is headquartered in Brazil, where it maintains factories in Curitiba, Sorocaba and Santa Rita do Sapucaí. Overall, 75% of the company's regional sales are in Brazil.

The group also has plants in Berazategui, Argentina, opened in 2008; Palmira, Colombia, opened in 2015; and Mexicali, Mexico, opened in 2017.

Investment in machinery – that is, excluding expansions and new factories – is projected at US$13mn for this fiscal year in Latin America. The amount will be shared among the markets where Furukawa has production sites.

One exception – at least for now – is Argentina. There, according to de Menezes, these investments are “on hold” due to the government guidelines regarding imports.

While stressing Furukawa “respects and understands” the declared goals pursued by the Argentine government with the measures, he said they inevitably prevent the company from making the planned investments as its expansion relies on materials that need to be imported.

De Menezes added that the group has been holding ongoing talks with regulators and sector entities to reach a consensus on the matter and try to at least relieve part of the import restrictions.