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CommScope to reassess R&D spending in areas such as set-top boxes

However, CPE biz remains an important cash generator and a strategic piece of the portfolio that pulls through other products with different margin profiles, CFO says.

Jeff Baumgartner

March 4, 2020

3 Min Read
CommScope to reassess R&D spending in areas such as set-top boxes

CommScope's consumer premises equipment (CPE) business has struggled amid a growing cord-cutting trend that has reduced the need for newly minted set-top boxes, but the business remains a cash generator and a strategic piece of the company's broader portfolio.

"We're committed to the [CPE] business as long as we can make money in the business," Alex Pease, CommScope's CFO, said on Tuesday at the Morgan Stanley Technology, Media & Telecom Conference in San Francisco, when asked if CPE will always need to be part of the newly combined CommScope.

While Pease's response hardly qualifies as a ringing endorsement of the company's CPE biz, it does address a question that has chased CommScope ever since it first struck a deal in November 2018 to acquire Arris. That has led to speculation that the company might try to sell off or attempt to distance itself from that part of the business. In the fourth quarter of 2019, CommScope's CPE net sales declined 25% to $824 million amid weak spending by Tier 1 carriers and ongoing pay-TV subscriber losses.

"That is a business we're trying to manage quite closely, because there's no question that the decline has been more dramatic than what we anticipated," Pease said.

He didn't outline any big, specific moves underway, but acknowledged that CommScope will need to conduct a review of its R&D spending and think about redeploying some of those dollars into areas that can generate higher returns.

"That work is going on," Pease said.

But he did note that the CPE business generates solid cash flow that CommScope is using to pay down debt.

And the CPE business, whether it involves video set-tops or broadband gateways, remains an important piece of the company's broader portfolio.

"This is a strategic product portfolio for our customers," Pease said. "It brings with it significant pull-through of other products that have a different margin profile and are really important for the underlying growth thesis and margins and cash generation ... of the business. So we have to be careful in terms of how we invest and the strategic choices we make because we don't want to impact the rest of the portfolio."

Pease also provided some updates on what's going on in the cable access network, noting that CommScope has hit the market with a "fully virtualized" form of its E6000 Converged Cable Access Platform (CCAP) chassis.

"We're now testing that with operators," he said. "To the extent that operators are moving toward virtualizing their network, we're very well positioned to capture that."

CommScope is feeling some pressure in this segment of the market by Harmonic and its virtual CCAP partnership with Comcast. Cisco Systems, which is stepping back from portions of the cable network hardware sector, also remains in the game with a focus on software for virtualized CCAPs.

CommScope is also taking aim at the opportunities with cable and other markets with respect to tech and products that support the 3.5GHz CBRS band.

Pease said CommScope's in position to deploy CBRS networks as new CBRS-capable devices enter the fold and catalyze the market. Some early CBRS dollars are trickling in as CommScope continues conversations with service providers and enterprise customers on how to use the CBRS band for private networks and infrastructure-as-a-service investments, he said.

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— Jeff Baumgartner, Senior Editor, Light Reading

About the Author(s)

Jeff Baumgartner

Senior Editor, Light Reading

Jeff Baumgartner is a Senior Editor for Light Reading and is responsible for the day-to-day news coverage and analysis of the cable and video sectors. Follow him on X and LinkedIn.

Baumgartner also served as Site Editor for Light Reading Cable from 2007-2013. In between his two stints at Light Reading, he led tech coverage for Multichannel News and was a regular contributor to Broadcasting + Cable. Baumgartner was named to the 2018 class of the Cable TV Pioneers.

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