Cable spending sparks broadband network sales at CommScope
The fortunes of CommScope's cable-facing business keep going in opposite directions. While the broadband networks piece of the business has been stable and healthy during the pandemic, CommScope's video set-top box business continues to struggle even as demand for broadband gateways and modems remains solid.
Thanks in large part to cable operator spending on capacity boosts during the pandemic, CommScope's Q2 broadband network sales of $671.9 were relatively flat from a year ago, but up nearly 10% versus the prior quarter.
Citing recent spikes in upstream traffic, Eddie Edwards, CommScope's president and CEO, said momentum in the broadband segment was led by strong cable operator demand. Speaking on today's call, Edwards said CommScope's backlog on outside plant needs are also up significantly and that, looking ahead to 2021, CommScope is preparing to beef up production in anticipation of growth it will see from the US Rural Digital Opportunity Fund (RDOF) initiative. Charter Communications is among the major US cable operators that intend to participate in the RDOF bonanza.
For Q3, CommScope anticipates growth in the broadband networks unit to be in the upper-teens versus Q2.
Meanwhile, CommScope's Home Networks business saw sales decline 31.6%, to $624 million, on a year-over-year basis, but actually ticked up 4% versus Q1 2020. CommScope attributed the sequential growth to demand for broadband gateways and modems through carrier and retail channels alongside some expedited shipments of video devices as operators tried to get ahead of service activation requirements during the pandemic.
For Q3, CommScope warned that sales for its full Home Networks unit will decline somewhere in the mid-teens, but then rebound in Q4.
Total Q2 sales of $2.10 billion beat analyst expectations of about $2.06 billion.
T-Mobile is 'ramping'
Although net sales of CommScope's outdoor wireless business was down 28.3% in Q2, the company does see its business with T-Mobile picking up steam following the Sprint merger. T-Mobile spending resumed in Q2 and overall spending by T-Mobile is now on track for the rest of 2020, the company said.
"T-Mobile is ramping," said Alex Pease, CommScope's EVP and CFO, adding that CommScope is also seeing more strength coming from Europe and anticipates that US carriers will be active in December's C-band auction.
In additon, CommScope is seeing some delayed activity in metro cell deployments stemming from the pandemic, but views it as a "transitory effect" that will be righted as operators move to densify their networks for 5G.
Meanwhile, CommScope likes its growth prospects for open RAN, an initiative targeted by the company's OneCell product line.
"We're excited about that," Edwards said. "We're a vocal promoter, unlike some of our OEM friends. We think the move to open RAN … is good for the industry and we welcome it."
The pandemic also carved into CommScope's Q2 results. The company estimated that net sales were negatively impacted by about $50 million due to supply constraints related to COVID-19, contributing to a Q2 net loss of $321 million ($1.71 per basic share).
Pease said CommScope has been managing costs to minimize the impacts of COVID-19 on CommScope's business through a blend of "headcount optimization," reduced discretionary spending and a comprehensive review of the company's R&D portfolio.
As a result, CommScope's estimated full-year adjusted operating expenses have dropped from about $2 billion back in February 2020 to about $1.8 billion today.
"Tightly managing expenses in a cyclable industry is in our DNA," Pease said.
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— Jeff Baumgartner, Senior Editor, Light Reading