CommScope's access biz faces profit pressure as network spending pivots to the edgeCommScope's access biz faces profit pressure as network spending pivots to the edge

Revenues at CommScope's Access Network Solutions (ANS) unit saw sales rise in the fourth quarter of 2022, but margins at the unit are being squeezed as operator spending continues to pivot toward the edge of the network.

That spending shift ties into cable's migration toward a distributed access architecture (DAA) and the increased deployments of new hardware elements such as fiber nodes, amplifiers and taps. And that shift to DAA, a prerequisite for future DOCSIS 4.0 networks, will decrease operator reliance on centralized and higher-margin converged cable access platform (CCAP) chassis.

Figure 1: (Source: RidingMetaphor/Alamy Stock Photo)

ANS continues to face "profitability headwinds" as the mix of product revenue shifts to the edge of networks, Chuck Treadway, CommScope's president and CEO, said on today's earnings call.

Still, CommScope is seeing sales benefits from that shift as cable operators prepare their hybrid fiber/coax (HFC) networks for DAA and DOCSIS 4.0. The company announced last week that it built and shipped more than 1 million amplifiers to top cable operators in 2022.

CommScope's ANS unit posted Q4 net sales of $375.1 million, up 15%. But adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) of $95 million, dipped 2% due to the aforementioned increased spending on the network edge. CommScope expects 2023 margins to be in line with 2022's margins.

Treadway wouldn't specifically comment on how CommScope is positioned at Charter Communications as that tier 1 operator moves ahead with a multi-phased plan to upgrade its HFC networks. CommScope, he said, is in "constant dialogue with our customers about new opportunities and new products … As leader in the space we're involved in most if not all bids."

Fiber demand stays strong

Thanks to growing fiber demand, CommScope's Connectivity and Cable Solutions (CCS) unit was a bright spot, as net sales climbed 18.8% to $957.1 million.

Treadway reiterated that the company has boosted investment in fiber capacity to take advantage of operator footprint expansions and projects that drive fiber deeper into the network.

"We are well-positioned to serve demand for billions of dollars in expected government subsidies to help close the digital divide," he said.

Struggles continue at Home

CommScope's Home unit, which makes video and broadband customer premises equipment (CPE), continued to struggle amid an ongoing decline in demand. Sales there dropped 17.7% to $392.4 million year-over-year. Adjusted EBITDA of -$5 million declined by $12 million from the prior year period.

CommScope said the Home unit will have a hard time turning a profit in Q1 2023, but expects the unit to turn a profit for full-year 2023 as the company implements a range of performance enhancements.

CommScope tried to spin-off Home as a separate, publicly traded business, but has put that idea on ice amid supply chain constraints that have slowed access to key chips and other components. CommScope, which has also explored the notion of selling Home outright, remains interested in getting the unit off the books.

"We maintain the belief in the strategic rationale to separate Home from core CommScope," CommScope EVP and CFO Kyle Lorentzen said. But in the meantime, the company will continue to implement "transformation initiatives" designed to improve Home's current performance. That initiative "will take multiple quarters," he added.

Among other CommScope units, sales at Networking, Intelligent Cellular and Security Solutions (NICS) rose 20.3%, to $288.5 million, driven by growth at the Ruckus Networks division. Sales at Outdoor Wireless Networks (OWN) dipped 18.8% to $304.8 million due to declines in base station antennas and HELIAX products for macro and small cells.

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— Jeff Baumgartner, Senior Editor, Light Reading