Cable ops backburner DAA, virtualization projects during pandemic, CommScope says

News Analysis Jeff Baumgartner, Senior Editor, Light Reading 5/7/2020

CommScope said cable operators have tapped the brakes on some "advanced engineering projects," including those focused on new distributed access architectures and network virtualization, as they instead prioritize how to quickly add capacity to stay ahead of rising traffic demands driven by the pandemic.

CommScope, a key supplier of cable access gear, said this trend has resulted in a near-term boost in software licenses on its already deployed Converged Cable Access Platform (CCAP) chassis and other network hardware as some operators expedite node splits. CommScope said this trend has continued into April and May. That mirrors a trend unfolding at rival vendor Casa Systems.

CommScope has also assembled several other near-term tools that cable operators can use to goose capacity on the network without having to touch the network in a disruptive manner, including raising the "Tmax" value on cable broadband customers on low-level tiers that might be the first to feel the pain when upstream congestion occurs.

CCAP license upgrades and node splits ratcheted up in the quarter as traffic levels on residential cable networks rose while millions of consumers worked and schooled from home. According to the latest data from the NCTA's COVID-19 Dashboard, peak upstream traffic has grown 34.3% since March 1, along with a 16.2% increase in downstream traffic during that timeframe.

While peak usage has been flattening out, it's unlikely that the "new normal" will return to pre-pandemic levels, causing cable operators to accelerate their exploration of network upgrades to beef up cable's upstream capabilities.

COVID-19-induced pain across the board
But that near-term growth in more traditional cable gear was not nearly enough to offset COVID-19's impact on CommScope's overall business in the first quarter of 2020.

Net sales for the period declined 18%, to $2.03 billion, paired with a net loss of $159.9 million (89 cents per basic share). CommScope estimates that Q1 net sales were about $70 million lower due to COVID-19, including disruptions on its supply chains. CommScope President and CEO Eddie Edwards said the company has been successful in getting supply chains under control – global capacity is back to about 80%, with facilities in Mexico the primary exception.

Among individual business segments, sales were down 20% at CommScope's Broadband Network, down 27% at Home Networks (which includes video and broadband consumer premises equipment), down 10.7% at Outdoor Wireless Network (driven primarily by a drop in macro tower solutions sales), and down 5.9% at the Venue and Campus Networks (driven by declines in indoor copper).

To help manage the situation, CommScope has taken steps to reduce run-rate costs by $100 million, led primarily by headcount reductions and complemented by a hiring freeze, a reduction in marketing and travel spend, a strategic review of R&D spending and a broader review of CommScope's overall business portfolio.

Related to the workforce reductions, CommScope noted that its US video R&D unit was downsized by about 60%. CommScope didn't specify the number of people affected, but Light Reading reported last week that the company laid off between 150 to 200 people as a result of that action.

While broadband gateway sales have been relatively stable (save for softness seen in some international markets), demand for video CPE is declining further as home service installs slow and as pay-TV subscriptions erode further in the absence of any televised live sports.

On the mobile side, 5G is "on track" with expectations, Edwards said, noting that CommScope is seeing an increase in demand for integrated antennas, particularly in Europe in connection with midband utilization. He also expects CommScope to be a "critical supplier" to T-Mobile following T-Mobile's merger with Sprint and its plans to move on a 5G network that will use both 600MHz and 2.5GHz spectrum. All indications are that activity on the T-Mobile front will accelerate in the second half of the year, he said.

Like most other companies, CommScope has pulled financial guidance and forecasts, but expects a modest improvements in sales and adjusted EBIDTA in the second quarter of 2020 compared to Q1.

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— Jeff Baumgartner, Senior Editor, Light Reading