CommScope Suffers Broadband Slump
CommScope is not getting a lot of love from the cable broadband market these days. In its second quarterly earnings report since going public again with a 4,437 million IPO in late October, CommScope Inc. reported net sales of $846.6 million, nearly flat with $848.2 million a year ago.
It also reported adjusted net income of $54 million, or 30 cents per diluted share, up on a total income basis, although down slightly from the year-earlier period on a per share basis. Financial analysts who cover the company generally praised the company's performance for the final quarter and the year, highlighting the gains of its main wireless equipment segment. (See CommScope Settles for Reduced IPO Price.)
But what those healthy overall figures mask is that CommScope's smaller broadband unit suffered at least its second straight double-digit percentage decline in the fall. The company's broadband segment sales dropped to $109 million, down 13% from $125 million in the last quarter of 2012. Worse yet, its broadband unit posted an operating loss of $3 million for the quarter, after registering a $7.5 million gain a year earlier.
The twin declines came after CommScope endured a 16% drop in broadband segment revenues to $125 million in the third quarter. Adjusted net income for the segment fell 69% to $4 million in the summer period on a year-over-year basis.
CommScope blamed the continuing broadband shortfalls primarily on "lower sales volumes and less favorable pricing and mix of products sold." The company, which plays in the cable, fiber, and access network space, hawks such prime products as coaxial cable, fiber cable, cable in conduit, FTTX solutions, and edge QAM devices. In addition, it has been trying to expand into the emerging market for next-gen Converged Cable Access Platform (CCAP) devices along with such established rivals as Cisco Systems Inc. (Nasdaq: CSCO), Arris Group Inc. (Nasdaq: ARRS), and Harmonic Inc. (Nasdaq: HLIT), as well as such startups as Casa Systems Inc. and Gainspeed .
On their earnings call with financial analysts late Thursday, CommScope officials made it clear that they consider such results unacceptable. They said they have been taking steps to turn around the broadband unit's performance, including instituting a series of "cost reduction" programs. They did not disclose whether those programs include employee layoffs.
"We have work to do in broadband," said CommScope President & CEO Eddie Edwards. "We're totally committed to making that happen."
As a result of such steps, CommScope executives said they expect to see the broadband division post better adjusted net income results in 2014. But they don't seem to hold out much hope of a great broadband revival any time soon, just a leveling off of the losses from the smallest and most mature of its three divisions.
Consider the following two examples. First, unlike their counterparts at Harmonic and Arris, who highlighted their progress with CCAP trials and deployments on their latest earnings calls, CommScope executives made no mention of progress on that front despite having debuted two CCAP chassis at the SCTE Cable-Tec Expo show in October, and talking then about MSO field tests and deployments… (See CommScope Seeds New CCAP With MSOs.)
Second, when asked by analysts about the prospects for cable Ethernet PON (EPON) and DOCSIS Provisioning of EPON (DPoE) products -- which the company has promoted heavily in the past -- CommScope executives indicated that they might consider a change in direction later this year. The company introduced optical line terminals (OLTs) and optical network units (ONUs) for both EPON and GPON at the SCTE Cable-Tec Expo show in fall 2012.
"I think that's a work in progress at this point," Edwards said. He added that "the next few months will tell" how far the company should proceed with those products.
— Alan Breznick, Cable/Video Practice Leader, Light Reading