Report Sees Cable Capex Heading South
In another sign that Comcast's pending takeover of Time Warner Cable is cutting into the cable industry's capital spending, a new report predicts that shipments of DOCSIS-related access equipment will falter in the first quarter and may not recover until the second half of the year.
The latest DOCSIS channel shipments report by Infonetics Research Inc. predicts that access equipment shipments in the critical North American market will drop off 7% in the first quarter of 2015 from the previous quarter, at least partly because of slower spending by both Comcast Corp. (Nasdaq: CMCSA, CMCSK) and Time Warner Cable Inc. (NYSE: TWC) as they prepare for their proposed marriage. Jeff Heynen, principal analyst for broadband access and pay TV at Infonetics, said he expects the merger integration efforts of the two giant US MSOs to exacerbate the usual first-quarter slowdown in cable capex and limit the usual second-quarter increase.
"The first quarter is always slow because of seasonality and fourth-quarter budget flush," Heynen told Light Reading. But, he noted, cable capital spending will see "some of the integration effects [of the Comcast/TWC merger] in Q1 and Q2."
The Infonetics report echoes similar warnings of a cable capex slowdown by Arris Group Inc. (Nasdaq: ARRS). On its latest earnings call last month, Arris Chairman and CEO Bob Stanzione said his company is running into "near-term headwinds" right now due to a number of key factors, including the regulatory uncertainties surrounding the Comcast/TWC deal. (See Arris Running Into Headwinds.)
Like Stanzione, Heynen had originally expected the merger integration activities to put a damper on cable capex in the last quarter of 2014. But instead, shipments of DOCSIS-related access gear -- which includes cable modem termination systems (CMTSs), Converged Cable Access Platform (CCAP) devices, edge QAM modulators and coaxial media converters (CMCs) -- surged 15% in the fourth quarter after jumping 32% in the third quarter.
As a result, 2014 proved to be a banner year for cable access gear, with DOCSIS channel shipments more than doubling from nearly 2.3 million globally in 2013 to a record 4.8 million last year. Similarly, worldwide sales of access equipment climbed 27% for the year to $1.7 billion, after generating $493 million in revenue in the fourth quarter alone.
In particular, access equipment shipments and sales skyrocketed in North America last year. Infonetics reported that equipment shipments more than doubled in North America, jumping 139%, while sales revenues climbed 35%.
As some industry observers had expected, last year also turned out to be "a transitional year" for the cable industry as MSOs shifted the bulk of their orders from traditional CMTS devices to provisional deployments of CCAP boxes, which are denser, energy-saving devices in the headend that can combine the functions of the CMTS and edge QAM and accelerate the move to an all-IP network. Infonetics reported that CCAP equipment revenue surged nearly 1,000% to $1.4 billion globally in 2014, while CMTS shipment revenue plummeted 84% to a mere $155 million.
This transition to CCAP benefited some equipment vendors far more than others. Probably the biggest beneficiary was Arris, which has been riding the CCAP wave with its E6000 chassis. Arris dominated the DOCSIS channel market in 2014, boosting its share of the global revenue to a commanding 48%, largely on the strength of its E6000 deployments.
Casa Systems Inc. , still the upstart in the three-player market, shared in the bounty as well. With its C100 chassis steadily gaining traction in the CCAP market, Casa nearly tripled its revenue in 2014, grabbing a respectable 19% share of the global market.
The big loser last year, according to the report, was Cisco Systems Inc. (Nasdaq: CSCO). Cisco, the long-time leader in the traditional CMTS space, has been slumping badly in the newer CCAP arena because its next-gen, high-density CCAP chassis, known as the cBR-8, has been later to market than the Arris and Casa entries. Due largely to this timing gap, Cisco's market share plunged to 29% as it lost business to both Arris and Casa, putting it well behind Arris in the vendor rankings.
"The biggest surprise for the year was how Cisco underperformed," Heynen said. "It's very clear that customers want the cBR-8."
Cisco has not yet announced when it will launch the cBR-8. But, with the chassis now in field trials with a number of major US and European MSOs, Cisco is still expected to introduce the next-gen platform for commercial deployment in the first half of the year.
Thanks to this anticipated development, Heynen believes that Cisco will enjoy a strong comeback in 2015 while Casa drops back a bit in the share rankings. "I think they'll have a nice rebound this year," he said. "I expect it [the market share race] to be real close between Arris and Cisco this year."
— Alan Breznick, Cable/Video Practice Leader, Light Reading