Omdia view
Summary
DZS filed for Chapter 7 bankruptcy on March 14. Its US operations have ceased and a liquidation proceeding has commenced. Its foreign subsidiaries may continue to exist and a Chapter 7 trustee will evaluate how to proceed with them. This article examines the wider consequences of this development and the reasons for DZS’s struggles.
Opportunities for vendors to benefit from DZS’ Chapter 7 bankruptcy
It would be challenging for established players in the optical line terminal (OLT) and optical network terminal (ONT) segments to acquire DZS’s assets because many such companies are already pushing into new markets with their own portfolios. However, on April 7, Managed Network Systems, Inc (MNSi) agreed to acquire DZS’s assets, although the deal is subject to the approval of a United States Bankruptcy Court hearing scheduled for the end of April. MNSi is an internet service provider based in Canada and is one business owned by the Zekelman brothers, who are among Canada’s wealthiest citizens. Zekelman Industries is a major player in the North American steel pipe and tube manufacturing sector.
MNSi states that it intends to establish a new corporate entity in the US under the name Zhone. It intends to restore customer support and fulfil DZS’s order backlog. Nevertheless, if the acquisition proceeds, these assets could take time to integrate, and operators relying on DZS equipment may want a quicker resolution.
As DZS continued to struggle, it competed more on price, so downward pricing pressure could ease to a limited extent in EMEA and North America, particularly if the proposed MNSi transaction does not go ahead. DZS’s demise may benefit OLT and ONT players that are seen as financially strong and stable, as no operator wants to risk not being able to offer services to customers. This may encourage operators to pay a little more for peace of mind. Vendors are also promoting the interoperability of their OLT and ONT equipment. OLT vendors could swap out DZS OLTs without touching DZS or another vendor’s ONTs if the potential new OLT vendor has achieved widespread interoperability. A new ONT vendor can step in to connect new subscribers if it can show interoperability with any existing DZS OLTs. More generally, recent discussions have pointed to significant improvements in OLT and ONT interoperability.
Omdia’s historical data on DZS’s OLT and ONT shipments provides insight into the opportunities for other vendors. Since early 2016, DZS is estimated to have shipped around 1 million OLT ports, out of approximately 38 million shipped outside of China during this period. Regionally, DZS’s OLT port shipments since 2016 represented 4% of the total in North America and 2% in EMEA. There are similar trends on the ONT side, with DZS accounting for 3% of global ONT shipments (excluding China) since 2016. This figure was also 3% in North America and 2% in EMEA during the same timeframe. While the scale of the opportunity is modest, there are still openings for other vendors to capitalize on.
DZS played a notable role in the passive optical LAN (POL) segment. In the last year, while somewhat unique, China has demonstrated rapid growth in this area. Although explosive growth outside of China is unlikely, POL still represents a sizeable niche market that vendors should consider exploring. Omdia plans to examine opportunities in the POL sector in detail in a report due for release later in 2025.
DZS struggled to develop a coherent and targeted approach and was also the victim of specific misfortunes
As part of its strategy, DZS acquired assets that, while attractive in and of themselves, perhaps did not fit with the company’s wider portfolio. In 2022, DZS acquired parts of the portfolio of vendor ASSIA, including its Wi-Fi management software. ASSIA had strong products, but DZS faced challenges because there were limited synergies from selling ONT hardware and Wi-Fi management software that can run on these devices. Often, this is because operators have ONTs from multiple vendors in their networks and so focus on using Wi-Fi management solutions that are adept at dealing with this situation. Independent Wi-Fi management software vendors without an ONT business, such as Plume and Airties, also retain their importance. In 2024, DZS acquired NetComm, whose portfolio included fixed wireless access (FWA) CPE. The FWA market is growing, for instance, driven by India and the US, but such acquisitions may have led to a lack of focus on the core PON business.
DZS also faced challenges with timing. In 2021, the company acquired Rift, a network orchestration and software automation vendor, as well as Optelian, an optical transport vendor. This was followed by the acquisition of ASSIA in 2022. During this period, the PON sector, which forms the core of DZS’s business, appeared to be thriving. However, in hindsight, it has become clear that much of this strong performance was driven by operators placing large orders due to concerns over potential pandemic-induced supply chain disruptions ‒ something that was not fully recognized at the time.
In addition, DZS’s business was geographically dispersed. This was a challenge for DZS because it meant the vendor had to meet a diverse set of needs from operators in different regions, which led to costs and complexity in supporting a high number of product stock keeping units (SKUs). DZS had already recognized this challenge, and in January 2024 announced it was divesting its Asia business to DASAN Networks Inc. (DNI), a major shareholder in DZS. The divested operation was essentially the DNS business that merged with Zhone to form DZS in 2016. At this point, Asia Pacific accounted for around 50% of the vendor’s revenue, with the remainder split between North America and EMEA. Faced with a PON OLT business that is regionally diverse, there may be more opportunities for smaller players that have a greater focus in one region versus players such as DZS that had much less focus on an individual region.
Adding to its difficulties, DZS encountered other specific misfortunes. Notably, the company underwent a lengthy process to restate its financial results for 2022 and 1Q23, related to its operations in Asia. This process was finally completed in August 2024, and would have had an impact on the vendor’s credibility. Furthermore, DZS missed multiple deadlines for these restatements, ultimately leading to it being delisted from the NASDAQ stock market index in August 2024.
Appendix
Further reading
Fiber and Copper Access Equipment: Revenue – 4Q24 (March 2025)
Fiber and Copper Access Equipment: Units – 4Q24 (March 2025)
Author
Stephen Wilson, Senior Principal Analyst, Broadband Access Intelligence Service
