CommScope's Home Networks unit is currently a key supplier of hybrid QAM/IP and IP-only devices that use Comcast's core software platform. Yet CEO Chuck Treadway doesn't expect to see much to gain from the recently announced national streaming joint venture between Comcast and Charter Communications.
Treadway doesn't expect that deal to affect Home Networks' position at Comcast. And Charter? "They're not that big of a client for us at this point, so I don't see that as a big effect related to the Home [Networks] business," he said Thursday on CommScope's Q1 2022 earnings call.
While it's true that connected TVs are a central piece to the Comcast-Charter deal (Hisense is the first TV-maker on board, and more are expected to follow), streaming players are also tied into the 50/50 joint venture. In fact, Charter expects to start offering 4K-capable streaming devices and voice remotes stemming from the new venture sometime in 2023.
To be fair to Treadway, it's still as clear as mud regarding how, or if, the device supplier situation will change once the new JV gains approval and truly gets rolling.
But, with the software element increasingly being extracted from the total product equation for set-tops and broadband gateways, there's a movement underway for operators like Comcast to work more directly with original device manufacturers (ODMs) that possess their own manufacturing capabilities. That could result in less reliance on original equipment manufacturers (OEMs), such as CommScope, that typically provide a management layer function between the service provider customer and the companies that actually manufacture the final products.
The Home Networks pariah
The haziness in this aspect of CommScope's business is also growing thicker as the Home Networks unit itself continues to languish in pariah status at CommScope. A planned spin-off of Home Networks is on hold due to silicon shortages and general uncertainties enflamed by broader supply chain constraints. Meanwhile, some industry observers privately believe CommScope would prefer to find a buyer for Home Networks rather than go through the spin-out.
Meanwhile, Home Networks, the unit that makes set-tops, modems and other types of customer premises equipment (CPE), remains outside of "core" CommScope, which is focused on broadband and wireless network gear.
Treadway's shoulder-shrug answer on the Comcast-Charter question also comes as Home Networks basically treads water. The unit pulled down Q1 2022 revenues of $496 million, versus $501 million in the year-ago period. Adjusted EBIDTA rose 20%, to $23 million.
And there's more trouble ahead. Treadway said Home Networks will be more heavily impacted from chip supply "decommits" in the second quarter of the year, but added that the company is trying to boost chip availability and introduce substitutes where possible.
Pressed on pricing pressures
Home Networks aside, a good portion of CommScope's call focused on how the company is raising prices to keep margins in check as it works through a sizable backlog driven up by the aforementioned supply chain issues and resulting inflation.
"Our margins remained under pressure in the first quarter as we continue to work price increases through our backlog," Treadway said. He expects to see margin improvements in the second half of 2022 at core CommScope as pricing initiatives take hold.
But he said CommScope is sticking with a 2022 adjusted EBIDTA forecast of $1.15 billion to $1.25 billion. Fellow broadband and wireless supplier Casa Systems pulled back its full-year 2022 guidance on Wednesday.
"Our goal is to offset inflation with price," Treadway said. "Our tools and processes are improving and help to give us more visibility as we go through it."
Consolidated CommScope (with Home Networks included) generated Q1 2022 sales of $2.22 billion, up 8% versus the year-ago quarter. Revenues at core CommScope rose 10% to $1.73 billion.
Update: CommScope's Q1 sales beat Wall Street expectations of $2.08 billion. Investors cheered the result, sending CommScope shares up 13% in early-afternoon trading Thursday.
Access Network Solutions (ANS), the unit that includes cable access products such as cable modem termination systems (CMTSs) and nodes, saw revenues fall 16%, to $317 million. CommScope said margins are shifting to more hardware-centric products as operators move ahead with distributed access architecture (DAA) deployments that require new nodes and amplifiers.
ANS did see some movement on the DOCSIS 4.0 front, as the company said it was close to finalizing an agreement with a "leading service provider" on a joint development partnership for D4.0. The service provider wasn't named, but it has come to light that CommScope is closely involved in Comcast's Full Duplex DOCSIS (FDX) amplifier project.
CommScope's Network, Intelligent Cellular and Security Solutions (NICS) unit, which includes distributed access systems, small cells and the Ruckus business, generated Q1 revenues of $188 million, down 2% year-on-year.
A bright spot in this unit is OneCell, a platform outfitted with four radio modules for both public and private networks. Two major US carriers have qualified OneCell, and the third is in process. OneCell will also support CBRS spectrum. OneCell is driving revenues now and expected to pick up the pace in 2023, Treadway said.
The Connectivity and Cable Solutions (CCS) unit, which includes the company's new XGS-PON lineup, saw revenues climb 24%, to $838 million. CommScope's XGS-PON platform for telcos and cable operators is poised to drive "meaningful revenues" in 2023, Treadway said.
Outdoor Wireless Networks (OWN) pulled in Q1 revenues of $390 million, up 20%.
- CommScope alters course on DOCSIS 4.0
- CommScope lights up XGS-PON portfolio
- CommScope delays Home Networks spin-off as supply chain constraints linger
- CommScope ditches SAS business in 3.5GHz CBRS band
- A critical piece of Comcast's DOCSIS 4.0 puzzle begins to fall into place
— Jeff Baumgartner, Senior Editor, Light Reading