Casa's Q4 Sales Come in Light Amid MSO Spending Delays

The cable industry's slow migration to distributed access architectures is inflicting financial pain on at least one of its key access network infrastructure suppliers.

Casa Systems Inc. , a top supplier of Converged Cable Access Platform (CCAP) gear to the cable industry, issued preliminary Q4 results Thursday that came in well below earlier estimates, due primarily to delays in cable operator spending as MSOs begin to transition from integrated CCAPs to a Distributed Access Architecture (DAA).

Also contributing to the Q4 shortfall were delays in certifications for wireless products that affected the timing of Casa's wireless revenue recognition.

Casa said Q4 sales are now expected to be in the range of $63 million to $69 million, down from earlier expectations of $101 million to $121 million. For full-year 2018, Casa is now expecting revenues of $292 million to $298 million, compared to a prior outlook of $330 million to $350 million.

Those latest figures reflect higher than expected software-based capacity sales during the period and lower than expected hardware volumes, Casa said.

Jerry Guo, Casa's president and CEO, noted in a statement that Casa did close and ship a "major deal" in the DAA arena that represented material revenues for the period, but didn't identify the operator or how much that deal would bring in the door.

Shares in Casa were down $2.48 (17.20%) to $11.91 each in Friday morning trading.

This week's announcement follows a theme. Last August, Casa shares took a similar hit after the company slashed 2018 guidance, caused by delays in large-scale capacity purchases on centralized CCAP products while cable operators mull their DAA technology strategies. Of note, Casa's former CFO, Gary Hall, left the company last August, and Hall's successor, Maurizio Nicolelli, came on board earlier this month. (See Casa Systems Shares Slide on Slashed Guidance and Casa Systems Hires New CFO .)

The tone of analysts covering the company indicate that they are starting to get frustrated with the roller-coaster nature and uncertainty of Casa's business.

"[W]hile lumpiness remains a part of Casa's business, the frequency and uncertainty may become an incremental concern," Simon Leopold, analyst with Raymond James Financial Inc. (NYSE: RJF), said in a research note issued Thursday. "Management's credibility with investors has suffered, and this latest miss delays the rebuilding process."

Leopold noted that it appears CCAP spending is slowing as MSOs ponder the shift to new architectures. "We view this as a pause with uncertain duration. The frequency and degree of the swings may become an incremental point of concern for investors," added the analyst, who maintained his "Outperform" rating on the stock, but cut the target price from $19, to $17.

Though cable operators around the globe are not all pursuing DAA at the same speed and pace, most acknowledge the benefits that it will bring, including higher capacity along with a reduction of headend space, power and cooling requirements, and as a step toward network virtualization. (See Cable DAA Debuts Worldwide, Cable Seeks the Right Business Case for Virtualization and Comcast Eyes 'Scale Deployments' of Remote PHY in 2018.)

Casa, along with Arris Group Inc. (Nasdaq: ARRS), Cisco Systems Inc. (Nasdaq: CSCO), Vecima Networks Inc. (Toronto: VCM), Nokia Corp. (NYSE: NOK), Teleste Corp. , Harmonic Inc. (Nasdaq: HLIT) and Huawei Technologies Co. Ltd , are all among the group of vendors that are in the chase.

— Jeff Baumgartner, Senior Editor, Light Reading

Jeff Baumgartner 1/18/2019 | 11:51:49 AM
Impact on Arris? Simon Leopold put out a follow-up on this today, mentioning that the issues Casa's facing would imply potential risk for on of Casa's key competitors, Arris, which is in the process of being acquired by CommScope. 

Leopold said  he sees "little risk to Arris" based on the Casa situation, noting that the customer exposure between them are not perfectly aligned. For example, Comcast is Arris's biggest customer (and one that is being relatively aggressive with DAA) while Casa has no exposure to Comcast. Arris also has a more diversified customer base and overall business. 

"Scale difference is likely a key factor, as ARRS' cable networking business is significantly larger than Casa's, so the lumpy spending in a particular quarter is likely to affect Casa disproportionately," the analyst added. JB

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