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MSOs Slash Hardware Spending Again

Alan Breznick

In another down quarter for cable equipment vendors, shipment revenues for new edge QAM and cable modem termination system (CMTS) devices plunged in the spring, particularly in North America, according to the latest data from Infonetics Research.

In its new survey, Infonetics Research Inc. found that edge QAM and CMTS revenue in the critical North American market fell 27 percent in the second quarter from the same period a year earlier. The big drop in spending follows a decrease in the first quarter as well.

Edge QAM and CTMS revenue fell globally as well during the second quarter, but not nearly as much as in North America. Infonetics says worldwide equipment revenues slipped to $313 million in the spring, down 4 percent from the year-ago period and the second straight quarterly decline as well.

Jeff Heynen, principal analyst for broadband access and pay TV at Infonetics, blames the large North American revenue falloff on the "turnup" of a large number of software licenses by US and Canadian cable operators. MSOs use these software licenses to upgrade gear that they have already installed in their cable systems. But, while they pay for these licenses when they carry out the upgrades, they don't shell out as much per port for software as when they buy new equipment.

As a result, North American port pricing fell about 15 percent in the quarter even as cable operators boosted their capacity to offer new broadband and video services, Heynen says. In turn, overall revenue fell as well.

"Once again, the cable broadband market aggregation market is a tale of opposing trends," he adds. Namely, there was "increasing channel capacity to support DOCSIS 3.0, multiscreen, and OTT video, and decreasing price-per-channel."

With the first cable operators now starting to deploy next-gen Converged Cable Access Platform (CCAP) equipment in their systems, Heynen says CCAP is starting to have an impact on the cable broadband hardware market. He noted, though, that most MSOs are initially using the new CCAP gear "as nothing more than dense CMTS and edge QAM platforms," not as integrated devices for processing both data and video channels in the cable headend.

Heynen predicts that the growing CCAP deployments will cause further pricing erosion in 2014 and 2015. But he argues that overall revenues will still rise because channel volumes will soar even more. In fact, Infometics' latest forecast calls for global revenues to rise to $2 billion by 2017, up from about $1.3 billion this year.

"2013 will be the nadir of recent and future years," he said. "But good times lay ahead as channel volumes across the board should more than offset the continued ASP [average sales price] erosion."

Looking at the latest quarterly vendor rankings, Cisco Systems Inc. (Nasdaq: CSCO) retained its CMTS market edge over Arris Group Inc. (Nasdaq: ARRS) in the spring. Cisco, which had dropped to second place in the rankings last fall, took home 51 percent of the CMTS revenues for the second straight quarter, according to Infonetics. Arris finished a strong second place with a 42 percent revenue share, thanks in part to its acquisition of Motorola Home in April. Casa Systems Inc. moved up to an 8 percent share, thanks in large part to its head start in the still-emerging CCAP market.

On the edge QAM side, Cisco came out ahead with a 32 percent market share, edging out Harmonic Inc. (Nasdaq: HLIT) and Arris.

— Alan Breznick, Cable/Video Practice Leader, Light Reading

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8/30/2013 | 2:37:58 PM
Impact of CCAP
OK. To me, the big questions here are what kind of impact CCAP will have on the cable broadband equipment market and how soon that impact will be greatly felt. We're also still waiting to see what Harmonic, CommScope and other possible candidates will do in the CCAP vendor space. We'll entertain any and all predictions here. 
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