In early Q3 results, fiber vendors tout demand and 'lumpiness'

Corning, Calix and Adtran released their third quarter results this week, and each vendor boasted of solid demand for their fiber products. But the demand doesn't necessarily mean smooth sailing.

"The industry continues to experience a large multiyear wave of growth for passive optical networks, and we continue to increase our capacity to support this growth," said Wendell Weeks, CEO of fiber giant Corning, according to a Seeking Alpha transcript. "However, we expect fourth quarter sales to be down sequentially due to the timing of customer projects."

According to some analysts, Corning's fourth quarter drop may be due in part to AT&T, one of the vendor's leading customers.

Figure 1: (Source: Pixabay)

"Although AT&T continues on its high-fiber diet, we expect an unseasonable sharp quarter-on-quarter decline in capex that we attribute to project timing," wrote the analysts at Raymond James in a recent note to investors about Corning's earnings.

Indeed, the financial analysts at Evercore reported that AT&T's financial guidance for the remainder of 2022 implies a significant slowdown in the operator's capital expenditure (capex). Specifically, they said they expect AT&T to reduce its overall capex to around $4.4 billion in the fourth quarter, down from an average of around $6.5 billion during the first three quarters of 2022.

AT&T, for its part, did not change its long-term fiber buildout goals.

Ongoing demand

When questioned about Corning's fourth quarter forecast for fiber, Weeks said: "Macro demand in optical is incredibly strong. But as you know, what we do is we try to make sure that we're supporting those customers that will be big, long-term players. And the nature of telecommunications is that there is – it's a pretty concentrated industry. So all that tends to happen is when some of our bigger customers end up changing their timing or altering their timing, that's what leads to the lumpiness of our revenue."

He added that for fiber in general, "overwhelming evidence [is] that demand is very strong."

Corning's results largely dovetail with third quarter numbers and forecasts from Adtran and Calix, two other big fiber equipment suppliers.

Calix reported that its revenues rose 37% year-over-year and 17% quarter-over-quarter. Meanwhile, Adtran said it now expects third-quarter revenues of around $340 million, up from its prior expectations of $330 million.

Interestingly, Adtran reported its third quarter results ahead of schedule, and analysts think they know why.

"Competitor Calix reported strong results and guidance, and we believe Adtran wanted to show the Calix upside in the third quarter of 2022 was not the result of Adtran share losses," speculated the financial analysts at Rosenblatt Securities.

They said Adtran also likely wanted to reassure investors about its progress in Europe, the Middle East and Africa.

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— Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano