August 3, 2022
Charlie Vogt, president and CEO of DZS, said the networking vendor is considering raising the prices on its equipment due to an increase in the cost of chipset components. But he countered that concern with promises that the trend toward open RAN equipment in the mobile industry, among other opportunities, could open up new revenues for DZS.
Vogt made his comments during the company's second quarter earnings conference call. DZS reported earnings slightly below some analysts' expectations, and it also issued earnings guidance for the coming quarters that are slightly below its prior expectations. The company blamed ongoing supply chain troubles and unfavorable foreign currency exchange rates, among other issues, for the situation.
Figure 1: DZS CEO Charlie Vogt.
However, some analysts remain positive on DZS' long-term outlook, pointing to its recent acquisition of Assia and the likelihood it might cash in on some of the US government's pending investments into broadband networks. "We believe DZS' long term thesis, including the transformation to becoming a cloud/software-centric solutions provider, remains intact," argued the analysts at B. Riley Securities in a note to investors following the release of DZS' second quarter results.
During DZS' earnings call, an analyst said that most networking chip companies have begun warning their customers of price increases that are going to go into effect this fall. DZS' Vogt appeared to acknowledge receiving that warning. "We, like everyone else, have been sort of communicated that there is an anticipated price increase coming," he said, according to a Seeking Alpha transcript.
However, he stopped short of confirming that DZS might increase the prices on its own products and services as a result.
"I mean, we're certainly taking the price increases under consideration," he said. "I think we've done a really good job of partnering with our end user customers on the necessary price increases, but it becomes a very delicate process and it's something that I'm not prepared to talk about in granular detail. But I will acknowledge that we did receive communication that there is potential price increases that are at least desired to be increased in January of '23."
DZS wouldn't be the first telecom networking vendor to raise the prices of its offerings. Some of the world's biggest equipment suppliers have been hinting for months that they will raise prices due to factors including supply chain constraints and inflation. And, more recently, companies ranging from Nokia to Juniper Networks to Corning have been boasting of the success of those price hikes.
Earnings and open RAN
DZS reported $91 million in revenue in the second quarter, up from the year-ago quarter but down by $5 million due to weakening foreign currencies. The company also warned that its adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) ought to clock in between $7 million and $17 million during 2022, down from its prior guidance of $17 million and $31 million.
"We remain disciplined in our execution and confident in our ability to gain market share in North America and Europe, while delivering our margin expansion plans, especially as foreign exchange and today's supply chain dynamics stabilize in 2023," Vogt said.
But Vogt did reiterate a number of opportunities that DZS is chasing, including open RAN. Indeed, open RAN champion Rakuten in Japan is using DZS' front haul gateway, and Vogt has hinted that other, similar deals are in the offing.
"We're still very optimistic and are very aggressive on what we're doing on the mobile side, it's just for us we need open RAN to continue to take hold and we are seeing open RAN gain a lot of momentum around the world," Vogt said during the company's earnings call.
"I think everyone has to just appreciate the timeline around open RAN and as that mobile network becomes much more open, it allows for us to participate differently than historically where you've got closed mobile networks, but we are seeing a lot of activity," he added. "There is a lot of trials going on right now, it's just – it's just going to take some time to unlock a lot of that."
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