CommScope won't 'sell assets on the cheap'

CommScope is continuing to evaluate alternatives, including asset sales, to help reduce the company's $9 billion debt load. But execs said divesture discussions have yet to bear fruit, and stressed that CommScope won't resort to a fire sale.

"We do not intend to sell assets on the cheap," CommScope EVP and CFO Kyle Lorentzen said Thursday on the company's Q4 2023 earnings call.

Divestiture discussions continue, but "we have not thus far been successful in achieving valuations that make sense to us," Lorentzen added.

Industry sources confirmed a Bloomberg report last fall that CommScope was exploring a sale of certain assets, including Ruckus Wireless and its access networks solution (ANS) unit. Last fall, a person familiar with the situation said individual investors/entrepreneurs with cable tech background were interested in pursuing CommScope's ANS assets and launching a new company of cable industry vets to run it.

At the time, CommScope said it was looking to "optimize" its portfolio as part of an initiative launched in 2021 aimed at evaluating the company's assets, but did not elaborate on which pieces of the business are under consideration. CommScope recently sold off Home Networks, a unit that makes set-tops and cable modems and gateways, to Vantiva after deciding not to push ahead with an original plan to spin off Home Networks into a separate, publicly traded company.

CommScope's ANS unit makes and sells various access network products, including amplifiers, nodes, remote optical line terminals (OLTs), cable modem termination systems (CMTSs), as well as a new virtual CMTS that is now in trials with multiple "major" operators. CommScope has developed a Full Duplex (FDX) amplifier that will play a starring role in Comcast's DOCSIS 4.0 network upgrades.

CommScope expects the company's FDX product line to see "significant shipments in the second half of this year," Treadway said.

Ruckus is a Wi-Fi and wireless network specialist that's part of CommScope's Networking, Intelligent Cellular and Security Solutions (NICS) division.

Tough Q4 and first half of 2024, hopes for a recovery in second half

CommScope's Q4 2023 results and 2024 outlook followed a similar theme among tech suppliers. Sales are expected to remain soft through the first half of 2024 as customers pare down inventories alongside optimism that the picture will improve in the second half of 2024.

"The business continues to be under significant pressure as demand remains low," CommScope President and CEO Chuck Treadway said on today's call. "We continue to have minimal visibility to when a recover will occur."

CommScope, he added, expects "a very difficult first half and, specifically, first quarter."

Q4 sales at "core" CommScope (not including Home Networks) dropped 38% to $1.18 billion.

Sales at ANS – the part of the company focused on the cable access market – dropped 38% to $231 million. CommScope blamed the drop on inventory corrections and the delay of some network upgrade projects. The company didn't identify which operators have pulled back the reins, but Charter Communications announced earlier this month that it has pushed the completion of its hybrid fiber/coax (HFC) upgrade plan to 2026.

But the company believes it's well-positioned to profit when orders start to pick up.

"We are bullish on DOCSIS 4.0 upgrades and will likely see increased momentum in the latter part of the year," Treadway said.

CommScope is also optimistic about a new DOCSIS 3.1 "enhanced" offering that will enable downstream speeds up to 8 Gbit/s. That initiative, called DOCSIS 3.1+ or "extended" DOCSIS 3.1 in some circles, will take advantage of new DOCSIS 3.1 and D4.0 modems that support additional OFDM (orthogonal frequency-division multiplexing) channels and software upgrades of current-gen CMTSs such as CommScope's widely deployed E6000.

Among other segments, the Connectivity and Cable Solutions (CCS) unit saw revenues decline 42% to $957 million, driven by overall sluggish demand and high customer inventory levels along with an increase in demand for cloud and hyperscale products.

NICS revenues dropped 25% to $289 million, though CommScope has high hopes for Ruckus' enterprise-class Wi-Fi 7 access point.

Outdoor Wireless Networks (OWN) revenues dipped 40% to $305 million amid spending cuts by North American service operators and the consumption of excess inventory.

Revenues at Home Networks dropped 25% to $294 million. CommScope closed the sale of that unit to Vantiva last month, but has retained a 25% stake in Vantiva.

CommScope shares were down 7 cents (-3.91%) to $1.72 each in Thursday morning trading.