Supply chain disruptions cut into CommScope sales
Supply chain constraints are hitting CommScope hard, and the company now expects shortages on silicon and other components to impact full-year net sales by about $600 million.
The disruption is expected to have the deepest impact on CommScope's Home Networks division, the customer premises equipment (CPE) unit that is on track to be spun off as a separate company in the second quarter of 2022. CommScope expects a $340 million net sales impact at Home Networks for full 2021. That compares to an anticipated full-year sales impact of $260 million for "core" CommScope, which includes Broadband Networks, Venue and Campus Networks and Outdoor Wireless Networks.
Price hikes coming
CommScope is also grappling with inflationary headwinds amid rising prices on commodities such as copper, steel and resin, as well as freight costs. CommScope says it's being forced to raise prices across its business and to take other operational actions to help make up the difference.
"Although these inflationary increases may end up being transitory, the negative impact they are having on our business requires that we take significant mitigating actions now," Kyle Lorentzen, CommScope's EVP and CFO, said on today's Q3 2021 earnings call. "Our goal will be to fully offset our input and freight costs increases. However, given the size of our backlog as well as the terms of our sales contracts, we are not targeting a full recovery of these impacts until the end of 2022."
CommScope started to raise prices in its enterprise-focused business a few months ago, and is now looking to pass through some of those inflationary costs to the service provider side of its business.
"They understand what we're dealing with," Chuck Treadway, CommScope's chairman and CEO, said, noting that many of the company's contracts have provisions that account for inflationary effects. But he also acknowledged that the current situation is "unprecedented."
"Hopefully, it does abate, but we can't wait," Treadway said. "Now we have to go back and have those conversations … We have to just depend on our relationships, because we've had them for years." CommScope is also engaged with its chip suppliers, including Broadcom, Qualcomm and MaxLinear, about ramping up allocations to help to get a grip on the supply chain said. But, overall, Treadway expects the situation to be "choppy throughout 2022."
CommScope's consolidated net sales dropped 2.9%, to $2.10 billion. Core CommScope, the part of the business that does not include Home Networks, saw revenues climb 6%, to $1.59 billion.
CommScope's Broadband Networks unit saw revenues drop 3.9%, to $779.7 million, largely due to supply chain constraints. The backlog for that unit has jumped 35% since the start of the year. "In our cable and connectivity business, we're essentially selling everything we can produce," Treadway said. Revenues at CommScope's outdoor wireless unit rose 30.8%, to $355.6 billion, while revenues at Venue and Campus climbed 8.4%, to $554.9 million.
Revenues at Home Networks declined 27.6%, to $415.1 million. Supply constraints have caused the backlog at that unit to remain above $1.1 billion.
Looking ahead, CommScope expects revenues at its core business to grow in the mid-single digit percentage in Q4 2021, but likewise expects them to come in $50 million to $60 million lighter versus Q3 2021.
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— Jeff Baumgartner, Senior Editor, Light Reading
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